I had an lunch this week with Benoît Felten which, as always, was interesting and thought provoking. Part of the discussion naturally strayed onto Ofcom’s question about structural separation in their recent Strategic Review.
What I took away from the chat was that whatever Ofcom concludes, just asking the question should result in a fundamental change in the way the UK’s telecoms market is regulated.
While much flows from the answer, the question in its purest form has a simple binary answer – either structural separation is a good thing or its a bad thing; there aren’t many nuanced middle options since BT is already functionally separated.
If its a good thing then, in Benoît’s mind, its highly likely to result in a single monopolistic infrastructure provider which is better able to focus on long-term investments at scale, and therefore would be more attractive to patient investors; something I find impossible to argue against.
Since this one infrastructure will the the sole basis of the rest of the market, then it needs to provide the tools that permit diversity and innovation in the rest of the market, and not focus the market on a narrow definition of service where the only differentiators are price and brand, and where the company able to pile the highest and sell the cheapest wins out.
Achieving this will, therefore, require a significant shift in regulation where access to ducts, dark fibre and every other asset the rest of the market might reasonably require is made available on commercially sensible and fair terms.
(As an aside, I heard a comment this week that in some policy circles its considered that there is no demand for dark fibre in the UK. I’d happily point them at the small but growing queue forming for the time it does become available)
It may also mean that there is a more limited scope for alternative market players, who’s ultimate fate is likely to be either absorbed by the new infrastructure incumbent or to whither; that’s a brave call for policy makers at a time when a number of operators are building momentum and are investing heavily.
In contrast, if structural separation is considered a bad thing then it presumes that infrastructure can also be a functioning market, and markets support diversity and plurality. If this is the conclusion then Ofcom and Government policy should be focussed on developing that market, increasing physical competition, and not on further bolstering a dominant providers position.
Set in this context, Ed Vaizey’s comment that he is sceptical that structural separation is sensible perhaps provides some hint that policy may continue to support a diversity of providers.