Information Technology Reference
In-Depth Information
Table 1. Various structural separation
Classification
Examples
Ownership separation (in whole or part)
Divestiture of AT&T (1984)
Legal separation (separate legal entities under the same ownership)
Reorganisation of NTT (1999)
With separate governance arrangements
BT's Openreach (2006)
Business separation
With localised incentives
Simple
NTT before reorganisation in 1999
Virtual separation
Creation of a wholesale division
Accounting separation
NTT local companies
Source: Examples added to Cave (2006)
definition hereafter in this chapter. The main mea-
sure adopted at the early stage of the introduction
of competition was conduct regulation. Only the
U.S.A. among major countries adopted structural
separation with ownership unbundling.
However, discussions on structural separation
have gained momentum in recent years based on
the assertion that conduct regulation was not suf-
ficient in preventing strategic anti-competitive
behaviour of incumbents.
The classic model for structural separation was
the divestiture of AT&T in the U.S.A. in 1984
3
.
AT&T was divided into the new AT&T and 23
RBOCs. The line of business control was intro-
duced on the new AT&T and RBOCs. The new
AT&T was limited in its business areas to long-
distance (inter LATA) businesses and the 23 newly
born RBOCs offered local (intra LATA) services.
Here I would stress the fact that telecommunica-
tions services at the time were basically POTS.
It was comparatively easy to separate local and
long-distance networks, as the POTS technology
was mature and stable. As AT&T had several op-
erating companies and a long-line division under
a holding company, the implementation costs of
structural separation were not significant. In the
case of the divestiture of AT&T, it is not unreason-
able to think that the implementation cost was not
crippling due to these conditions.
BT's 'Openreach' in the U.K. that is often
cited in the discussions on structural separation
is classified as business separation, because BT
set up Openreach as an autonomous business unit
that is in charge of access facilities defined as
bottleneck within the BT Corporation
4
. Functional
separation was adopted in the U.K. Although
conduct regulation has been implemented since
the privatisation of BT in 1984, the progress of
competition in the fixed communications market
was slow to develop. Ofcom performed a series
of 'Strategic Reviews of Telecommunications'
in view of this situation and urged BT to secure
'equality of access' between competitors and its
own retail divisions by suggesting ownership un-
bundling (Ofcom (2004a), (2004b)). As a result,
BT voluntarily proposed the functional separation
of its access division in February 2005 and set up
Openreach in January 2006 (BT (2006)). Ofcom
expected that the competitive problems resulting
from BT's vertical integration of its access divi-
sion with its retail division that offers services
based on access services would be eliminated by
functional separation (Ofcom (2005)).
Competition was introduced in 1985 with
the privatisation of NTT Public Corporation in
Japan
5
. However, conduct regulation including
interconnection conditions was not well pro-
vided for. Although the divestiture of NTT was
proposed in the study of the actual structure of
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