Benoit on Structural Separation

I recently posted an article about whether structural separation is a good thing or not in the UK, and the likely impact it will have on regulatory reform. The post was prompted by a lunch with Benoit Felton on his way to present his ideas at the Reform Club in London.

His 16-minute presentation is well worth listening too in full.

The first 14 minutes are so lay out the facts as Benoit sees them, which I think few would successfully argue against; he then spends the last minute or so concluding that either BT should be broken up, or Ofcom would need to follow the paths of Portugal and Lithuania in mandating a viable passive infrastructure market to enable infrastructure competition.

His conclusion is that structural separation is arguably the better path for the UK, and it is here that I perhaps differ from Benoit.

The UK is an inherently entrepreneurial, market led economy that doesn’t take to monopolies lightly. While it took longer than perhaps it should, for many of the reasons Benoit cites, the UK does now have a number of credible alternative infrastructure operators, some of which are developing a promising momentum.

To my mind it would be counter intuitive at this point to determine that these growing companies, as they begin to gain traction and invest heavily, should be marginalised because the regulator has so far been unable or unwilling to create a credible passive infrastructure market.

When a number of major operators recently asked Ofcom to refer BT to the Competition & Markets Authority they appeared to be seeking regulatory reform possible more than structural separation. Their issue wasn’t so much that we have a broken market, rather that we don’t have a clear understanding of what market we do need and therefore the current regulation is somewhat aimless and, as a result, incomplete and ineffective.

Ironically because developing an infrastructure market is more challenging, I suspect it may actually be more achievable in the UK. The risk with structural separation is that, after the mechanics of separation are settled, the market regulation doesn’t need to change very much, so the easiest path is to continue as we are.

However fundamentally reshaping the market to encompass a wider range of diverse operators, encouraging investment, reforming significant market power and service obligation rules, and so forth is likely to result in a fresh look at regulation as a whole and take little for granted.

I think we agree that whatever comes out of the current review will require things to change but personally I hope the outcome encourages more diverse investment and an infrastructure market rather than consolidation into a single national network operator.

Watch this space!

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