Competition and Regulation in the Telecommunications Industry in ...

Competition and Regulation in Telecommunicationsthe table for discussion at the moment and that the models considered arejust the number of full facilities based competitors, supports this reasoning.If there is to be vertical integration, then naturally there needs to be at leastseparate accounting to facilitate regulation of local access and competitionanalysis. However, given Telkom’s history of conduct since the partialprivatisation 7 , there may be good reason to ensure that there is closecompetitive oversight of the interconnection process and agreements.5.1.2 Vertical separation of services from networksEven if there is no separation of networks, there is the possibility of separatingthe service component from the network component. The reasoning for thisroute is the same as for separating networks – to remove the possibility ofanti-competitive practice by the owner of the essential facility. The argumentsagainst are also the same – economies of scope and the cost of industryrestructuring. The range of services that could be separated include localbasic voice, long distance basic voice, VANS and broadcasting.In the case of basic voice, local or long distance, there appears to be a strongeconomies of scope case against vertical separation. In the USA, where thepath to deregulation was vertical separation of markets, the RBOCs andAT&T were still permitted to offer basic voice. There are equally compellingreasons for not separating VANS and broadcasting from network provision.However, there is precedent for doing so from the UK where the incumbentwas prevented from entering broadcasting services on the basis of assistingentry of cable television companies into local access telephony. The USApursued the same route and also prevented the RBOCs from entering theVANS sector initially.In the South Africa case, momentum may again decide the direction of policy.The existing regulatory regime does not restrict Telkom from enteringdownstream markets. However, it has not been that successful in doing so todate, suggesting that vertical separation may not be that necessary. However,Telkom has had little incentive to make a success of downstream services, asall service providers must lease their lines from it anyway. However, oncethere is facilities competition, there may be greater incentive for Telkom to notonly enter these markets but also behave anti-competitively.Despite the momentum in regulation, it may be feasible to separateVANS/broadcasting services at this point precisely because Telkom has notmade large inroads into the market.5.1.3 Horizontal separation of mobile servicesHorizontal separation of mobile services would require that no firm hasoperates or has holdings in both fixed local access and mobile. The case forseparation is twofold: a) as fixed local access is an essential facility, theprovider can discriminate against its mobile rivals, and b) that mobile is one ofthe few close competitors to fixed local access and so it may be desirable to7 In particular their dealings with VANS operators, denying them additional capacity after alleging theywere providing clients with telephony and not just data services.52