broadband strategies handbook.pdf - Khazar University

working for both divisions) and the separation of information (for example,limitations on the type and amount of information that may be sharedbetween divisions). Since there is no actual change in ownership or ultimatecontrol under functional separation, 22 the operator can continue to enjoymany of the benefits of vertical integration (European Regulators Group2007). More intrusive than accounting separation, regulators may implementfunctional separation in “exceptional” cases where there has beenpersistent failure to achieve effective nondiscrimination in relevant marketsand where there is little or no prospect of effective competition within areasonable period after less intrusive remedies have been attempted (EuropeanUnion 2009b, para. 61).The 2009 EU Telecoms Reform formally granted national regulatoryauthorities explicit authority to require network operators holding significantmarket power to separate functionally their communication networksfrom their service branches, but only as a last-resort remedy (EuropeanParliament and Council of Ministers 2009). Prior to requiring functionalseparation, the national regulatory authority must first find that all lessintrusive, market-based remedies have failed to achieve effective competition.23 Next, it must submit a proposal of functional separation to the EuropeanCommission, with evidence justifying the regulatory intervention andan analysis of the likely market impacts. Among the provisions that must beincluded in the proposal are the precise nature and level of separation, thelegal status of the separate business entity, identification of the separatebusiness entity’s assets and the products or services to be supplied by thatentity, governance arrangements to ensure the independence of the staff,rules for ensuring compliance with the obligations, and a monitoring programto ensure compliance, including the publication of an annual report. 24To date, no EU member state has mandated functional separation. Insome cases, such as that of the United Kingdom, dominant operators havevoluntarily implemented functional separation. There, BT (formerly BritishTelecom) agreed to establish a separate division for access servicescalled Openreach, which provides most of BT’s wholesale products. Accordingto the European Commission, BT’s functional separation led to a surgein broadband connections, from 100,000 unbundled lines in December2005 to 5.5 million by 2008 (European Commission 2009b).Structural SeparationStructural separation involves full disaggregation of the vertically integratedoperator’s wholesale and retail divisions into separate, individual companies,each with its own ownership and management structure. All benefitsassociated with vertical integration are eliminated. Regulated structuralLaw and Regulation for a Broadband World 123