IP Convergence: Beyond VoIP, Beyond Cost Savings

In a speech before the European Competitive Telecommunications Association, Viviane Reding, member of the European Commission responsible for Information Society and Media voiced her interest, if not support, for “functional separation” of European incumbents if the situation warrants it.  Ms. Reding remarked:

“I believe that functional separation, which is a specific form of separation in the large sense as just described, could indeed serve to make competition more effective in a service-based competition environment where infrastructure-based competition is not expected to develop in a reasonable period. It may be a useful remedy in specific cases. It is certainly not a panacea. A cost benefit analysis therefore has to be made on a case by case basis, before such a remedy is imposed. And the effects of imposing such a remedy in Europe’s internal market have to be carefully analysed in each individual case.”

Ms. Reding is to be praised for her bold thinking.  Even if she talks a better game than she plays (functional separation will be a hard sell on the continent unless the experiment with BT in the U.K. turns into a success), at least she is proposing new ideas and stimulating debate.  It is a welcome respite from the “is to” “are not” debates between Comptel and the Bell Companies here in the U.S. 

As for the idea of functional separation, it has potential, but ultimately will fail because it is just not natural for a profit-oriented enterprise to support its competitor’s entry into the market.  And in the end, that is what we are asking incumbent telephone companies to do.  Given their state-sanctioned monopoly past, it is not an unreasonable demand, but it is unrealistic. 

In the U.S., it appears the Federal Communications Commission has given up on this sort of “managed” entry and instead is relying on the development of competing full-service network platforms.  Interestingly, the U.K. began its liberalization efforts exactly in this manner.  Oftel (the former name of the U.K. regulator) initially dismissed unbundling obligations in hopes of stimulating investment in competing networks in the belief that only competing networks could offer “real” competition.  Such competition never materialized and Ofcom (Oftel’s successor) now embraces not only unbundling but functional separation. 

One may conclude there is a lesson to be learned there for the U.S., but there was and is one major difference between the U.S. and the U.K.  The U.S. has a mature cable television industry which has invested in a competing broadband platform while the U.K.’s cable television industry remains a minor player. 

Nonetheless, we see Europe trying various methods of behavior modification to improve the competitive landscape while we see the U.S. all but giving up on behavior modification and relying on instead trying to foster what they consider to be a favorable investment climate for competing full-service network platforms.  It is going to be very interesting to see which approach is more effective in the long run.