Vertical separation as cure for adversarial regulation?

My digging around in the Telstra story has unearthed some interesting perspectives on the UK’s own experience with vertical separation.  The link comes courtesy of Kip Meek, former eminence grise at Ofcom, who was commissioned by Telstra to report on comparative experience of separation in the UK and Australia and to give a view on whether something like the Openreach model would be appropriate for the Australian market. (‘Operational Separation in Australia and the UK’.  Report by Kip Meek, Chairman, Ingenious Consulting Network, 24 June, 2008).  Given the scale of Australia’s broadband ambitions, he thought not, i.e. ’The demand risks and uncertainties associated with building an NGN, especially where it is intended to replace the PSTN, seem to me to raise doubts about whether a non-vertically integrated approach would be able to achieve the necessary level of investment co-ordination’.

Of more interest, perhaps, are Kip Meek’s reflections on why separation was seen as a suitable ‘remedy’ for the UK.  At the time, most of us thought this resulted from BT’s disappointing progress with local loop unbundling - and Ofcom’s Strategic Review’ of telecoms policy certainly placed heavy emphasis on the UK’s comparative performance in broadband penetration.  In fact, the UK’s relative broadband performance turned out to be pretty good, and Kip Meek recollects that the real objective of (negotiated) separation was a paradigm shift in behavioural regulation, e.g.

‘a highly adversarial and intrusive relationship had emerged between incumbent and regulator. Oftel maintained a welter of price regulation at the retail level and also felt compelled to reach into the heart of BT’s business…. The Communications Act of 2003 and the creation of Ofcom did however present an opportunity to break the attritional cycle of mutual mistrust that had become embedded in the relationship between incumbent and regulator’

That worked well, then…