Have been enjoying the histrionics in the Australian Senate as the government finally passed the enabling legislation to structurally separate Telstra. (Good background to the story here). Amidst all the excited rhetoric surrounding the creation of the country’s National Broadband Network (NBN), the jury is still out on whether such vertical separation of incumbents is actually a good idea. The economics literature on vertical integration would certainly suggest otherwise. For example, a 2009 paper by Bob Crandall and others concluded that ‘there is both theoretical and empirical support for the proposition that forced vertical separation of telecommunications networks will reduce economic efficiency, slow innovation, and impede performance in markets where it is imposed’. The paper goes on to consider evidence of whether broadband development has been enhanced in the five OECD countries where some form of vertical separation has been mandated, i.e. Australia (functional, rather than structural separation), Italy, New Zealand, Sweden and the UK. Again, this empirical analysis is less than supportive, e.g. ‘the evidence shows no increase in either investment or broadband penetration in nations that have mandated vertical separation; indeed, the evidence suggests that vertical separation has impeded the rollout of next generation networks’.
Good luck with the experiment, guys!
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