Cable Tech

Telcos Consider the Splits

It looks as if BT Group plc (NYSE: BT; London: BTA) and U.K. regulator Ofcom have started a trend, as carriers and regulators in Europe and on the other side of the world look set to follow Britain's example of structural separation for incumbent fixed-access networks.

BT's access network division is called Openreach (or Openretch, as it has become known in U.K. telecom circles, the saucy japesters), a distinct business unit with its own management team that was formed in September 2005 as part of an agreement with regulator Ofcom. (See BT Opens Up Access.)

Simply put, this creates a divide between the carrier's access network operations and its retail services division, which (in theory) has to deal with and buy services from Openreach under the same terms and conditions as do the U.K.'s alternative operators.

Now other countries are moving towards that same scenario. Just this week Sweden's National Post and Telecom Agency (PTS) staked its position in a "Broadband Strategy for Sweden" document that puts pressure on Telia Company to create a separate access unit: "PTS is of the view that the most suitable model is one based on TeliaSonera being functional [sic] separated. This proposal is inspired by the British model for equal treatment which was introduced recently." (See PTS Proposes Access Separation.)

It looks as if TeliaSonera is not the dullest place to be just now… (See TeliaSonera Dumps Its CEO.)

Elsewhere in Europe, Italian incumbent Telecom Italia (TIM) is also heading down the access network separation road, with the analyst team at Dresdner Kleinwort reporting from a meeting with the carrier that CEO Riccardo Ruggiero is "upbeat on the prospects for a quick agreement with the NRA [national regulatory authority] on functional separation of the fixed network."

In a research note issued today, the Dresdner team states that such separation would help Telecom Italia be more creative with its service marketing. "We are of the view that a favorable result is possible for functional separation of the copper network as TI is presently hamstrung in its ability to bundle services [such as] fixed and mobile in a single bill. Separation would allow more attractive offers to be marketed to the benefit of top line growth."

Ruggiero told the analysts that an agreement with the regulator is due in 2007 "with probable implementation in 2008." They note, though, that Telecom Italia is in the driving seat over the possible move, as "structural separation cannot be enforced and would only be accepted by TI if it was in the company's interests."

On the other side of the world, Telecom New Zealand Ltd. (NYSE: NZT; New Zealand: TEL) faces the challenge of internal separation, which is why, according to The Australian, it is keen on hiring current BT executive Paul Reynolds, a man with experience of how the process works, as its new CEO. (See TNZ puts Reynolds on speed-dial.)

But the operator is concerned it will be asked to invest heavily in new infrastructure only for others to then benefit from the results.

Responding in April this year to initial proposals for structural separation made by the country's Ministry of Economic Development, the carrier's chairman, Wayne Boyd, noted: "Our principal concerns are that the consultation document released last week proposes a very complex form of separation that goes significantly beyond the BT model, and in our opinion fails to address important questions around investment. The proposed form of operational separation creates an independent, but unsustainable Access Network Services unit that has no capability or incentive to invest."

Instead, Boyd is seeking "a structurally separated access network company that would have the ability to earn a commercial rate of return, a simpler separation model so resources can focus on faster delivery of local loop unbundling and Naked DSL, downstream de-regulation to enable Telecom Retail to compete and innovate, and committed broadband network investment from Telecom."

— Ray Le Maistre, International News Editor, Light Reading

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