Telcos

Breaking the Chains: Structural Separation in Telecommunications

Hon David BUTCHER (former Minister) & Shaan STEVENS (former Telco Regulator)

The global telecommunications industry stands at a crossroads. While digital transformation has reshaped how societies communicate and do business, the regulatory and economic structures underpinning the sector often remain outdated, limiting competition, investment, and consumer choice. One of the most pressing structural issues is the persistence of vertically integrated telecom operators—companies that own both infrastructure and service delivery.

Countries that have embraced structural separation, such as the United Kingdom (BT Openreach) and Australia (NBN), demonstrate that splitting infrastructure ownership from service provision fosters competition, enhances efficiency, and delivers better consumer outcomes. Yet, many markets—especially smaller and developing.

The Fundamental Flaw in Vertical Integration

When telecom companies were privatized in the 1990s and 2000s, they were often sold as bundled monopolies, controlling both networks and services. Policymakers justified this by arguing that private ownership would ensure efficient investment and infrastructure expansion. However, over the past two decades, this approach has proven ineffective for three key reasons:

• Investment Asymmetry –Vertically integrated operators prioritize profits from high-margin services rather than reinvesting in network upgrades. This has resulted in slow broadband rollouts and deteriorating infrastructure.
• Regulatory Failure –Behavioral regulations, such as price controls and local loop unbundling, have failed to create true competition. Incumbents continue to leverage their infrastructure ownership to limit market entry for competitors.
• Consumer Disadvantages – Without competition, consumers face high prices, poor service quality, and limited choice. In many cases, regulatory frameworks are unable to correct these imbalances effectively.

Two Businesses, Two Different Economic Models

Telecommunications consists of two fundamentally different businesses:

• Infrastructure (Network) Providers – Capital-intensive, long-term investments with stable, low-risk returns. These resemble traditional utility businesses, best suited for pension funds and long-term investors,
• Service Providers – Fast-moving, competitive, high-risk businesses focused on delivering innovative products to consumers. These resemble venture-funded technology companies, requiring agility and responsiveness.

When these two businesses are bundled, their conflicting objectives lead to inefficiencies and poor market outcomes. The network operator has an incentive to block competitors from accessing infrastructure, while new entrants face prohibitively high costs to build parallel networks.

The Case for Structural Separation

By separating networks from services, the telecom industry can achieve two critical policy goals:

• Efficient Investment – Independent network providers focus solely on infrastructure expansion, ensuring long-term, cost-effective network development without being distracted by competitive service pressures.
• Competitive Services – Fast-moving, competitive, high-risk businesses focused on delivering innovative products to consumers. Service providers can compete purely on quality, innovation, and pricing, without fear of unfair network access barriers.

A useful analogy is road transportation. Governments do not expect every logistics company to build its own highways. Instead, they maintain open-access road networks, allowing transport companies to compete on service quality.Telecoms should follow the same model.

True Open Access: A Market-Driven Solution

One of the most successful approaches to telecom sector reform has been the implementation of True Open Access Networks. This means:

• Infrastructure remains neutral and accessible to all service providers on fair and transparent terms.
• Service providers compete based on offerings rather than infrastructure control.
• Regulation is simplified, as the need for complex intervention to ensure competition is reduced.

Proven Success in Structural Separation

Several countries have already demonstrated the effectiveness of this model:

• United Kingdom – BT Openreach was separated from British Telecom to create a fairer playing field for broadband service providers.
• New Zealand – Telecom NZ was structurally separated into Spark (services) and Chorus (network) in 2011, leading to improved broadband deployment.
• Mongolia – The Mongolian government split its state-owned telecom monopoly, enabling private sector participation and boosting competition.
• Cambodia – Efforts to introduce True Open Access models have begun, recognizing the need for independent infrastructure providers.

A Call to Action for Policymakers

Countries and regulators must act decisively to embrace structural separation. The transition is not only necessary for ensuring fair competition but is also the most effective way to modernize telecommunications for the digital age. The key steps include:

• Requiring Transparent Cost-Based Pricing – Ensuring network providers charge fair and published rates for service access.
• Mandating Institutional Separation – Preventing infrastructure owners from providing retail services.
• Encouraging Investment in Open Networks – Facilitating private sector funding for network expansion, while reducing redundant infrastructure development.
• Simplifying Regulatory Frameworks – Moving away from complex interventionist policies toward market-driven competition.

Moving Forward

The era of bundled monopolies in telecom must come to an end. The evidence is clear—structural separation drives better investment, healthier competition, and superior services for consumers.
At a time when digital connectivity is more critical than ever, telecom markets must move toward open, competitive, and investment-friendly ecosystems. Policymakers must recognize that True Open Access is not just an ideal—it is an economic necessity for the future of ICT.

Contact GG International for further insights on Telco and ICT reform.
Hon David BUTCHER & Shaan STEVENS | Authors