Separating telecoms?

[Commentary] A specter is haunting European telecommunications companies: the prospect of being forcibly reorganized by governments through 'functional separations.' Brussels and several countries want the national telecom incumbents to separate their infrastructure network from the service riding on it, which would be open to competitors on equal terms. BT in the UK was an early example, and the idea has caught on. The basic concept would be like requiring railroad companies to separate their tracks from their train service, to permit rival transportation companies to use these tracks at a low and non-discriminatory rate, and to lease to rivals selected parts of the track infrastructure. All this sounds sensible. It is promoted by competitors and Internet companies. I advocated it myself for many years. But more recently I have come to have doubts, not from indulging in laissez-faire but from counting the transaction costs of such an approach, and from studying the historical record. The problem with discussing all this is that the debate has come to take on some aspects of a religious war, with true believers on each side issuing fatwahs on anyone who strays from their path to redemption. The truth, as often, is more complex. Today is a good time for policy makers and companies to shape alternative futures, and the American history can provide both positive and discouraging lessons. It suggests that structural solutions, while intellectually appealing, create major transaction costs and retard network evolution. There are better ways to protect users and competitors.