Ed Richards yesterday gave a speech to the EU Parliament on the EU telecoms framework. His comments on functional separation include:

‘Whilst functional separation has proven successful in the UK, we have never argued that it is necessarily appropriate for other markets. Clearly, many Member States may find that Functional Separation is not a suitable or proportionate remedy, given their specific market circumstances.

However, many of the claimed concerns about Functional Separation are dramatically overstated. Indeed, some of them are simply myths.

For instance, we hear that Functional Separation has reduced investment in the UK telecoms market. This is the exact opposite of the truth. The introduction of FS led to a wave of new investment in the UK from competitor companies because it has significantly increased their confidence that the regulatory system will address anti-competitive practices – and thereby increases their willingness to invest.

The incumbent BT has benefited from increased regulatory certainty, allowing it to move forward with a £10bn investment in its core next generation network, the biggest of its kind in Europe.

And consumers are also benefiting from the focus of regulation on the real sources of market power in other ways. In particular, the focus on the real economic bottleneck through functional separation has allowed us to deregulate in other areas of their business, instead relying more on competition law, as the drafters of the Framework intended.’

My take: Richards is suffering from FSA - functional separation anxiety! I recall it was academics at places like the London Business School (Len Waverman) who argued that functional separation resulted in decreased investment. Richards claims otherwise. I generally think Ofcom have an incentive problem here: judging their own work product. A major regulatory intervention with no side effects or unforeseen consequences? That would be a first…

And BT Retail’s share of the UK broadband market continues to climb since functional separation…