Means not ends: Deterring discrimination through equivalence and functional separation

It is sometimes forgotten that the much debated remedy of functional separation is simply a means to an end. That end is to reduce the incentives for discrimination by the integrated firm, which damages its downstream rivals and ultimately harms competition and the interests of consumers. Functional separation, though now considered to be at the centre of the Undertakings was in fact not mentioned by name in them. This article examines the background to the Undertakings and why non-discrimination and accounting separation remedies were inadequate to deter sabotage behaviour. It draws on interviews with UK industry participants to consider whether equivalence and functional separation are “fit for purpose”. Although not perfectly implemented, the remedies have reduced discrimination and have helped to create the right conditions for dynamic efficiency gains in access and downstream broadband markets. However, there has been little or no “spillover” benefits into product markets not covered by the Undertakings.