The costs and benefits of accounting separation: The Australian and British debates

In the course of encouraging competition in telecommunications markets, regulators in both Australia and the UK are developing proposals to impose accounting separation upon dominant incumbents. This paper examines the logic behind accounting separation as an alternative to structural separation. It discusses the various forms in which between accounting separation, accounting separation can be implemented and analyses the connections between accounting separation, the rebalancing of tariffs, the funding of universal service obligations and the structure of interconnection charges. The paper concludes that accounting separation has the potential to provide a transparent framework in which efficient competition can develop, but that its potential can only be demonstrated by practical experience.