Why vertical structural separation is in the interests of incumbent telcos, and why they don't see it

Vertical separation of incumbent telecommunications providers has been a popular topic in regulatory discussion. This paper addresses the question from the interests of the integrated firm itself, and though the case made is general, the case of Telstra is specifically considered. Opportunities for international growth, cheaper cost of capital, the opportunity to simplify systems costs and simpler regulatory arrangements are identified as benefits not sufficiently considered by firms. Bounded rationality, agency problems and misunderstanding strategic management are discussed as reasons for the benefits being insufficiently considered. Lawmakers interested in achieving separation could consider actively engaging the investment banks to study the benefits.