Abstract

Although the benefits of structural separation are often discussed, little consideration is given to the costs that such a separation might entail. In this note we point out that a network operator which is prevented from offering services on its net may have weak incentives to undertake a sufficient amount of preventive maintenance. This may cause serious problems, if the nature of the service allows for a lag to exist between investments in maintenance and service quality, and if the network is large and difficult to inspect. In such cases, it may be better to allow the network operator to provide the service in competition with others: in this case the need to preserve its reputation should provide additional incentives for preventive maintenance to be carried out.