Also known as 'ownership unbundling', 'divestiture' or ‘demerger’, structural separation means that all of the network elements are placed in a separate legal entity.
Structural separation is regarded as a blunt instrument. The question of structural separation was canvassed exhaustively within the European Commission in 2007/2008 which rejected structural separation recommending that national regulators use functional separation as a measure of last resort to ensure equality of access . Structural separation may have profound effects on investment, valuation, and operations and would be an extremely difficult policy to reverse.
Examples of structural separation
A well-known example of separation in telecommunications is the separation of AT&T from the 7 Regional Bell Operating Companies (RBOCs) in the United States in 1984 . With their ownership separate from AT&T, the RBOCs (or Baby Bells) no longer had an incentive to favour AT&T over its long distance competitors. Therefore, all long distance competitors obtained access to local telecommunications services from RBOCs on similar, non-discriminatory terms. The divestiture also eliminated concerns about anti-competitive cross-subsidies between AT&T's local and long distance operations.
Another example of a forced structural separation involved the incumbent Mongolian Telecommunications Company (MTC) which was separated by the Mongolian government in 2007 into two entities: Telecom Mongolia (a partly-privatized operator) operating a retail service business and an entirely new and separate government-owned company, Information and Communication Networking Company (ICNC), operating a wholesale network business for national backbone and access networks. Critics predicted the government-owned ICNC would fade away because it was saddled with all the state’s telecom sector debt, more staff than needed and a low regulated access price. However, it has survived and gained a modest cash surplus by winning contracts to manage third-party rural towers and by achieving operating efficiencies.
Singapore is subsidising a broadband network that separates “Netco”, “Opco” and retail service providers:
- "NetCo" is responsible for designing, building, and operating the passive infrastructure of the NBN and is run by OpenNet, a consortium in which Singtel owns a 30 percent stake. It must offer wholesale dark fiber (layer 1) services to all active switching operators (OpCos at layer 2 and 3) on a non-discriminatory basis.
- The publicly subsidised “OpCo” is tasked with deploying the active network elements (routers, switches) and providing wholesale broadband services to retail service providers and is run by Nucleus Connect which is a wholly owned subsidiary of StarHub. While NetCo/OpenNet is the sole wholesale provider of passive infrastructure, Nucleus Connect could face competition as a wholesaler from other providers.
- Operationally-separate retail companies market services to households and businesses.
OpenNet and Nucleus Connect are working on parallel rollouts that are required to deliver 100 percent coverage by January 1, 2013, and are actually ahead of schedule, with 95 percent coverage expected for June 2012 instead of the 80 percent required in their license conditions.
Voluntary structural separation
In Ireland the private equity owners of the Irish incumbent eircom planned a voluntary separation which they argued would offer enhanced regulatory transparency and increased shareholder value. It was thought that separating the network infrastructure from the retail division might increase the value of the overall entity by better matching assets with investors, as the more stable and cash-generating wholesale division (which would be placed in the equity fund) would be separated from the potentially high-growth retail division (which would be taken over by eircom's employee share ownership trust). The proposal was abandoned in 2008 after advice that the financial markets would not accept the risk associated with a wholesale-only fixed network company.
In August 2011, Telecom Corp. of New Zealand (TCNZ) announced it will proceed with the structural separation (the "demerger") of its existing business into two new and separate, publicly listed businesses, "New Telecom" (the retail organisation) and "New Chorus" (the infrastructure business). The demerger is expected to be completed by the end of 2011, subject to shareholder and court approval. TCNZ expects the separation will ease regulation and it clears the way for New Chorus to play an important role in the New Zealand Government’s Ultra-Fast Broadband (UFB) Initiative, a fibre-to-the-premise network that is intended to reach 75% of New Zealanders by the end of 2019.
Australia is heading to de-facto structural separation by de-commissioning its copper and HFC cable networks as the government-owned NBN Co. rolls-out its fibre-to-the-premise (FTTP) network. It was forced by legislation in late 2010 to choose either voluntary structural separation or mandatory functional separation. The latter would cost over A$1billion to implement and is coupled with the threat to prohibit Telstra from participating in the Digital Dividend spectrum auction. By choosing voluntary structural separation, Telstra will gain revenues from leasing its assets to NBN Co. and as it migrates its customers to the FTTP network.
With exception of the AT&T, these examples of structural separation are recent. The effects have yet to be observed.
 The EU says “The Commission proposes to give all national regulators the possibility of imposing functional separation, if they, on the basis of a sound market analysis, deem it necessary to tackle important competition problems, taking due account of the principle of proportionality and of the effect on investments by incumbents and new market entrants. Functional separation should only be used when all other regulatory tools have proved to be inadequate. To be imposed, functional separation requires the approval of the Commission and needs to take into account the effect on investment by the incumbent as well as by new market entrants.” From Frequently Asked Questions, 13 Nov 2007 http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/07/458&format=HTML&aged=0&language=EN&guiLanguage=en
 Since 1996, the original 7 RBOCs have merged into just 3: AT&T Inc. (Southwestern Bell, Ameritech, Pacific Telesis and BellSouth), Verizon (Bell Atlantic and NYNEX) and Century Link (US West). The vertical separation of 1984 was partially reversed with the acquisition of long-distance operators AT&T and MCI Worldcom by SBC and Verizon respectively. US authorities were relaxed about this consolidation because cable companies had started to offer telephony and where call/carrier selection was available on the local fixed copper networks.
 The Commerce Commission publishes a register of Chorus’s customers at http://www.comcom.govt.nz/register-of-chorus-non-retail-users The register of non-retail users is an obligation under the 2011 amendments to the Telecommunications Act. Since separation Chorus is forbidden from selling services to retail customers and it cannot supply services to a company if that business or a related business consumes 25% or more of the supplied service.