When the liberalization of the telecom markets took off in the mid-1980s, it was foreseen that the former national markets would be replaced by an international market dominated by transnational operators, and that the sharp distinction between national and international communication would vanish.
While the markets for telecom equipment soon became truly international, the markets for telecom services are still national. Many of the incumbent operators have engaged in operations abroad, but these operations in different countries are not really integrated with each other. The telecom operators have become multinational, but are not yet transnational.
This is not surprising, as network operations are tied to the physical telecom facilities in each country. It is very costly to invest in such activities, and in particular after the telecom crisis, even the largest operators have been reluctant to spread their activities to more than a limited number of countries. In the markets for mobile communication and for international high speed networks a few operators have achieved a wider international presence, but the retail markets for fixed network services remain nationally oriented.
A vertical separation of network provision and service provision enables service companies to achieve a global presence without major investments in local facilities. Skype is an example of such a company. Vertical separation thus implies that national operators will get more competition from abroad. It will be much more difficult to enforce national regulation, and it may be necessary to allow local companies to offer their services on the same conditions as service providers from abroad. Vertical separation will therefore lead to more competition and more innovation at the service market.
Service providers such as Skype and EasyMobile are mainly addressing the major first world markets, but also in developing countries for instance in Africa, service providers begin to offer their services. Here the impact may be more visible, as service providers here provide their services in an environment where competition and access to telecom services have been more limited.