Oftel consultations on mobile communications

Response to

Competition in the mobile market

And

Customer choice: Oftel's review of indirect access for mobile networks

April 1999

SPIG

1. The Service Providers Interest Group (SPIG) represents the interests of businesses in the service industries that provide a significant element of telecommunications including content, data, Internet and mobile.
2. SPIG believes that fair competition in the provision of telecommunications services to customers should be the priority for regulatory action in order to deliver competitive pricing and innovation.
3. SPIG members have interests in the mobile market as:

• Long established independently owned service providers for Cellnet and Vodafone
• Potential new entrant service providers
• Potential Indirect Access, IA, operators
• Potential service providers for IA operators
• Users.

4. Many members have attracted inward investment to the UK to develop the fixed telephony market and are poised to do likewise in mobile telephony, if the regulatory conditions and commercial terms are appropriate. They require the encouragement of a fair competitive environment in order to invest in acquiring new customers. They need confidence that the regulatory regime is not discriminatory and offers them a period of certainty. Above all they are seeking a level playing field in which to conduct their businesses.
5. SPIG therefore welcomes the opportunity to respond to the two Oftel consultation documents. As there is a close interrelationship between the documents, we have drafted this response in reply to both.

General Comments

6. SPIG welcomes Oftel's intention to introduce more competition into the mobile market.

1. SPIG fully supports and welcomes Oftel's assertion that Service Providers (SPs) have a continuing role in a competitive industry.
2. SPIG welcomes Oftel's regulatory objective to ensure that reasonable demand from service providers is met through operation of effective competition or, failing that, through regulation.
3. SPIG welcomes the clarification that Cellnet and Vodafone have Market Influence.
4. SPIG welcomes IA from mobile networks, as it believes that access to infrastructure is fundamental to the achievement of competition.
5. There are some inconsistencies in arguments between the two documents.

Competition in mobile

We disagree that Effective Competition is developing in the market

7. All mobile operators have bottleneck control over access to the radio spectrum. Effective competition will only occur if there is multiple access to each network to ensure a significant level of services competition.
8. Competition takes place in the acquisition of customers and in the provision of services. The past five years have seen unfair competition by the Tied SPs and Direct Services businesses of the four networks resulting in loss of Independent Mobile Service Provider, IMSP, businesses. We have set out the milestones of the last five years in the Appendix to this submission. The market is a four-company oligopoly, which does not equate to competition.
9. The four established operators are not competing to supply mobile telephony services to IMSPs.
10. To redress the imbalance we recommend that the activities of service provision and network operation of the mobile operators are legally separated, with separate and visible accounts regulated by Oftel.
11. We agree with Oftel that Indirect Access to the mobile networks will also develop competition in the provision of services, provided that the terms of access are reasonable, as set out below.

We agree that Cellnet and Vodafone have market power

12. The high rates of return to shareholders and their capital value illustrate the Market Influence of Cellnet and Vodafone businesses.
13. We agree that the obligation for them to provide wholesale terms to service providers should remain in their licences, which should be for at least three years. Any change in this situation would need a further three years of transition to allow service providers to recover the investment in their customers and provide continuity for customers.

We think that regulation of prices is inappropriate

14. We believe that the four-company oligopoly leads to higher than necessary prices and that, rather than impose a price cap, encouragement of fair competition between IMSPs and network TSPs and DSBs is needed.

There is a continuing need for regulation

15. We agree with Oftel that competition in the market will supply lower prices to customers, but the timescales on current progress will be many years hence, unless regulation intervenes.

We think that a further review in 2000 is too soon

16. The prospect of a review next year does not provide any certainty now for service providers. A review in 2002 may be more relevant, taking into account UMTS.

We think that Oftel's present review should take pre-pay into account

17. Pre-pay has been the driver for growth in the number of mobile phone subscribers in the last six months; (there have been 4 million new customers since September 1998). The current review should take account of its effect on the market and competition.

Service Providers need a period of 3-5 years of regulatory certainty in order to invest

18. See 13 above.

We think that control of wholesale prices could be applied to prevent anti-competitive behaviour

19. Of the options available SPIG sees control of wholesale prices as the most effective way of preventing anti-competitive behaviour.

Questions raised

20. SPIG members have become concerned that there are many questions arising from the Competition in the mobile market review, which they believe, should be addressed in Oftel's statement following the consultation. They were raised at SPIG's presentation to the Oftel Service Provider Forum on 18 March 1999 and are set out below.

• Why does Oftel continue to protect the profits of Cellnet and Vodafone and the shareholders of Orange and MPCL?
• Why in 1995 when Oftel knew that unfair cross subsidies continued did they refuse to tell IMSPs or take any action?
• Why, when the DG had the opportunity to remedy imperfections in the licences, did he not do so?
• Why is the DG proposing to control wholesale prices now when he could have done so at any time since 1995?
• What measures is the present DG proposing to compensate those ISPs and their former shareholders who have been seriously damaged by his predecessor's inaction?
• What confidence can IMSPs have that in future they can rely on the regulator to regulate?

Oftel's review of indirect access for mobile networks

21. SPIG members believe that the principle of unbundling all network elements is necessary in order to bring real diversity into the marketplace and encourage new entrants to supply services without an excess of environmental disruption. Our members see a pent up demand for unbundled services in fixed and mobile telephony. We have already responded to Oftel's consultation on access to the fixed local loop.
22. In the mobile sector IMSPs are restricted to selling highly prescribed and controlled retail bundles through incentivised payments from Cellnet and Vodafone. We would like to access unbundled service primitives from all mobile networks in order to broker, on behalf of our customers, a wide variety of telecommunications services, both fixed and mobile.
23. SPIG submitted its recommendations to the mobile operators for service provider access to their networks in July 1998, but to date the regulatory framework to facilitate Indirect Access has not been in place. We welcome therefore Oftel's consultation. It is clear that the operators will not provide IA unless they are required to do so by their licence or through regulation.
24. We believe that IA to the mobile networks will have a similar effect to that in the fixed market, where Oftel has acknowledged that IA from the BT network has contributed to a steady reduction in call prices.
25. SPIG members seek IA via short access code as a first step followed by freephone access, carrier pre-selection. They would also like access to SIMs and the HLRs.
26. SPIG believes that IA should be implemented at cost plus prices, which would have immediate benefits to customers:

• Choice of call completion services
• Choice of enhanced services
• Fixed and mobile convergent services
• Lower prices (no more tacit collusion between operators)
• Opportunities to benefit from new innovative services.

27. We believe that IA for mobile should learn from the experience of the fixed sector, where a precedent has been set for cost plus pricing for interconnect between the OLOs and BT. It is important to maintain a level playing field between fixed and mobile, particularly as they are converging.
28. We do not share Oftel's view that IA at cost plus prices would prevent further infrastructure investment in 2G networks.
29. After five years of Oftel support for the new entrants, which are companies valued at more than £10 billion each, we believe that the market is mature enough to remove preferential support and that all mobile operators should be obliged to receive the benefits of IA. These include increased revenues.
30. We believe that Oftel's recommendation of a retail minus pricing regime for IA is flawed since it is discriminatory to IA operators :

• IA operators are under the control of their suppliers and their suppliers' retail prices: if the supplier is inefficient the IA operator is inefficient
• IA operators cannot access unbundled product, but are dependent on the bundles the mobile operator choose to offer, giving scope for increase in retained margin or predatory pricing.

31. Retail minus pricing also:

• Does not deliver price competition on calls
• Has significant potential for unfairness
• Will discourage IA operators, new innovative services and customer choice
• Will preserve the status quo

32. We think in a cost plus pricing regime for IA operators a reasonable rate of return can be provided to the mobile operators if the Director General sets and maintains that rate of return. This would overcome our objections to retail minus and allay Oftel's concerns, which we do not share, that infrastructure investment will be affected.

Conclusions

33. SPIG supports Oftel in encouraging more competition in the mobile market. We have set out the issues, which we believe are important to achieving effective competition in this market.
34. They are:

• Service providers should continue to resell Cellnet and Vodafone branded product at prices that allow SPs to make a reasonable return
• Oftel must regulate to achieve a level playing field between independent, tied and direct services businesses
• IA should be available on cost plus terms and from all operators
• SPs need regulatory certainty to encourage existing businesses, inward investment and new entrant SPs
• The mobile market has restricted entry. Only four operators have access to spectrum. Opening up fair competition at the services level will satisfy many of Oftel's objectives
• There should be transparency in Oftel's conclusions.

35. Each business category of SPIG member, IMSP, IA operator or IA service provider, separately requires a sustainable business environment and a market return for their shareholders.

Appendix

Changes in the mobile market since 1994

SPIG is concerned that there has been a decrease in services competition in the mobile market in the five years since 1994 through the loss of independent service providers due to regulatory inaction. The changes that have occurred are:

May 1994: