The Consultation Document

1. We disagree that there is a better deal in terms of choice (paragraph 1.1) for consumers in the mobile market. Our belief is that the reverse is true. The continuing consolidation of end to end distribution under the direct control of the four network operators is removing the choice of services for consumers at the point of sale. Once this consolidation is completed and all distribution is under the control of the four operators we can expect to see prices stabilize, at best, or rise in real terms.
2. We would point out that price trends alone are not conclusive evidence of effective competition in the mobile market.
3. In the past we have questioned the need for, and the likely benefit coming from, a further review of the mobile market in 2000 (paragraph 1.2). We believe this is too soon for a further review especially since an extended period of regulatory certainty is needed to ensure that the few remaining independent service providers invest in the mobile market. The present market distortions including unfair cross subsidies by operators of their tied and direct service providers and the non-availability of pre pay functionality to independent service providers have yet to be resolved. There is nothing to indicate that matters outstanding for more than five years will or are capable of being resolved in the near term. However, assuming the issues are resolved and that the distortions in the market are removed in the short term there will not have been sufficient time for the effects to be noticed in the market within the time scale set for the review.
4. With reference to migration rates (paragraph 3.6) we believe that this area needs a great deal more research and that the arbitrary 10% per month assumption may be wrong. We think on the one hand that the effect may be masked by churn, where the customer switches supplier (i. e. moves to a different network) to obtain a nearer optimal tariff, and by inertia on the other. Our empirical view is that the rate is substantially less than 10% per month principally because new tariffs are not generally advertised by operators to their existing customers.
5. Similarly the levels of handset subsidies (paragraph 3.7) that are actually applied in the distribution channel to the end user sale needs further research. The model does not make it clear what weightings are applied as between different types of user in determining an average of £70. Service providers do apply different levels of handset subsidy to different user types for example a high revenue generating group of users will attract a higher level of handset subsidy potentially in case of some corporate users of more than £200. It may be appropriate to modify the model to allow for the entry of a separate handset subsidy value for each category of user.
6. We are concerned that the user survey (paragraph 3.9) to establish representative user patterns may be flawed. We say this because insufficient information is given in the report for us to draw any other conclusion. Our concerns centre on the number of the contacts made in the survey with the predominant user base, the pre pay customers, and what weighting was applied to these. By their nature these users are anonymous and may not have a fixed network phone. Whether the mobile usage pattern of someone who does have access to a non-public fixed phone is materially different from someone who does is a matter for further conjecture. Our view is that pre pay phones are in many instances a substitute for public payphones and many of the users are children.

The NERA Report

7. As regards Advanced Payment Schemes (paragraph 2.2.3) we understand that to date many of these payment schemes are not renewable and therefore all such customers will churn or migrate after the term of their payment.
8. We would point out that, as far as we are aware, there are no service providers, other than One 2 One's direct business, operating a branded service on that network the reference in Table 2.1 is therefore meaningless.
9. We are concerned that the model (paragraph 5.5) is not able to compute the effects of a minimum call length or call charge. We think this is significant where the distribution of call lengths (as is the case in mobile) has a significant peak measured at a few seconds duration.
10. The treatment of inclusive call values and minutes appears to include things not offered in the inclusive bundle, for example SMS calls. We would also point out that SMS calls do not have a call length (paragraph 6.3.3.4).
11. We believe that understanding the impact of inclusive bundles today is important for comparative purposes in the future when we expect tariffs which have inclusive bundles to be far less prevalent than they are today.
12. We think that special offers are important (paragraph 5.8). The cost to join is a significant part of the overall cost of the service to the consumer. If for example a £35 connection charge is waived for a low using consumer this could mean a 20% saving over a one year contract term.
13. Given the distribution of pre pay customers across the four networks there appears to be some inconsistency in the model which gives a price index reduction of 8% in pre pay as a result of One 2 One changing its tariff.
14. NERA do not say how they have tested the model, we think that the model needs to be thoroughly tested against some agreed benchmarks before it is commissioned for use.