David Edmonds
Director General
Oftel
50 Ludgate Hill
London EC4M 7JJ

16 November 1999

Re: OFTEL statement on Mobile Virtual Network Operators - October 1999

This letter sets out the initial observations of the Service Provider Interest Group ("SPIG") on the Oftel Statement. SPIG believes that Oftel is making a mistake which will have a detrimental effect on competition in the fixed and mobile markets in the UK in not mandating MVNOs.

It seems to SPIG that Oftel's thinking regarding indirect access ("IA") and mobile virtual network operators ("MVNO") is muddled. Oftel's view that one is substitutable for the other is not the case. At the fundamental level IA provides a choice of outbound carrier for all of the customers using a particular mobile network irrespective of their mobile service provider. On the other hand MVNOs, and their service providers, own the customers and choose a mobile network on which to provide the services required by those customers.

SPIG believes that the most significant downside of Oftel's conclusion that MVNO should not be mandated is that Oftel has ignored the first chance in the history of liberalisation to enable there to be competition in call termination. For a long time, Oftel has been concerned that there would be no competition in call termination, since "there is only one way to a telephone number". MVNO has the ability to provide various different ways to the same number by fixed, as well as by mobile, networks. A further attribute of this end result is the technical neutrality that the market could deliver, something which the European Commission has recognised as essential. This point is fundamental and SPIG is surprised that it has not seemingly been made anywhere before. We request that Oftel rethinks its conclusion with prospect for competition in call termination in mind.

SPIG is of the view that the effect of third generation networks on competition is sufficiently far away to be irrelevant in the context of considering the effect that MVNOs may have on competition in the near term.

It is clear to SPIG that without regulatory intervention MNO's will not voluntarily conclude negotiations with any potential MVNO. History shows that MNOs have and, unless required to do so by the regulator, will continue to refuse organisations access to their networks.

With regard to new services that might be provided by MVNOs, Oftel states that respondents against mandating MVNOs say that these types of new services could be developed by the present participants. This is not denied. What is really significant is that they have not been developed. SPIG argues that by not mandating MVNOs an opportunity for innovation in services is being lost.

As regards integrated fixed-mobile services, SPIG's view is that today there is no elegant or efficient technical solution that can be employed by mobile network independent service providers to provide such services at competitive prices. Most of the shortcomings could be overcome if the provider of such services was an MVNO with access to mobile network(s) giving an appropriate level of functionality. The nature of the wholesale product supplied to mobile independent service providers and unfair cross-subsidy of tied service providers is of no relevance to this interconnection and functionality argument. Even if the anti-competitive and wholesale pricing issues were to be resolved by Oftel this would not of itself allow fixed-mobile services to be provided efficiently.

SPIG does not believe that effective competition in the mobile market is in prospect. In respect of pre-pay services which now account for over 40% of the market the indicators are that the four MNOs are consolidating their position. In spite of Oftel's statement in July wholesale pre-paid services are not available to independent service providers at prices that allow them to operate viable businesses.

The absolute barrier to new entry at the network level resulting from the lack of available radio spectrum can be circumvented by mandating MVNO. SPIG's view is that only if this barrier is put aside can there ever be effective competition in the mobile market. It is to the detriment of the consumer that Oftel has not taken the opportunity to do so on this occasion.

Yours sincerely

Phil Sayer
Chairman, Service Provider Interest Group