8 December2000

After a year long investigation into unfair cross subsidy by BT Cellnet and Vodafone, Oftel issued a draft direction on 3 July 2000 requiring BT Cellnet to stop any unfair cross-subsidy of its own mobile phone service providers to the detriment of Mobile Independent Service Providers, MISPs. A further 5 months later, on 30 November, that decision was revoked.

Oftel has said that there was an error in BT Cellnet's original figures and it has now received new information leading the Director General to say that Oftel "is satisfied that BT Cellnet is not unfairly cross- subsidising its own tied SPs"

MISPs have said in a statement issued by the Service Provider Interest Group (SPIG) that the issue, which has caused them so much damage, has been swept under the carpet by Oftel. During the protracted inquiry the market share of MISPs has shrunk from 8% to 5% according to SPIG estimates. On the basis that a mistake was made by BT Cellnet in its submission, which was not spotted by Oftel, and since all information is regarded as confidential by Oftel, who is to say that the revised information is correct?

If Oftel believes there are no unfair cross subsidies from the mobile network business of BT Cellnet to its own tied service providers, then it should publish the Oftel formula returns information. This would enable MISPs and others to draw their own conclusions.

At a meeting on 30th November Oftel announced to mobile independent service providers ("MISP") that it would not confirm the draft direction issued to BT Cellnet on 3rd July 2000 (see www.spig.org.uk for detailed comments on the draft direction by the Service Providers Interest Group). The draft direction was issued because BT Cellnet had, in Oftel's view, been unfairly cross subsidising its tied service providers. BT Cellnet had been allowed to submit revised audited figures which indicated its compliance with the Oftel formula.

Returns under the Oftel formula submitted quarterly by BT Cellnet and Vodafone are designed to indicate if these operators are unfairly cross- subsidising their tied service providers in the vertically integrated, oligopolistic mobile market. MISPs who provide a choice of services supplier for consumers are unable to compete with unfairly cross-subsidised tied service providers because of the margin squeeze that results. MISPs either go out of business or are acquired at a discounted value by the operators.

This matter has been a problem for MISPs since 1995 when it became clear that the Oftel formula was being circumvented by the operators. After much lobbying by independent MISPs Oftel agreed to investigate the matter as part of the mobile market review. The investigation process has been entirely unsatisfactory being both long and fragmented with several case officers leaving Oftel after having been assigned to the task. Since 1995 Oftel has admitted on several occasions that the requirements of the Oftel formula were not being met by various tied service providers but has failed to take any action.

In the most recent round of the investigation Oftel found that BT Cellnet had unfairly cross- subsidised its tied service providers in the January to March 2000 quarter and issued a draft direction requiring, amongst other things, that BT Cellnet should adhere to the Oftel formula. Returns made under the Oftel formula are supposed to be certified by operators' accountants. It therefore comes as something of a surprise to MISPs that, 5 months after the draft direction was issued, BT Cellnet has provided revised, updated and audited information which satisfies the Director General that BT Cellnet is not unfairly cross subsidising its tied service providers. At the 30th November meeting Keith Long [Director of Compliance] at Oftel refused to reveal any details of the of the errors which had apparently been made by BT Cellnet in its original submission or the revised information that had caused Oftel to change its views.

MISPs feel that once again the matter of unfair cross-subsidisation, which has caused them so much damage in the past, is, yet again, being swept under the carpet by Oftel. On the basis that a mistake was made by BT Cellnet in its submission, which was clearly not spotted by Oftel, and since the all the information submitted is regarded as confidential, who is to say that the revised information is correct?

BT Cellnet and Vodafone are in a privileged position having exclusive access to radio spectrum in a market where there is an absolute barrier to entry at the network level, indeed at present both are deemed by Oftel to have "Market Influence" in a market where "Effective Competition" is yet to emerge.

The only competition in services which gives a choice to consumers is that provided by MISPs. They simply want to be treated in the same way and enjoy the same terms as the tied service providers. They do not want to be subjected to a continuing margin squeeze engineered by the operators. If, as Oftel now believes, there are no unfair cross-subsidies being provided to the operators' tied service providers then it should publish the Oftel formula returns information. Such information would enable MISPs and others to draw their own conclusions.

Ends

For further information contact the SPIG secretariat: spig@fcs.org.uk tel: 020 8778 5656

Note to editors:
THE DRAFT DIRECTION ISSUED UNDER CONDITION 66 OF THE MOBILE PUBLIC TELECOMMUNICATIONS OPERATOR (PTO) LICENCE GRANTED TO TELECOM SECURICOR CELLULAR RADIO LIMITED ('BT CELLNET') can be found at http://www.oftel.gov.uk/competition/btce1100.htm. The associated press release is at http://www.oftel.gov.uk/releases/2000/pr95_00.htm