Select Committee on Trade and Industry Appendices to the Minutes of Evidence


Memorandum submitted by Vodafone

1.  Vodafone welcomes this opportunity to provide input to the Trade and Industry Select Committee on issues related to new forms of access to telecommunications networks.

  2.  We understand that the primary focus of the Committee is on recent developments in fixed Local Loop Unbundling and, in particular, on steps Oftel has taken to secure effective and timely unbundling of BT's network to ensure competitive access to fixed higher bandwidth services.

  3.  Vodafone's primary business is the provision of mobile services, including voice and data. Consequently we have not taken an active role in recent initiatives regarding fixed network unbundling. However, we wish to comment on the state of competition in mobile and the role of new forms of access to networks now emerging in the UK.


  4.  The mobile industry is developing rapidly. Penetration has now reached 60 per cent of the population and will rapidly rise to over 80 per cent (see Annex 1) Competitive pressures are intense and investment levels are rising dramatically as players compete on service quality (see Annex 2) and to develop and launch new products and services.

  5.  The recent auction of new spectrum has raised considerable sums for HM Treasury and there are now strong incentives for the development of a competitive higher bandwidth mobile market. Two national infrastructure players have grown to five (including Dolphin) and this will reach six from 2001. Vodafone and BTCellnet's market shares continue to decline (see Annex 3) and market entry is evident at the retail level including from Virgin, Centrica, Carphonewarehouse, GM, Tesco and Sainsbury's.

  6.  Oftel's own evidence illustrates how well the British mobile customer is currently being served.

  7.  "Overall [mobile telephony] prices are now 18 per cent cheaper than at the start of 1999. Pre-pay prices are 28 per cent lower, while advance and monthly contract prices are 10 and 15 per cent cheaper respectively." [1]

  8.  "International benchmarking (of France, Germany, Italy, Sweden and the UK) shows: the UK has, on average, the lowest prices of the countries considered; [ . . . ]. The UK's overall favourable position is secured by a combination of low priced pre-paid packages for low usage consumers and favourably priced post-paid packages suitable for high usage." [2]

  9.  "In a survey conducted on behalf of Oftel by MORI, amongst 2,070 adults during May 2000, [ . . . ] 50 per cent claimed to personally have a mobile phone [ . . . ] the vast majority of consumers, 94 per cent [who expressed a preference] said they were satisfied with their mobile phone service." [3]


  10.  Given the rapid pace of technological and market development in communications, Vodafone fully supports the Government's decision to review the basis of regulation of the converged sector. The Communications White Paper provides an ideal vehicle for this review.

  11.  Vodafone supports the replacement of multiple regulatory bodies with overlapping responsibilities for telecomms and broadcasting with a more coherent structure for the sector. However, irrespective of the precise structure chosen, legislation must contain clear economic objectives for individual regulatory bodies. These should:

    —  recognise the increasingly dynamic and unpredictable nature of the sector;

    —  provide an environment which specifically promotes investment and supports innovation in new services such as Third Generation mobile; and

    —  presume forbearance to achieve economic objectives: market solutions are inherently more efficient than regulatory intervention in meeting customers' needs.

  12.  In forthcoming legislation the Government needs to identify a "convergent path" from detailed sector-specific regulation to treating communications on a par with other high-tech sectors. The principal economic regulatory mechanism should be Competition Law. Consumer protection measures should be proportionate to the real risk of consumer harm—not more intense because of a legacy of regulatory action.

  13.  Where there is an effectively competitive market—as now exists in mobile—levels of regulatory intervention should be reduced not increased. In particular, regulators should avoid the blind importation of approaches which are appropriate to the fixed market to the mobile market.

  14.  Regulation of access to promote competition can only be justified where there is continuing dominance, such as BT's position in fixed local access, or an otherwise extreme market position—one which will not be corrected through the market process.

  15.  The mobile services market is radically different from fixed. In contrast to BT's continuing dominance in fixed there will soon be six national infrastructure players. Market entry is vibrant at the retail level and new technologies are facilitating this process. In particular, Vodafone anticipates a multiplicity of new local radio access technologies, such as Bluetooth, which will challenge traditional perceptions of how mobile communications operates and lower barrier to entry.


  16.  Vodafone (and BTCellnet) are deemed by Oftel to have Market Influence and Significant Market Power in the mobile market. Consequently we are already subject to forms of mandated access. Two are worth specific mention: the obligation to provide services to service providers and the more recent decision by the Regulator to require indirect access on mobile copying a regulatory approach adopted in the fixed market.

  17.  The obligation to provide services to service providers is a legacy of the original duopoly in UK mobile. The obligation is accompanied by additional regulatory rules requiring:

    —  non-discrimination, that the same offering must be offered to all;

    —  accounting separation; and

    —  price publication undermining the rationale for commercial deals.

  18.  These rules are costly to administer, limit the attractiveness of Vodafone as a wholesale partner and restrict our ability to increase the rate of new product development as they render the product production and configuration process much more complex.

  19.  While (arguably) necessary in a duopoly, these rules now inhibit competition. In particular they threaten the ability of Vodafone to develop more commercial relationships with our existing independent service providers and to sell customised access products to new independent channels. Rather than encouraging additional competition in mobile, regulated access distorts the market process suppresses diversity and limits competitive intensity.

  20.  Non-discrimination hampers Vodafone's ability to serve wholesale channels effectively as the same approach must be available to all prospects irrespective of their commercial attributes or service requirements. We believe that new retail partnerships have emerged more readily from other suppliers specifically because the underlying mobile network operator is able to discriminate in wholesale supply.

  21.  Mandated access particularly acts to limit the diversity of customer experience. There is evidence customers now prefer the certainty of dealing with newer strongly branded suppliers (such as Virgin or Tesco) rather than businesses based on obsolete forms of regulated access. Vodafone believes that a single significant wholesale access deal (such as One2One's deal with Virgin) will do more to enrich the UK customer experience than the aggregate effect of indirect access on mobile.

  22.  Other parties may press for additional rules to promote access to mobile networks for reasons of narrow commercial advantage. Such rules are now wholly unnecessary. The competitive situation in mobile is such that there are strong incentives for operators to offer new forms of wholesale services which are inherently superior for the customer than mandated access. Regulation should encourage such competitive offerings rather than discourage them.

3 November 2000

1   Oftel: A Price Index for Mobile Telephony-June 2000. Back

2   International Benchmarking Study of Telecommunication Services A report prepared by Teligen for the Director General of Telecommunications May 2000. Back

3   Consumers' use of mobile telephony, Summary of Oftel residential survey-Q1 June 2000. Back

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