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Summary

1.1 Wholesale mobile voice call termination (“MCT”) is the service necessary for a network operator to connect a caller with the intended mobile recipient of a call on a different network. If voice call termination, generally, was not available a network operator could only terminate calls to other customers on its own network. This service is referred to as wholesale because it is sold and purchased by network operators rather than retail customers.

1.2 In this statement, Ofcom is setting out the conclusions of its review of the market(s) for supply of MCT, including its conclusions on market definition, the existence of Significant Market Power (“SMP”), the detriments likely to arise from the exercise of that SMP and the remedies which should be imposed. Ofcom’s review is a forward looking review of the four years from 1 April 2007.

Background

1.3 Ofcom last conducted a review of markets for the supply of MCT during 2003/2004, and concluded that exercise on 1 June 2004 when it published the statement Wholesale Mobile Voice Call Termination (the “June 2004 Statement”) in which it designated Vodafone, O2, T-Mobile, Orange and Hutchison 3G UK (together, “the five MNOs”) as having SMP. Various conditions were imposed on the five MNOs, including charge controls which were imposed on only Vodafone, O2, T-Mobile and Orange (the “2G/3G MNOs”). The charge controls imposed on the 2G/3G MNOs will expire on 31 March 2007.

1.4 Hutchison 3G UK (“H3G”) subsequently appealed its SMP designation and the Competition Appeal Tribunal (“CAT”) remitted the decision back to Ofcom to reconsider. Ofcom is publishing separately today the conclusions of its reassessment of H3G’s SMP during the period to 31 March 2007 (see Statement Assessment of whether H3G holds a position of SMP in the market for wholesale mobile voice call termination on its network - the “Reassessment of H3G’s SMP”)

1.5 The present market review was initiated on 7 June 2005 when Ofcom published a document Wholesale mobile voice call termination – a preliminary consultation (“the Preliminary Consultation”). That document was intended to initiate consideration of the issues.

1.6 On 30 March 2006, having considered responses to the Preliminary Consultation, Ofcom published a more detailed consultation document Wholesale mobile voice call termination – (“the March 2006 Consultation”). That consultation set out Ofcom’s initial view that there are separate markets for MCT supplied by each of the five MNOs, and that the prima facie evidence indicated that each of these mobile operators has SMP in the market in which it supplies MCT. Ofcom emphasised, however, that it had not yet concluded its analysis of whether any purchasers of MCT have countervailing buyer power (“CBP”) sufficient so as to constrain a supplier’s ability to exercise SMP.

1.7 The March 2006 Consultation also considered the detriments which may arise from the exercise of SMP in these markets, and explored a number of regulatory options for addressing those detriments. Ofcom indicated an initial view that, in the presence of SMP, some form of charge control might be appropriate and that there may be merit in applying a “technology-neutral” charge control to each MNO. For example, in the case of MNOs with both 2G and 3G networks a single control applying irrespective of which network is used to terminate a specific call. The March 2006 Consultation noted that as Ofcom had not yet concluded its cost modelling work it was unable also to express a view as to whether the same or different charge controls should be imposed on each of the five MNOs.

1.8 On 13 September 2006, having considered responses to the March 2006 Consultation, Ofcom published a third consultation Mobile call termination – Proposals for consultation (the “September 2006 Consultation”). In the September 2006 Consultation, Ofcom set out its view that there are separate markets for MCT supplied by each of the five MNOs and each of these mobile operators has SMP in the market in which they supply MCT. The September 2006 consultation also set out Ofcom’s view of the detriments which are likely to arise from the exercise of that SMP, and the remedies which Ofcom proposed should be imposed. These remedies included charge controls to apply to each of the five MNOs for four years to 31 March 2011, obligations to meet reasonable demand for MCT on fair and reasonable terms, prohibitions of undue discrimination and obligations concerning transparency of charges and contract terms.

1.9 Responses were received from BT, C&W, Vodafone, O2, Orange, T-Mobile, H3G, The European Commission, Mr Alan Horne, and 3 others [redacted] who wished to remain anonymous

Ofcom’s conclusions

1.10 Having considered responses to the September 2006 Consultation, Ofcom is setting out in the present Statement its conclusions that

• There are separate markets for the provision of wholesale mobile voice call termination in the UK to other Communications Providers by each of Vodafone, O2, Orange, T-Mobile and H3G.
• Each of the five MNOs has SMP in the market for termination of voice calls on its network(s)
• Charge controls should be imposed on the supply of MCT by each of the five MNOs, and those controls should apply without distinction to voice call termination whether on 2G or 3G networks.
• The charge control should apply for 4 years from 1 April 2007
• Average charges of H3G should be reduced to 5.9 ppm (2006/7 prices) by the final year of the charge control (1 April 2010 to 31 March 2011). This level reflects exogenous cost differences between H3G and the 2G/3G MNOs. The change to be implemented by an initial reduction to 8.5ppm (2006/7 prices) followed by three reductions each of equal (percentage) change across the next three years (ie from April 2008 to March 2011).
• Average charges of Vodafone, O2, Orange and T-Mobile should be reduced to 5.1 ppm (2006/7 prices) by the final year of the charge control period (1 April 2010 to 31 March 2011). The reduction should be implemented in 4 equal (percentage) steps across the four years.
• In these particular markets, Ofcom would normally give around 60 days notice of regulatory charge reductions. As existing MCT charge controls expire less than one week after publication of the present statement, such notice cannot be given on this occasion without a break between the old and new controls (which Ofcom does not consider appropriate). To address this procedural concern, Ofcom has decided, therefore, to impose new controls from 1 April 2007 but to adjust the level of the year-one (1 April 2007 to 31 March 2008) controls by weighting them as though they applied for only 10 of the 12 months of the year one control and as though for two of the 12 months the present average charges applied. This adjustment increases H3G’s year one control level to 8.9ppm (2006/7 prices). The impact on the year one control level for the 2G/3G MNOs is less than 0.1ppm.
• Further conditions should be imposed requiring provision of voice call termination on fair and reasonable terms and conditions (including contract terms), prohibiting undue discrimination, and requiring charge transparency. Ofcom has concluded, however, that the proposed obligation to publish contracts is not proportionate.

1.11 The Notification setting out the market definition, SMP designations and SMP conditions, including charge control conditions, is attached at Annex 20.

1.12 Ofcom is publishing in parallel with the present statement a consultation which considers whether the charge controls set out in the Notification at Annex 20 should be modified to take into account the impact on average MCT charges of the present mobile number portability arrangements.

• Mobile Call Termination Statement [pdf]
  Full Print Version
• Further Information

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