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E.1 In the December consultation Ofcom proposed to exclude call minutes to ported-in numbers from the charge controls (see paragraphs 6.26 to 6.29 and Annex J of the December consultation). Ofcom remains of the view that this proposal is the most appropriate treatment of these calls. This section discusses Ofcom's position and its responses to the comments made to December consultation.

Arrangements for number portability

E.2 Number portability is the facility which allows subscribers of publicly available telephone services (including mobile services) to change their service provider whilst keeping their existing telephone number. Its purpose is to foster consumer choice and effective competition by enabling subscribers to switch between providers without the costs and inconvenience of changing telephone number. Mobile number portability was introduced in the UK in January 1999.

E.3 Under the current commercial arrangements for mobile number portability, calls to a ported number are routed via the 'donor' MNO (i.e. the MNO that first provided the customer with the telephone number) to the 'recipient' MNO (i.e. the MNO to which the customer has switched while retaining the original telephone number), which then receives the termination charge of the donor MNO (less a Donor Conveyance Charge kept by the donor ^(-63-)). Hence, calls to ported numbers are 'ported-in' from the perspective of the recipient network and 'ported-out' from the perspective of the donor network.

E.4 This arrangement, whereby the recipient operator receives a termination charge set by another MNO (the donor) which may have different charges, is the result of the technical routing system in place at present (i.e. the indirect routing system described above). This routing system does not enable the originating operator to identify the MNO on whose network the call actually terminates (i.e. the recipient MNO) and, thus, the originating operator pays the termination charge of the donor MNO to which it hands the call.

E.5 This charging arrangement generates gains or losses for the MNOs, depending on the relative levels of their termination charges - the termination charges of the 1800MHz MNOs, Orange and T-Mobile, are on average higher than those of the combined 900/1800MHz MNOs, O2 and Vodafone. The arrangement favours the MNOs with lower termination charges, which receives a higher charge on a share of their incoming traffic, and the reverse is true for those with higher termination charges. If the industry were to move to a direct routing system, in which the donor MNO played no role in the transmission of the call and recipient MNO could levy its termination charge on these calls, these gains and losses would disappear.

E.6 Ofcom has expressed a preference for a direct routing portability arrangement where prices reflect costs, as this would not generate the gains and losses noted above and would avoid the cost of an additional transmission leg (due to the routing via the donor network). Ofcom is currently considering the likely costs and benefits of migrating to a direct routing solution in the longer term, though with particular regard to fixed number portability rather than mobile (albeit many of the issues are likely to be similar). Ofcom expects to consult widely on its findings in the near future ^(-64-). However, Ofcom is aware that the cost of setting up the central customer database necessary to support a direct routing system is likely to be high and, therefore, that direct routing may currently not be the most cost-efficient solution. Hence, currently Ofcom continues to be of the view that it is for the industry to decide if, and when, to move to an arrangement that better reflects costs on the basis of the costs and benefits of implementing a different, routing system. In the meantime, in considering how ported-in minutes should be treated in the charge control, Ofcom has assumed that the current technical and charging arrangements for mobile number portability are likely to remain in place in the short-to-medium term.

Calls to ported numbers and the charge controls

E.7 In the May consultation Ofcom expressed the view that the level of porting of mobile numbers has become significant enough to warrant proper consideration of how they should be treated in the charge controls (see paragraphs 7.33 and 7.34). It therefore proposed that the controls on the termination charges of each MNO should cover all calls terminated to handsets connected to the MNO's network, including calls to ported-in numbers. More details on this proposal, referred to as Option 1, can be found in Annex I of the May consultation. However, since this arrangement may render it difficult for the MNOs to comply exactly with their control ^(-65-) , Ofcom also proposed that MNOs could request its consent to exclude call minutes to ported-in numbers from the charge control.

E.8 Having examined the issue further, in the December consultation Ofcom noted that including ported-in minutes and then allowing the MNOs to request their exclusion could result in an undesirable outcome. The combined 900/1800MHz MNOs, which have lower termination charges, may have the incentive to request Ofcom's consent for exclusion, as the inclusion of ported-in minutes (on some of which they receive higher termination charges from the 1800MHz MNOs) raises their AIC and would require them to set their own charges lower in order to comply with their TAC. On the other hand, the 1800MHz MNOs, which have higher termination charges, may have the incentive to retain in the control the lower termination charges of the combined 900/1800MHz MNOs received on some of the ported-in minutes because it would reduce their AIC, allowing them to set their own charges higher and still comply with their TAC. Overall, this would result in an inconsistent treatment of calls to ported numbers and a weakened set of charge controls, to the detriment of consumers.

E.9 Ofcom modified its proposal to address this concern and it suggested excluding call minutes to ported-in numbers from the charge controls (see paragraphs 6.26 to 6.29 and Annex J of the December consultation). However, Ofcom also proposed that it would be minded to include these call minutes in the controls if a concern arose that the MNOs might be reducing the effectiveness of the charge controls by setting excessive termination charges for calls to ported-in numbers.

E.10 Ofcom has not changed its view and intends to implement the proposal put forward in the December consultation. Given the current charging arrangements, Ofcom considers its December proposal to be the most appropriate treatment of calls to ported numbers. Whilst call minutes to ported numbers are not going to be included in the charge controls, Ofcom will monitor the behaviour of the MNOs and will be minded to include these minutes in the control if the MNOs set excessive termination charges for calls to ported-in numbers.

Responses to the consultation

E.11 O2 welcomes Ofcom's proposal, describing it as a "pragmatic decision to exclude ported in minutes from the charge controls easier to administer in practice".

E.12 Orange agrees with Ofcom's conclusion that including calls to ported-in numbers in the charge control could give rise to practical complications. However, it made the point that excluding them is not sufficient and that a solution should be found for the gains and losses generated by the current indirect routing system where the donor termination charge (D_t) applies for all ported-in minutes. Orange's proposal is to alter the charging arrangements to introduce a "combined system", where for certain categories of calls to ported-in numbers the recipient termination charge (R_t ) is paid. Table 1 below describes Orange's proposed system and compares it with the current charging system.

 

Table 1: The current charging system for terminating calls to ported-in numbers and the "combined system" proposed by Orange

	Current charging system	Orange's combined charging system
If Dt = Rt	the terminating operator receives Dt	the terminating operator receives Dt
If Dt < Rt	the terminating operator receives Dt	the terminating operator receives Dt
If Dt > Rt	the terminating operator receives Dt	the terminating operator receives Rt

E.13 Orange's system implies that for a call to a number ported from a 1800MHz MNO to a combined 900/1800MHz MNO, where the donor termination charge is higher than the recipient one, the donor MNO would transfer an amount equal to the R_t and retain the difference between its termination charge and the recipient one (D_t - R_t ). Whereas in the case of a call to a number ported from a combined 900/1800MHz MNO to a 1800MHz MNO, where the donor termination charge is lower than the recipient one, the recipient MNO would continue receiving the donor termination charge. However, in all cases the originating operator would pay the same termination charge (of the donor network) as under the current system.

E.14 Orange argues that this system would be more equitable than the current one as it would reduce the unearned losses ^(-66-) incurred by the 1800 MHz MNOs, which have higher termination costs. It also claims that the implementation of its suggested combined system would not require any changes to the MNOs' billing system, but only a simple data management amendment to adjust relevant charge classes in the interconnect billing system.

Ofcom's response

E.15 Ofcom considers that ideally the termination charges paid by the originating operators on calls to ported numbers should reflect the costs incurred by the terminating (and recipient) operators to complete the call. As discussed above, a disadvantage of the current system is that the originating operator does not always pay a charge that reflects the relevant cost of termination on the recipient network. However, Orange's "combined system" does not address this disadvantage, since the originating operator would pay the same termination charge (of the donor network) as under the current system (i.e. the reduction in the termination charge received by a recipient operator for some calls to ported-in numbers (when D_t > R_t ) would not be reflected in the termination charge paid by the originating operators) ^(-67-) .

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Footnotes

63:- This is the charge which, under the current arrangement, is paid by the recipient MNO to the donor MNO for the transit service of routing of the ported call. This charge covers the switching, engineering and transmission costs incurred by the donor MNO in conveying the call to the recipient MNO.

64:- Ofcom published a Consultation on proposals to change the framework for number portability of June 2002 after the failure of Atlantic Telecom in which thousands of subscribers lost their telephone numbers. In its subsequent Statement on proposals to change the framework for number portability published in December 2002 Ofcom indicated that it would carry out an economic assessment of the costs and benefits of introducing a centralised database which would facilitate a direct routing solution.

65:- This is for two reasons. First, each MNO would need to forecast accurately the charges that all other MNOs set for termination during the forthcoming control year, since these would form part of its own AIC via ported-in minutes. In addition, even the knowledge of other MNOs' charges for the control year ahead would not be sufficient, as each MNO, to satisfy its cap exactly, would also need to know the weights in the other MNOs' caps.

66:- There would be no losses if the volumes of ported-in minutes between pairs of MNOs were equal.

67:- Under Orange's "combined system" the revenues (D_t-R_t ) retained by the donor operator on calls to ported-out numbers (when D_t > R_t ) only by chance allow the donor operator to recover the revenue lost when it receives a lower termination charge (i.e. when D_t < R_t ) on calls to ported-in numbers. The revenues from ported-out numbers and the lost revenue from ported-in minutes depend on different and unrelated flows of traffic and, therefore, will be equal only when, these two flows are equal.

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