FT World Mobile Communications Conference 'Where Value Matters - Content Drives'

London Marriott Hotel, Grosvenor Square, London

11-12 May 2005

The Consumer Perspective

'Consumers in a mobile world'

Peter Ingram
Chief Technology Officer
Ofcom

Slide 1 – Ofcom & Our Approach to Regulation

Good morning. I am pleased to have been invited to participate in today’s debate about the consumer perspective. Because, at the core of Ofcom’s statutory raison d’être, is a duty to further the interests of citizen consumers.

The conference flyer directs me to discuss how operators should retain high-value customers, improve customer service, and increase sales of value-added services. However, as an independent regulator which exists to protect the consumer interest, I shall rightly leave these specific questions for Tony, Steve and others to tackle in a moment.

Instead, I intend to provide an overview of the market, examining recent changes and the likely evolution of the industry in the next five years. I will then outline what these changes mean for consumers, before taking a look at the challenges we jointly face in regulation of the mobile sector and the management of the radio spectrum.

Slide 2 - Mobile Market Trends

So how has the market changed? Well, if I was stood here five years ago, and asked you all to check that your Blackberries were switched off, I would’ve possibly been met with a rather confused stare! Likewise, five years ago, we would’ve probably been discussing whether any service would ever generate more revenue than fixed voice, or whether we would ever see Wi-Fi hot spots in public places.

We know our sector evolves quicker than most, epitomised by the fact that, in the last ten years, mobile’s share of total voice volumes in the UK has grown from next to nothing to over a quarter of all call minutes. Last year, consumer spending on telecoms was over £3bn higher than the previous year, largely driven by mobile and new wave data services (which represented around £12bn – some 14% higher than the previous 12 month period). There are now nearly 60 million active mobile customers, around 3.5 million of which we believe to be on a 3G network, and over 4 million are customers of service providers or MVNOs other than the five mobile network operators. The average number of SMS messages sent per mobile subscriber continues to increase and, in addition to the continued strength of SMS, there are signs that consumer use of other mobile data and video is also beginning to take off. The total number of MMS messages is now over 8 times higher than last year, and the total number of WAP page impressions more than doubled in one year. Over half of the mobile devices in the UK are now GPRS-enabled.

Five years ago, I suspect that few would’ve predicted that mobile ring tone downloads would quickly become a more lucrative business than CD singles. But it’s happened.

Slide 3 – The Coming of Age for 3G

And of course, in the last year or so, we have seen the coming of age for 3G. Hutchison 3G now boasts over 80% population coverage for its 3G service, and both Vodafone and Orange are nearing that benchmark. While it is perhaps too early to seriously place a value on 3G services in the UK, if we look at some of our peers around the world, it is likely that 3G revenues will soon begin to take off.

In short, in many areas of the mobile sector, competition seems to be growing, and there is significant innovation. There has been some concern that this enhanced competition has not resulted in lower prices for consumers, and I’ll return to that issue in a moment.

But firstly, what of future developments? Many before me have painted different pictures, and it is likely that you will all have you own prophesies for how the communications sector will change in the next five or ten years. At Ofcom, we’re reluctant to make definitive forecasts about the future evolution of the sector, but we nevertheless need to make some assumptions in order to be as dynamic and as flexible as the markets we regulate. Understanding trends in consumer demand for telecoms services is very important, as the behaviour of consumers shapes the structure of the telecoms industry and helps set a framework for future regulation.

Slide 4 – The Future of Mobile

I think most of you will agree that one of the key drivers of change in the mobile sector will be convergence. By convergence, I mean, convergence of the underlying technology, of the networks and of devices.

So in practice, what will this mean? As wireless networks are deployed both in the home and office, there is the opportunity for consumers to be ‘always best connected’. Tetherless access to fixed networks in the form of Bluetooth- and Wi-Fi-enabled mobile phones are expected to reach the market later this year. Consumers will expect to use a single contact number across different environments; and we may see a shift away from the use of numbers all together. Consumers will demand unified messaging, multimedia handsets and intelligent features. Consumers will also demand more services from their mobile device – they’ll want to be able to connect to local networks in the home and office, take advantage of different functionality and connect via the lowest cost routing available. In time, consumers will also expect this single communications device to filter their calls, so that the phone will know when the user doesn’t want to be interrupted by work calls in their leisure time. And consumers will also expect their mobile phone to automatically synchronise and share information with their other devices such as their computer and camera. Indeed, many of these features are already available in early forms today.

As a consumer, this scenario excites me. As a regulator, this interests me. But as a player in this industry, this presents a challenge. Can any one company deliver all of this? It’s possible. Of course, some players will become service providers who integrate services across multiple networks, while others may focus on running one of the underlying networks. But some may succeed in simultaneously operating in both camps, and some new entrants may also seek to straddle the boundaries.

Slide 5 – The Future of Mobile

For the next five years, and more, we will be in a transitional stage, whereby we’ll be seeing real evidence of a shift to this converged environment. Paradoxically, we will also see the range of services and networks expand during this period. Homes will widely deploy internal wireless networks, a trend that is already evidenced by the rapid sales of home Wireless-LAN devices. Public Wireless-LANs in hot-spots are becoming well established, and interest in new wide-area technologies such as Wi-Max is growing. And over the next few years, we’ll see the launch of Digital Multimedia Broadcasting and DVB-H, which will extend the variety of services available on mobiles, perhaps also enabling the mobile phone return path to provide interactive mobile TV services.

Some analysts estimate that there may be around 40 million 3G customers in 5 years time, and by that stage, mobile content will generate more than 40% of non-voice revenues. But this progression isn’t automatic and, as we can already see, the economics of mobile are simple, but cruel. Voice delivers somewhere between 30p to £1 per Megabyte, while a 3 minute video generates about 7p per Megabyte. The challenge is therefore to deliver higher ARPU per Megabyte to replace voice revenues. At the moment, only SMS and low-bandwidth, short video content such as the Mobisode delivers that. All else is burning cash.

I’m nevertheless confident that consumers will pay for premium content delivered over mobile devices and, already, the proof is in the profit. In 2003, mobile value added services generated revenues of £1.4bn, and its growing fast.

But what are the implications – for the consumer, and for regulation?

Slide 6 – The Consumer Perspective & Regulation

Firstly, the increased choice of content has raised legitimate concerns from parents – concerned that their children will be on the receiving end of unsuitable content. Commendably the 3G operators, facilitated by Ofcom, have pre-empted these concerns and I’m pleased to note the good progress that the Independent Mobile Classification Body has already made in this area. Therein is a lesson for the future. It is not about being ‘regulated’ or ‘unregulated’: it is about all the players in the arena finding the right solution which works for the consumer, for citizens and for business models.

Similarly, location based services that are active on some newer mobile phones, which reveal the geographical whereabouts of the phone, have also provoked concerns. But again, the progress being made by the operators to prevent misuse of this technology is headed in the right direction. We all share similar concerns about children using mobile phones, so as part of our duty to promote media literacy, Ofcom is commissioning some research into the use of mobile communications by young people. A working group has also been established to investigate how best to inform consumers of the different ways to protect themselves against inappropriate content and services.

Slide 7 – The Consumer Perspective & Regulation

Another concern for consumers, is why a phone call they make on holiday comes back to haunt them a month later when their bill arrives; otherwise known as international roaming rates. Ofcom is currently working with regulators from other Member States in the European Regulators Group on an analysis of competition in the international roaming market. This is one area where a consistent approach across Europe would be particularly desirable if it can be achieved. It is a complex area, and there are a number of questions that will have to be addressed before the analysis can be concluded. But two points do seem to be worth noting. The first is that retail prices seem to be high; the second, that the market is continuing to develop in this respect, not least with the development of traffic direction technology and the formation of commercial alliances. One of the many difficult questions we will need to address is how is the market likely to develop in the absence of any intervention by regulators, and what would be the effects of intervention were there to be any.

Another area of concern for consumers is mobile call termination rates. Last year, Ofcom imposed direct controls on the rates that 2G operators can charge for terminating calls on their network, but these controls will expire next March (2006). We will be consulting later this month on our approach to mobile call termination beyond March 2006, and we will be pressing fixed and mobile operators hard to give much more thought to how mobile termination can be made more competitive or, at least, how pressures other than regulation can be made to constrain mobile call termination prices. I’d encourage you to offer your own ideas and proposals in response to our consultation.

International roaming and mobile call termination aren’t the only sectors of the mobile market where consumers feel bewildered by the complexity of tariff structures. During our research for Ofcom’s review of the telecommunications sector, we found that the increasing choice of new services and tariffs have put a premium on effective customer information. For consumers to consider using alternative suppliers, they first need to be aware of them. In the past, consumers have been able to go onto their high street and receive impartial and objective advice about the best tariff for them from independent retailers. But as some of these companies enter the MVNO market – which is of course good for competition – there is arguably an increasing deficit of unbiased pricing information available to consumers.

Of course, some suppliers already take steps to ensure that consumers are informed. It’s commendable that current consumer awareness of alternative telecoms suppliers is highest in the mobile market. By way of comparison, 4 in 10 consumers can name at least four of the mobile operators, whereas only 6 in 10 fixed line consumers can name just one alternative provider, other than their own. Ofcom believes that, if many more suppliers began to offer voluntary schemes, there would be no need for Ofcom to intervene. Ofcom is also keen to promote the provision of information by intermediaries and is keen to see an extension of the current PASS scheme - which accredits price comparison websites - to provide independent, impartial online comparisons for mobile services as well as fixed.

Despite the areas I have just highlighted, there has generally been a lack of regulatory intervention in the mobile sector, and that’s how we’d like to keep it. But there is one other critical input to the mobile industry that Ofcom regulates: that is, the radio spectrum.

Slide 8 – Spectrum

Over the last year Ofcom has proposed some significant changes to the way spectrum is managed through the Spectrum Framework Review and Implementation Plan. As a light touch regulator, our objective was to set out ways to allow us to move away from a command and control regime, towards allowing market forces to determine the most valuable use of spectrum. We have established a framework for spectrum to be traded in the market, and for the constraints which apply to the use of spectrum to be relaxed; otherwise known as Spectrum Trading & Liberalisation. We have also identified twelve spectrum bands which we propose to make available to the market over the next few years, some of which are small allocations, some representing a significant amount of spectrum that could be used for a wide range of different and exciting applications. In the course of the next five years, our plan is to move over 70% of the spectrum that Ofcom currently manages to be managed by market mechanisms.

Slide 9 – Spectrum

I know that several of the bands that Ofcom plans to release back to the market are of real significance to members of today’s audience, in particular the spectrum at 2.5GHz. Across Europe, this band is currently assigned for 3G technology. Ofcom favours a technology neutral approach so, when the award is made, we hope it could be used for a wide range of mobile applications, whether using 3G technology or other next generation mobile standards. Advisory standards can provide helpful guidance to manufacturers seeking economies of scale. But mandatory standards can risk hindering innovation. Ofcom sees its role primarily to support the market – not try to direct it.

We recently set out some more details on the options for extending Spectrum Trading & Liberalisation to the 2G and 3G bands, taking account of the need for a smooth transition to the new approach to spectrum management. Like I said, we think that there should be no unnecessary restrictions on the ability to use spectrum. But we also recognise the considerable investment which today’s mobile operators have made. One of Ofcom’s core objectives is to be both competition friendly – because that benefits tomorrow’s consumers; and investment friendly – because that benefits the day-after-tomorrow’s consumers. In liberalising the 2G spectrum and releasing the 2.5GHz band, Ofcom will be careful to balance the interests of innovation by newcomers, investment by existing players, and certainty for the industry as a whole. These three, taken together, we believe, best deliver benefits for consumers and keep the UK in the vanguard of the wireless revolution.

We have also consulted on the introduction of Ultra Wideband devices, which has the potential to revolutionise in-home and office networking. It represents a completely different way of using radio spectrum that could deliver many innovative applications such as very high speed personal area networks, in-building location systems, ‘wireless USB’ and more. However, it may cause interference to some existing licence holders, so we have been seeking a way to minimise this while still achieving all the innovative applications that UWB offers. After a lengthy consultation process, we are now hopeful that we’ll be able to contribute to finding a European solution to these issues, paving the way for the first deployments of this exciting new technology in the UK in the near future.

Slide 10 – Consumers - our shared interest

I hope that I have given you some idea this morning of where Ofcom is at on Mobile. In the period ahead there are some exciting opportunities for consumers - new services, new devices, new applications, new content – all driven by competition and innovation. We want the UK to lead the way in the wireless revolution. We just need to ensure that consumers aren’t overwhelmed or confused by these developments. Well-informed consumers that trust the mobile industry is a situation that’s in everyone’s best interest.

Thank you

Download PDF presentation here
If you have any trouble downloading this file please right click and use the 'Save Target As' function

FT World Mobile Communications Conference 'Where Value Matters - Content Drives'

Further information

Help

Keep up-to-date