Ref: 64/01
Date: 26 September 2001

Oftel has today published the conclusions of its review of the mobile telecommunications market and its review of the need for controls on wholesale charges for calls to mobile phones.

David Edmonds Director General of Telecommunications said today:

"Mobile telecommunications are increasingly central to both personal and commercial life in the UK. The UK consumer has derived major benefits from high quality services at prices that are amongst the lowest in Europe.

" Proportionate regulation that allows competition to grow has played a key part in securing these benefits for consumers and must continue to do so in future.

"This means firm action where necessary. But it also means avoiding intervention that would not be in the long run interests of consumers.

"Proportionate regulation, especially a time of massive turbulence in financial markets, needs to take account of the value of regulatory certainty. Regulation should not damage the ability of the mobile companies to invest in new infrastructure. Consumers benefit most from strong companies competing vigorously against each other.

"Today’s proposals are the result of two major reviews and thorough consultation exercises. I have listened and learned from all sections of the industry and a wide range of consumer bodies.

"The proposals are designed to deliver significant benefits to consumers through increased competition, backed by carefully targeted intervention to reduce prices in the specific market of calls to mobile."

Commenting on the review of the mobile market, David Edmonds said:

"The Oftel review of the mobile market found increasing competition. Since January 1999, the cost of mobile telephony has fallen by around 30 per cent. Consumer satisfaction with mobile services remains high at over 90 per cent.

"There are four major operators with more even market shares. A new operator is entering the market.

"On the other hand, our review found that Vodafone and BT Cellnet continue to price calls on average at levels higher than would be seen in a truly competitive marketplace.

"This means I cannot yet conclude that the mobile market is effectively competitive. Therefore the designation under EC Directives of Vodafone and BT Cellnet as operators with significant market power will remain in place.

"However in the light of the increasing competition, I have concluded that some existing regulation can be removed and there is no case for additional regulation.

"I propose to withdraw the market influence determinations that oblige Vodafone and BT Cellnet to supply airtime to independent service providers. Both Vodafone and BT Cellnet have said that the withdrawal of this rule will enable them to offer more innovative commercial deals to service providers. Oftel will monitor developments with service providers closely.

"I have also concluded that no controls on retail price on calls from mobile telephones are needed. There will be no requirement on the operators to grant access on cost-based terms nor to sell wholesale unbranded airtime to service providers."

David Edmonds said the operators had a duty to provide clear information on pricing and services to consumers.

"I want the four operators to work with Oftel to provide much clearer information to consumers on prices and services, so consumers can make informed choices on which operator to use.

"I also want to see measures to reduce the locking of handsets to SIM cards which make it difficult for consumers to switch networks. I have today written to all four of the mobile operators asking them to join in immediate discussions to end the practice of locking handsets to the originally purchased SIM cards through co-regulation.

"I am also concerned about the price of mobile calls when roaming on overseas networks. Prices for such roaming calls are significantly higher than costs. The European Commission is investigating the issue and Oftel will continue to assist their work.

"The next review of the mobile market will take place according to the timetable and framework set by the new EC Directives when they come into effect. My expectation is that at the next review the mobile operators will be able to demonstrate increasing competition to the benefit of their customers."

Commenting on the review of calls to mobile phones, David Edmonds said:

"As the caller pays the price of calling a mobile phone and has no choice about the network to which the call is being made, there is no incentive on operators to reduce termination charges.

"Over the last three years operators’ costs have continued to fall and call volumes have increased. As a result, Oftel believes that termination charges are still above costs.

"Consumers on all four networks should benefit from these reduced costs. I therefore propose to continue with a charge control of RPI – 12 per cent for the next four years that applies to all four mobile operators. There will be no initial step change.

"The control will not apply to calls carried over 3G networks.

"Consumers will save an estimated £800m over the four years as a result of Oftel’s charge controls on the four operators. The estimated reduction in operators’ revenue is £600m. The difference reflects profits forecasted on higher call volumes in response to lower prices.

"This strikes a fair balance between the needs of consumers to be protected from high prices in this market and the ability of the operators to make fair returns.

"Although the charge controls will be in place for four years, there will be a review before then to coincide with Oftel’s next review of the mobile market."

David Edmonds concluded:

"Overall, my proposals represent withdrawal of regulation where the market has become more competitive; the rejection of new controls in much of the market; and Oftel taking decisive action where consumers still need to be protected.

"The emphasis is on competition rather than regulation as the means of improving services for consumers further. It targets regulatory intervention more precisely on issues of the greatest concern and responds positively to operators’ fears about more intrusive regulation.

"This is a forward-looking and balanced package for the evolving mobile market."

Notes to editors

1 Effective competition review: mobile – final statement can be found on Oftel’s website at www.oftel.gov.uk/publications/mobil/mmr0901.htm. Review of the charge control on calls to mobiles can be found on Oftel’s website at www.oftel.gov.uk/publications/mobile/ctm0901.htm. Hard copies are also available to the media from Oftel’s Press Office on 020 7634 8991 or to the public from Oftel’s Research and Intelligence Unit on 020 7634 8700

2 Oftel will consult on the removal of the designation of ‘market influence’ from BT Cellnet and Vodafone. These two networks remain designated as having significant market power under the EC Interconnection Directive.