Ref:  84/01
Date: 12 December 2001

Oftel’s proposal to protect consumers by capping the amount the mobile operators can charge for receiving calls onto their networks will be referred to the Competition Commission, Oftel has announced today.

Following its recent review of the mobile markets, Oftel concluded that mobile termination rates are substantially in excess of cost and there is little incentive on operators to reduce these charges.

A peak rate national call over BT’s network is currently 24 pence for three minutes, while the same call to a mobile network is 60 pence for three minutes, of which 39 pence is the termination charge.

Oftel has proposed charge caps on future termination rates of RPI – 12 per cent over four years.

The proposed caps on the mobile operators will protect consumers from paying too much for calling a mobile phone, allow operators to make a fair return and be an incentive to be more efficient.

Three of the mobile operators publicly objected to the proposed charge controls. Oftel will now refer the matter to the Competition Commission for a decision on whether regulatory action such as charge controls is in the public interest.

Oftel will make its official referral to the Competition Commission in the New Year. The Commission has six months to reach a decision, which can be extended for a further six months.

Announcing his decision, David Edmonds Director General of Telecommunications said today:

"Oftel considered very carefully whether it was necessary to intervene to protect consumers from unnecessarily high prices to call a mobile phone.

"Oftel looked at the level of competition in the calls to mobile market, the profits mobile operators make on these calls, and the impact charge caps would have on the mobile operators.

"We also reviewed the responses that Oftel received from the mobile operators on our decision to impose charge controls."

David Edmonds said that after considering all the evidence, Oftel was clear that consumers still needed protection from excessive pricing and will now refer the matter to the Competition Commission.

"Because the caller has no choice over which network is being called and the price they have to pay for the call, there is no incentive for the mobile operators to reduce their charges for carrying calls onto their networks.

"I regret that the operators have rejected the measures, as our proposals are proportionate and fair for consumers and the industry alike.

"Oftel will now ask the Competition Commission to consider whether it is in the public interest for termination charges to be regulated.

"The Commission will look at the charges the operators make for these calls and the impact controls will have on their businesses.

"I am confident that charge controls are an appropriate measure to protect consumers."

David Edmonds said that Oftel is committed to proportionate regulation, and to de-regulate where appropriate.

"Oftel will always de-regulate where appropriate, but will take action when consumers’ interests are not being protected through competition.

"We have also today published notices of determinations to remove Market Influence from Vodafone and BT Cellnet, which will remove the obligation on them to provide access to their networks to independent service providers.

"In its recent review of the mobile market, Oftel concluded that the Market Influence regulations were no longer necessary.

"Removing this regulation will enable the operators to provide more competitive and innovative access arrangements to independent service providers."

Notes to Editors

1. Oftel published its conclusions on the mobile markets on 26 September 2001 in Effective competition review: mobile and Review of charge controls on calls to mobiles. The consultation period ended on 26 November 2001. Responses were received from the four mobile operators, as well as a number of fixed line operators and consumer groups. These are available on Oftel’s website at http://www.oftel.gov.uk/publications/responses/2001/ctm0901/index.htm.

2. In 1998, following a referral from Oftel, the Monopolies and Mergers Commission (now Competition Commission) carried out an investigation into the cost of calling a mobile phone. It concluded that Vodafone and BT Cellnet were making excessive charges for terminating calls on their networks. The two operators were required to reduce their charges by 25 per cent and reduce charges by RPI – 9 per cent for the next three years. These controls are due to expire in March 2002 and Oftel is considering whether new charge controls are needed to protect consumers.

3. The Effective competition review: mobile statement proposed that the Market Influence regulations that require Vodafone and BT Cellnet to comply with additional Licence conditions to, among things, provide independent service providers with mobile airtime were no longer necessary. The Notices of Determinations published today begin the consultation process to remove the Market Influence regulations from Vodafone and BT Cellnet, thereby removing the additional requirements from them.