Contents

Slide 1 - Agenda

Slide 2 - Mobile market changes

Slide 3 - The changing mobile market

Slide 4 - Oftel's response

Slide 5 - "The upside"

Slide 6 - "The downside"

Slide 7 - Reviewing Oftel's role

Slide 8 - Oftel's new strategy

Slide 9 - So how does this apply to mobile?

Slide 10 - Conclusion - Who's pulling the levers

Slide 1 Agenda

Good morning ladies and gentlemen, thank you for the introduction Richard.

Over the next 20 minutes I want to look at how the mobile market is changing and Oftel's response to those developments.

I’ll illustrate Oftel’s approach by looking at some recent examples of Oftel’s work in the mobile area.

Slide 2 – Mobile market changes

As you’ll be aware as much as I am, the market has seen extraordinary growth over the past year.

Now nearly 20 million of us have mobile phones.

This growth has been especially driven by the growth in pre-pay, which is estimated to have accounted for up to 80% of growth in the last year.

We have also seen an increase in marketing activity designed to compete with fixed network operators – is it goodbye to your fixed phone?

Perhaps not yet, and not until mobile prices come down even further.

Slide 3 - The changing mobile market

The other significant development in the mobile market is the emergence of additional service opportunities, particularly in respect of data, Internet and e-commerce.

We know that third generation technology offers an exciting world of surfing and shopping on the move, but many innovations are happening now with current networks.

As well as a fixed PC and TV, mobile is another infrastructure over which exciting new services can be delivered.

We see a potential explosion of new services for the mobile customer.

Oftel is keeping a watching brief on this emerging market to see how the industry expands choice for the customer.

One thing we have done is strongly support the government’s intention to encourage a new entrant to the market when 3G licences are awarded.

We saw very positive effects in terms of pricing and services when one2one and Orange came into the market.

I’m happy to see that the roaming issues have now been resolved and the auction is going ahead early next year, with the prospect of even more competition in the market.

Slide 4 - Oftel’s response

Securing customer benefits is key in Oftel’s work.

All our regulatory action should be judged ultimately by the practical effect it has towards achieving this goal.

Wherever possible our goal is delivered through competition.

Through competition the consumer is most likely to get quality, choice and value for money.

We are also seeking to withdraw from regulation as markets become more competitive.

You might say, therefore, that the regulator should be regulating less in the mobile market as it is becoming competitive.

I admit there is a tension for us here; on the one hand, the mobile market is becoming competitive.

On the other, we have pressures both from consumers and industry to intervene in the market.

Slide 5 - "the upside"

In many respects, the mobile market presents a positive picture to the regulator. There is clearly a high degree of competition at both network and service level. We have 4 competing operators, many service providers and the prospect of more network competition with 3G.

We have seen prices fall by something like 75% in real terms since 1990, with falls between 5% and 15% this year.

There is no legacy of state monopoly in the mobile market which requires heavy handed regulation to open up to competition, although there is a history of duopoply.

This is reflected in the current designation of BT Cellnet and Vodafone as having market power and subject to certain licence obligations, in particular to supply wholesale airtime on non-discriminatory terms to independent service providers.

Competition is clearly emerging in the mobile market, and I am very much looking to competition to deliver.

Slide 6 "the downside"

However, despite the positive signs from the market, it’s not there yet.

Clearly, there is a significant barrier to entry in the restrictions on spectrum which means that there are limits on the number of potential network operators. Whether this means that the market can never be effectively competitive is a subject of intense debate: Oftel’s view is that it can, but that there are still a number of obstacles to the market delivering a good deal for the customer.

As I’ve said, Oftel’s key goal is to secure for the customer the best deal from the mobile phone companies.

I do have concerns over pricing, over coverage and about quality of service. Oftel receives a very high level of complaints about mobile phone companies – over 40% of our total complaints.

In some respects, this is not unexpected, given the huge increase in customer numbers.

However, we’ve all seen press reports of customers being unable to be connected due to the mobile companies being unable to cope – at Christmas last year and during the summer.

I’ve written to all of the companies to ask them what plans they’ve got in place to make sure that we don’t have a repetition of earlier problems this Christmas. Customers need to be fully informed about the level of service that they can expect and what they need to do to start using their mobile phones.

As well as these practical issues from a customer perspective, Oftel is also watching trends in the market to see how competition is developing.

We’ve seen a very clear trend towards consolidation in the market as independent service providers have sold out to the network operators.

This in itself is not unexpected as the voice market matures.

However, we are keen to see that the customer has a wide choice in value-added services over mobile networks and we are watching how the industry develops its approach to service availability.

Finally, a few words about fixed/mobile integration, in particular the takeover of full ownership of BT Cellnet by BT.

Oftel advised the Secretary of State that BT should be allowed to take over full ownership of BT Cellnet, provided that appropriate measures were put in place to require BT to produce separate accounts for its mobile business.

The mobile market is more competitive than in the days when the shareholding restriction was placed on BT.

However, we do still have concerns about the potential for BT to leverage its power in the fixed market into the mobile market.

Oftel has just issued a consultation document which sets out our powers in respect of potential anti-competitive activity on the part of BT, and the additional accounting arrangements we have put in place to monitor BT’s activities.

Slide 7 – Reviewing Oftel’s role

The mobile market is changing: it’s pretty competitive, but we still have concerns about it.

What then should be our response as regulators?

For Oftel, the key question is to find the appropriate level of regulation, but still ensure that customer needs are met.

We are currently undertaking a review of our long term strategy and have issued a document which many of you will have seen on our proposals.

Our approach is summarised on the next slide.

Slide 8 – Oftel’s new strategy

As you’ll see here, Oftel’s goal remains the same.

The customer remains very much the focus of our work.

However, we are moving towards a lighter touch, which means that we will cease to actively promote competition where effective competition is in touch. What do we mean by ‘effective competition’?

Well, one approach would be to rely purely on a definition which talks about the lack of players with market power.

However, I’d also like to emphasise the consumer aspects of effective competition, following a theme I’ve pursued since I was appointed.

Hence the emphasis on well informed and protected customers in Oftel’s strategy.

The mobile market is a particular example of a market where customers have a very wide range of choices, of service provider, network and tariffs, but one where they don’t necessarily have all the information available to take advantage of choice.

As we’ll see later, Oftel has put in place measures to improve the information available to customer, initially in terms of publishing comparative performance indicators on mobile network quality of service.

The prevention of anti-competitive activities is again a result of the first objective.

However, Oftel’s new powers under the Competition Act will contribute to our ability to achieve this objective.

The final objective recognises that there will be instances where competition is not protecting certain groups of customers or that in some areas we will need to maintain protection even where effective competition is achieved.

Slide 9 – So how does this apply to mobile?

So how are we applying these principles to mobile?

There has been a lot of recent mobile activity, not least because of the tremendous amount of work that has gone on into laying the groundwork for the 3G auction.

I’ll pick out a few recent examples to illustrate our approach.

The culmination of two years’ work came earlier this year, when the UK Monopolies and Mergers Commission agreed with the Oftel view that calls to mobile phones should be reduced and a price control, worth £1 billion to consumers, was introduced.

In this instance, Oftel decided that regulatory action was needed because the market in calls to mobile phones was effectively a bottleneck and did not have any prospect of becoming competitive.

Earlier in 1999, Oftel carried out a review into the competitiveness of the UK mobile market.

Following on from our work in calls to mobiles, we wanted to assess the market in calls from mobiles and to see whether we needed to take any extra regulatory measure: was a price control on calls from mobiles needed?

In July, we concluded that price controls were not appropriate, but that we would take some further measures in the mobile market, particularly to investigate potential anti-competitive activity on the part of BT Cellnet and Vodafone towards independent service providers.

That investigation is underway.

As a result of the 1999 review, Oftel is also setting up a new system for monitoring changes in prices of calls from mobile phones so we can get a comprehensive view of what’s happening to calls from mobile from the consumer perspective.

We’ll use this information as an input to a further review of the market starting next year.

In parallel with the competition review, Oftel investigated whether Indirect Access (IA) should be offered in the UK, and concluded that it should be offered by the two operators with market power.

In this instance, we concluded that there were advantages to customers in IA that warranted regulatory intervention and we expect to have IA services introduced next year.

Oftel has recently concluded an investigation into mobile virtual networks – known as MVNOs.

Here again, we looked at the incremental benefits to consumers in MVNOs and balanced this against the cost of regulation and the prospect of competition.

We found that, whilst there were some benefits to consumers in potential new services offered by virtual network operators, we did not see a case for regulatory intervention to oblige mobile network operators to open up their networks to virtual operators.

Finally, we have a number of projects to improve customer information in respect of both fixed and mobile.

Most recently, we have been working with the mobile operators to produce comparative network performance indicators.

We have worked very hard with the operators to produce figures that will allow customers to understand, for a number of given geographic areas, the level of network quality they are likely to get from each operator.

I have to say that we are somewhat disappointed by the difficulties such an apparently simple task has given the operators, but this is an area which I view as of paramount importance to customers.

I will continue to work with operators and urge the industry to take a mature approach to improving the information available to customers.

Slide 10 Conclusion – Who’s pulling the levers?

Well, who is pulling the levers in the mobile market today?

The operators and service providers are clearly calling the shots today in terms of services and prices available to mobile phone users.

The EU has set a framework for mobile market regulation, and is reviewing that regulation in the light of changing market conditions.

Oftel is also calling the shots: the regulator’s actions have had an impact on current market structure and continue to do so.

We have acted where there is a lack of competition to protect consumer interests, notably in the case of calls to mobiles.

We will continue to act on behalf of the consumer where we see that they are not getting a good deal.

Will it change in the future?

Oftel’s aim is that industry should pull the levers to as great an extent as possible.

We view competition as the best means of delivering benefits to customers.

Whether this happens or not is very much down to the industry: I expect them to offer a wide range of services to meet customer needs at affordable prices.

I expect them to provide sufficient information to customers to enable the customer to make an informed choice and not get caught up in small print.

I expect a wide range of content and value-added services to be delivered across mobile networks as they are across fixed.

Can the industry deliver as I expect?

I hope so.

Will the same players deliver tomorrow as do today?

Probably some will, and new ones will emerge.

Whatever happens, we are all sure of an exciting future for the mobile industry.