This Document is about the future of the regulatory regime governing the activities of businesses engaged in the retailing of airtime on the mobile telephone networks, and of businesses providing value added or "enhanced" services on those networks.
In the early years after the first two mobile telephone networks, Cellnet and Vodafone, were launched in 1985, retailing of their airtime to the public was mainly conducted by independent businesses known as "Service Providers". However, the independents have always had to compete with a number of airtime retailing businesses which are either owned by the mobile telephone networks or their parent Groups ("tied service providers" or "TSPs"), and in recent years the share of the market served by the TSPs has grown very markedly.
In 1992 and 1993 I received complaints that the ability of independent service providers to compete was being undermined by anti-competitive behaviour on the part of the mobile networks and their Groups. Following an investigation, I introduced a series of measures in May 1994 designed to ensure a fair trading environment for independent service providers. In particular these measures were intended to enforce a licence under which I may require the mobile networks or members of their groups to take steps to eliminate unfair cross-subsidies to related businesses such as TSPs. Since that time all TSPs have been subject to detailed monitoring by Oftel, under which they submit returns intended to measure compliance with certain financial criteria specified in my 1994 statement.
Two years later, the mobile market has evolved considerably. Mercury One-2-One and Orange have both launched their networks and established a strong foothold. The total number of mobile subscribers has more than doubled and continues to rise. There has been a shift in the focus of marketing from the business sector towards personal and professional users. Reflecting this, the structure of mobile retailing has also changed, with high street multiples assuming a key role. The share of total mobile subscribers accounted for by the TSPs has continued to grow.
Meanwhile there has been debate over whether the Oftel financial criteria are effective in doing what was intended, either in measuring cross-subsidy or indicating what has been going on in the market. Some service providers have continued to make allegations of anti-competitive behaviour on the part of the network operators, and, in particular Talkland International has very recently lodged a further complaint centred on the alleged ineffectiveness of the criteria, and their failure to cover incentive payments made directly by the network operators to retailers of mobile hardware who are not service providers. I am investigating this complaint. However, I have also received representations from network operators that the monitoring regime set up in 1994 is no longer appropriate to the present more competitive market-place and is inhibiting developments which would benefit consumers.
It is therefore timely, not only to assess how well the monitoring regime has worked, but to look more fundamentally at the current state of competition in the marketing of mobile services. This Document therefore begins by reviewing market developments, and then examines what changes, if any, may be needed to the overall regulatory regime for mobile service provision.
In reaching my conclusions I have noted that the mobile market is now characterised by relatively strong competition between four network operators. There is evidence that the larger networks are now much less able than they were to act independently of other players in terms of pricing and marketing, and that this is influencing their retail propositions to consumers. Against that background the detailed regulation of the market, particularly regarding the terms on which the operators can distribute their products, and their choice of distributive route, now looks increasingly artificial and archaic. The level of competition, and the corresponding impact on the market, is clearly moving towards the point at which that regulation could be dismantled altogether, and that now seems to be a real prospect for the relatively near future.
In summary, I have concluded that, although the basic regulatory framework under which mobile service provision is conducted should continue to apply for the time being, a number of modifications might appropriately be made to the financial criteria with which TSPs are asked to comply under the Oftel monitoring arrangements, and that there are some areas where all the operators could now be allowed greater flexibility in deciding how their products are brought to the market. In addition Mercury One-2-One and Orange should be free from restraint on the cross-subsidy of mobile service provision for so long as they remain without significant market power. The existing mobile licence provisions prohibiting undue preference and undue discrimination and regulating other matters such as adherence to published charges, terms and conditions and accounting separation should for the time being remain in place, but all the mobile networks should have somewhat greater freedom to control how their brands are presented to the public.
I intend to keep the regulatory regime for mobile service provision under review, with the general objective of progressively withdrawing, as soon as the development of network competition allows, from detailed control of how mobile services are distributed to the public, and relying instead on general provisions for the control of anti-competitive behaviour and abuse of a dominant position.
My aim has been to ensure that consumers receive the maximum benefits from competition in retailing without putting in jeopardy the significant indirect benefits of strong inter-network competition. Before final decisions are taken it is important that all those affected, including mobile subscribers and the telecommunications industry, should have the opportunity to consider what is proposed and contribute their views. On some points we are seeking further information which only industry practitioners can provide.
DON CRUICKSHANK
Comments are invited on all the conclusions and questions indented and printed in bold type in the text below. Written comments should be sent to:
Nick Steinitz
Oftel
50 Ludgate Hill
London EC4M 7JJ
The initial consultation period will run until Friday, 6 August 1996. There will then be a further period up to Friday, 23 August 1996 during which comments are invited on any submissions made to Oftel during the initial period.
Written comments will be made publicly available in Oftel's library except where respondents indicate that their response or parts of it are confidential. Respondents are requested to separate any confidential material into a clearly marked confidential annex.
Short responses can also be sent to Oftel on the Internet, using the following e-mail address:
press.office.oftel@gtnet.gov.uk
Oftel would strongly encourage any respondents to set up links between this Document on Oftel's pages and any responses to it placed on respondents' own Internet pages. Please contact Catherine Guiver at Oftel on 0171 634 8756 to organise this. Confidential responses should not be sent via the Internet.