6.1 The present Document has so far addressed issues of competition solely in relation to the retailing of airtime. In the following section Oftel also considers the issue of the overall effectiveness of the mobile regulatory regime in securing fair, efficient and sustainable competition in the provision of enhanced services (such as voice messaging, store and forwarding of fax) on mobile networks. The reason for this is Oftel's recently published Consultative Document (already referred to), Promoting Competition in Services over Telecommunication Networks, which reviews the regulatory framework for services provided over fixed networks by operators that do not have networks of their own (referred to in that Document as "independent service providers"). Promoting Competition in Services proposes a new freedom for BT in the prices it charges for use of its network by such independent service providers. It also proposes to overhaul the regulatory split between the part of BT providing basic network services and the part providing value added or enhanced services, so that the latter is competing on more equal terms with independent service providers who use its network.
6.2 The Document Promoting Competition in Services did not deal with the provision of services over mobile networks, but Oftel recognises that the fixed and mobile markets are likely to converge and, in particular, that some service providers want to offer services over both types of network. Some in the industry have urged Oftel to harmonise the fixed and mobile regulatory frameworks applying to operators wishing to use telecommunication networks to provide services such as voice messaging and electronic mail.
6.3 The more specific issue also arises as to whether mobile networks without significant market power should be accorded a similar freedom to cross-subsidise in-house provision of enhanced services as it is proposed above they should enjoy with respect to tied airtime retailing. The discussion in Section 3 of the prohibition on unfair cross-subsidies and other fair trading rules (such as prohibition of undue preference) focused on their applicability to airtime retailing, but all these rules apply also in relation to other forms of service provision on the mobile networks, such as enhanced services. Is there any justification for treating the two forms of service provision differently?
6.4 The general principles governing provision of enhanced services over mobile networks were set out by the former Director General, Sir Bryan Carsberg, in a statement he made on 10 September 1991. In this he announced his conclusions following investigation of a complaint that Cellnet had, among other things, been cross-subsidising its Callback messaging service out of its network revenues, and that this was unfair to competing providers of messaging services on the Cellnet network. His statement affirmed the general principle that the provision of enhanced services (referred to in the statement as "value added services") on mobile networks, as on the fixed networks, should be fully open to competition. To ensure this he would require a network operator's in-house messaging services not to be unfairly cross-subsided, shown undue preference, or be made part of a linked sales package. This allows non-network operators also to provide this service if the costs of their messaging services ar titive.-->
6.5 To apply these rules this meant, among other things, that such services should be accounted for separately from network operation and their costs properly measured. It also meant that these in-house enhanced services businesses should "buy" any network services they use (eg an inbound call from a mobile handset to access the stored message) at the same price that any other service provider pays, and that these in-house businesses cannot have exclusive access to network facilities.
6.6 As already noted, the licences of the mobile PTOs all contain conditions controlling provision of unfair cross-subsidy, prohibiting undue preference, undue discrimination, and linked sales, and requiring publication of wholesale prices charged to Service Providers, and accounting separation of Systems Business from other businesses including Direct Business and Supplemental Services Business. The basic regulatory framework is therefore in place to ensure that providers of enhanced services can gain access to the mobile networks on fair terms and that competition between enhanced service providers cannot be foreclosed by network operators just because they control the network itself.
6.7 However, there is an issue as to whether or not the details of this framework are quite right. There have been calls for the Director General to take action on several occasions since 1991 to overcome obstacles encountered by independent operators wanting to provide enhanced services on the mobile networks. Most of these have been about cross- subsidy, and have not shown up any difficulties with the current structure.
6.8 But the mobile PTO licences are modelled on BT's licence, where Oftel is now experiencing some difficulty with the detail of the regulatory structure. In particular the definitions used in the mobile PTO licences mirror those in BT's licence for "Systems Business"("SB"), "Value Added and Data Services" and "Supplemental Services Business" ("SSB") which, in the BT licence, result in an inconsistent and unsatisfactory allocation of services between SB and SSB. There would therefore appear to be a case for revising these definitions in the mobile licences to keep them in line with any changes made to these definitions in BT's licence.
6.9 Finally, doubts have been expressed as to whether the definition of "Service Provider" in the mobile licences (see footnote 1), or the scope of the condition prohibiting undue preference and undue discrimination, are legally drawn widely enough to encompass the activities of providers of enhanced services. If this is the case some revision of the mobile licences may be necessary to ensure that dominant operators cannot discriminate between tied providers of enhanced services and independent providers of such services (whether or not such enhanced service providers are also airtime service providers).
6.10 Oftel's preliminary conclusion is that the problems that have been identified in BT's licence in relation to enhanced service provision exist in the mobile licences, but are latent. It is also Oftel's preliminary view that the mobile licences may need some amendment to ensure that independent providers of enhanced services are sufficiently protected against discriminatory treatment by network operators. However, Oftel has also reached a preliminary conclusion that the basic structure to ensure a competitive market in enhanced service provision is already in place.
Oftel would welcome views on its preliminary conclusion that the basic structure of the regulatory provisions in the licences of the mobile operators is currently sufficient and appropriate to secure fair and sustainable competition in the market for enhanced services provided over the mobile networks, subject to a review of the details of the split between "Systems Business" and "Supplementary Services Business" and a review of the definition of "Service Provider" and other provisions of the mobile licences to ensure inclusion of enhanced service providers.
6.11 The above analysis has dealt with the issues arising from the provision of enhanced services on a dominant operator's network. The issue of whether or not these rules should apply to networks without significant market power also needs to be dealt with. Oftel notes that both provision of enhanced services (such as voice messaging) and airtime retailing are activities which a non-dominant operator may wish to subsidise in its efforts to attract customers, or may indeed have no choice but to do so initially, given the costs of start-up and the prevailing level of tariffs. There is no obvious reason why such an operator should be allowed to subsidise one such activity but not the other, and Oftel therefore takes the view that, for so long as an operator without significant market power is permitted to cross-subsidise airtime retailing without this being judged unfair, it should also be free from constraints on the cross-subsidy of enhanced services. Conversely, once the full rigour of the unfair cross-subsidy rule is applied to one such service it would seem right to apply it to all of them.
Oftel believes that, in applying the unfair cross-subsidy rules, the provision of enhanced services should in principle be treated in the same way as airtime retailing. On that basis provision of such services provided in-house by operators with significant market power should continue to be subject to the prohibition, and therefore to be conducted as viable, self-financing businesses. Other mobile operators should be free to cross-subsidise any enhanced services they may themselves provide so long as they remain without significant market power.
6.12 However, as with airtime retailing, it does not necessarily follow that mobile operators without market power should be exempt in their dealings with providers of enhanced services from compliance with the other fair trading obligations in their licences. As noted, MOTO and Orange enjoy a privileged position in that they are likely to be protected from some years to come from further new entry into the mobile market. It is, therefore, quite possible that MOTO and Orange could acquire market power. If this happened the rules on cross subsidy would be activated, and would bind these operators. However, long lead times for compliance with the rules could then arise if MOTO or Orange were technically not in a position to provide access to independent providers of enhanced services and had to develop the necessary interfaces and commercial offerings from scratch. Oftel does not consider that it is unduly burdensome for these networks to be required now to comply with licence conditions on undue preference, etc, insofar as they may apply to enhanced services, and believes that the existing requirement for these services to be subject to accounting separation should also continue to apply.
Oftel does not propose to suspend application of those fair trading conditions in the licences of MOTO and Orange, other than the condition on unfair cross-subsidy, that may apply with respect to provision of enhanced services.