In the same month, Oftel also published an "Economic Evaluation of Number Portability in the UK Mobile Telephony Market". This was the result of a study commissioned by Oftel in January 1997 and undertaken by Ovum Ltd.
Copies of the Statement and of the Ovum Study are available from the Oftel library.
Oftel gave until 15 August for comments on the Statement to be submitted. A total of 21 submissions were received and, with the exception of those marked as confidential, these were made publically available in Oftel's library. A further two weeks were allowed for comments on these submissions to be made.
Since then, Oftel has held a number of meetings with representatives of the four operators and has examined its position in the light of the comments made.
This explanatory note has now been sent to the four operators accompanying a letter dated 3 October which seeks their consent to the licence modifications. Only one change has been made to the proposed modifications; the date by which the operators have to be able to offer portability has been changed to 1 January 1999.
The operators will have until 17 October to respond granting their consent. The licences will be modified shortly after receiving consent from all four operators.
If at the end of that period consent has not been given by one or more operators, the Director General may refer the case to the Monopolies and Mergers Commission under section 13 of the Telecommunications Act 1984. This procedure was used in 1995 when BT refused to accept a licence modification in relation to number portability in the fixed telephony market. On that occasion the MMC found that number portability is in the public interest and empowered the Director General to modify BT's licence in accordance with their recommendations.
A number of issues were raised during the period of consultation on the July Statement. The remainder of this document sets out Oftel's final position in relation to these points.
There were comments from some operators that the technical solution developed by the industry is inappropriate and inefficient.
The basis of the technical solution (use of a signalling relay capability) has been visible since early in 1997, and was chosen on the basis of compatibility with the evolving GSM environment, including supplementary services such as SMS. A feasibility report recommending this approach in the UK was produced by the NICC Mobile Number Portability (MNP) Working Group in March and subsequently endorsed by the Public Network Operators Interest Group (PNO-IG). The report has not yet been formally approved by the NICC Main Committee, but not for any substantial reason. The specific implementation has now also been visible for some time, with only minor changes to the High Level Service Description having been made since June. Hence, Oftel finds it surprising that some operators are now suggesting that this is an inappropriate or inefficient solution.
The solution would indeed be relatively inefficient if it relied on transiting calls via a small number of direct interconnection points between mobile operators. However, as explained in more detail later in this document, routing via an increased number of interconnect points or via transit operators eliminates such a problem.
Comments were also made that Oftel should await the development of European (ETSI) standards.
ETSI does not expect its standards to be finalised until the end of 1998. Implementation would not follow immediately and, therefore, to wait for the ETSI solution would be to wait until the year 2000 at the very least. Oftel has no reason to believe that the ETSI solution will be incompatible with the signalling relay solution advocated for the UK and therefore sees no reason to delay. Oftel, together with the DTI, will continue to input into relevant discussions at European level about the practical introduction of mobile number portability and appropriate technical solutions.
The Timetable
Oftel received criticism that the deadline of 30 June was too tight and did not give enough time for the operators to introduce the necessary functionality into their networks and make appropriate administrative and systems changes.
Oftel has reluctantly accepted that more time should be allowed given the modest progress made by certain operators so far. The deadline in the licence modifications has therefore been changed to 1 January 1999.
Oftel believes that further progress could have been made over the course of 1997 to date, but recognises that genuine efforts to meet the deadline on the part of certain operators will only commence once the licences have been modified and the date and obligations firmly established.
Oftel has discussed the technical requirements with the operators and with equipment manufacturers. It believes that the extended deadline gives each of the operators sufficient time in which to make arrangements appropriate to their network. In some cases this will be achieved using internal resources, in other cases a computer platform solution might be most appropriate, and in others the switch manufacturers should be able to produce the required functionality either in the course of a normal software release or through development of a specific "patch". The range of options and the extended deadline give Oftel confidence that it will be reasonable and practicable for portability to be offered by all operators by 1 January 1999. Oftel also believes that this timescale gives all operators a realistic opportunity to develop and implement necessary administration and systems changes.
It is worth noting that the proposed licence modifications only require the ability to port out. It may be that operators who feel unable to provide the full functionality by the deadline will nonetheless be able to comply with their licence obligations.
Availability of Transit Operators
Some operators commented that the only cost effective way of routing ported calls on to the recipient operator was through 3rd party fixed network transit operators. They claimed that this transit operator had to have SCCP transit functionality and that, at the present time, no fixed operators were able to offer the service.
Oftel's understanding is that the initial signalling exchange between donor and recipient networks in relation to a circuit-related call for a ported customer could be carried via a point of direct interconnect or over a fixed operators network with SCCP transit functionality. Given that the signalling message exchange is very short, the cost associated with this signalling is not likely to be great even if it has to be carried on the operators' own network.
Oftel also understands that transit operators are considering options for the provision of SCCP transit functionality and believes that there is sufficient time available between now and the date set for the introduction of portability for commercial agreements to be reached if, or where, necessary.
Once the signalling process has informed the GMSC of the donor operator where to route the call, the call can then be sent by any appropriate route. The most obvious route, in the absence of other than limited direct interconnect, would be via a fixed network transit operator. The only requirement would be that the transit switches in the transit operator's network would need to be able to recognise the +44799x prefix.
Oftel's Technical Advice
Some responses to the consultation were critical that Oftel had not published the technical advice it received from Mentor on the introduction of mobile number portability.
Oftel did not publish the report from Mentor because it did not exist as a single document which could have been made publically available. In particular, it contained advice that was based on commercially sensitive material. However, in the interests of transparency, Oftel has asked Mentor to produce a version of their advice which could be placed in the public domain. Copies are available from the Oftel library.
Summary
Oftel believes that the four mobile operators have a right to know exactly where they stand and to be given sufficient time to make the changes required of them under their licence. Oftel therefore believes that the licences need to be modified as soon as possible in order for the operators to plan the appropriate steps. Oftel has accepted advice from some of the operators that more time is needed and has extended the deadline for mobile number portability by 6 months to 1 January 1999.
Oftel now expects all mobile operators to put in hand the necessary actions to achieve the target set both individually and jointly. Oftel will be monitoring the implementation plans of the operators closely in this respect.
A number of operators sought clarification of the proposals regarding the definition and recovery of additional conveyance costs. Paragraph A1 (d) of the proposed licence condition states that "the Donor Operator shall make no specific charge based on Additional Conveyance Costs". Some operators expressed concern that this would prohibit the donor operator from recovering the costs of transit from the recipient operator.
Additional conveyance costs are defined in the proposed licence condition as those which are "additional to the costs of a non-ported calls from the Applicable Systems to the Recipient Operator's system". Transit and switching costs would be incurred for normal non-ported calls between two mobile operators. Similar costs would be incurred in the transfer of a call to a ported number - these are, therefore, not "additional conveyance costs". These costs can be recovered by the donor operator from the recipient operator in the normal manner.
Unless the operators come to Oftel for a determination, the amount payable for what might be termed "donor transit costs" is a matter for commercial negotiation between the operators. However, Oftel believes that it should take into consideration any net loss or gain on the part of the donor network resulting from differences between the termination rate charged to the originating operator and that paid to the recipient operator.
It should be noted that the definition of additional conveyance costs does not include any conveyance costs which would normally be incurred for the conveyance of a call to a non-ported number from the donor operator to the recipient operator's applicable systems, even if the two operators are directly connected. "Additional conveyance costs" are, in the case of mobile portability, the costs incurred in relaying routing enquiries (signalling) between the exporting (donor) and importing (recipient) networks, and the application of the routing instructions to enable a call to be correctly routed.
The Ovum Economic Evaluation
A number of respondents were critical of the economic evaluation carried out on Oftel's behalf by Ovum.
Oftel has considered the comments made and recognises that the study could have been more extensive in scope and could have looked in greater depth at certain issues. Specific issues are looked at it greater detail below, but Oftel remains firmly of the view that the overall conclusions of the study are valid: that the UK will derive a net economic benefit from the early introduction of mobile number portability.
Additional Traffic Costs
For the purposes of the economic evaluation, it was necessary to establish the additional cost of a call to a ported number compared to a call to non-ported number. There are various elements to this, but the key element is the cost of switching and transmitting the incoming call from the donor operator to the recipient operator. Ovum worked on the assumption that this would involve one extra switch and a length of transmission to the nearest point of interconnect (taken to be 200 km) (see p 46 of the study). This produced an overall cost of about 0.65 pence per minute (ppm).
Operators claimed that this was too low. One2One and Orange estimated that the overall additional costs would be between 1 and 2 ppm. Cellnet claimed that it would be considerably higher and Vodafone put the cost at up to 4.7 ppm.
Oftel has treated this discrepancy very seriously and has held discussions with the four operators to ascertain the reasons for the variation. Two things became clear in the course of the discussions with operators.
Firstly, it became clear that the mobile operators believe that the costs of a single mobile switch is greater than that of a single BT switch. Oftel accepts this general statement (and, indeed, it was taken into consideration in the Ovum study).
Secondly, it became clear that the differences between the cost estimates
were mainly driven by different views of how the calls could be routed.
Three different approaches were adopted:
- The higher cost estimates from the operators were based on routing the calls through a very small number of points of interconnection and therefore having to carry the calls through a large number of switches on the mobile operators' own network.
- The lower costs of One2One and Orange were based on some direct interconnect, but, more significantly, on the cost of routing such calls via a fixed network transit operator. Vodafone agreed that, if such an option were available, the costs would be considerably lower than the figures they had produced.
Oftel has established that, within the time frame envisaged, there are sufficient options available for operators not to have to route ported calls through their own networks. Oftel therefore takes the view that it is reasonable to assume that calls are routed via the most efficient route possible and that, in this case, the cheapest option is to establish direct points of interconnection or, more likely, to route via a transit operator.
Oftel recognises that the switching costs involved might be a little higher than those used in the Ovum study, although it does not necessarily accept the figures produced by the four operators. However, it does not accept that the overall additional costs of porting would materially change the conclusion of the Ovum study that mobile number portability is of net benefit to the UK economy.
Date of Introduction
Ovum based their analysis on the assumption that portability was introduced at the beginning of 1999. They were not asked to look at the overall cost implications of introducing portability at a later date. This was criticised by some operators who felt that a delay would improve the NPV because of reductions in the customer costs.
Oftel has not commissioned further work in this area because the NPV is clearly positive based on an early introduction of mobile portability and there is clear, and vocal, consumer demand to introduce portability as soon as possible. Moreover, the NPV does not take into account Type 2 benefits arising out of the increase in competition which could be large; these can be expected to decrease with delays in the implementation date.
Corporate Use
Ovum's study contained an error which was pointed out by several respondents, but which has no impact on the total costs. Ovum produced an average monthly bill for corporate customers of £17,089 and derived from that the monthly bill per handset of £1207. This is clearly inaccurate.
The error related to the way in which the number of mobiles per company was calculated. Ovum had divided the number of corporate mobiles by the total number of companies in the UK, rather than by the number of companies using mobile telephones. The number of mobiles per company should have been 349, not 14.16. The monthly bill per handset resulting from the revised figures is about £50, which is much closer to the figures produced by respondents.
Oftel and Ovum regret this error. However, the overall NPV is unaffected because neither the calculation for the bill per handset nor the number of handsets per company was used in the rest of the model.
Volume of Ported Numbers
Ovum's estimate of the numbers of customers porting was questioned by some respondents who felt it was an underestimate.
If Ovum's figures are an underestimate then the NPV will change proportionally. As Oftel believes that there is a positive NPV for mobile number portability, any increase in the number of ports that take place will increase the NPV accordingly.
Opportunity Costs
Ovum were criticised for not taking into account the opportunity cost of setting up portability.
Ovum addressed this issue, together with a number of other possible costs and benefits which were difficult to quantify (page 61 of the study). There is no reason to doubt their assessment that, on balance, these various costs and benefits have a positive impact on the NPV.
Costs of Migration to 07 Number Range
Ovum did not take into account the cost of the change to the new 07 number range for mobile numbers.
Ovum did not address this issue because it was not directly relevant to the question of number portability. The costs of migration to 07 are independent of any decision on portability.
Sample size
Ovum based its study on 250 personal users, 250 SMEs and 50 large firms. There was some criticism from respondents that the sample size for large firms was not big enough.
The characteristics of the sample suggest that it is representative of mobile users generally and the sensitivity analysis suggests that the results of the survey are robust.
Customer Transfer Costs
The Ovum report received some criticism for not taking full account of customer transfer costs, in particular in relation to additional handset costs.
The Ovum study did include additional handset costs as a substantial element of the costs.
Some respondents claimed that the rate of penetration of dual band handsets would not be as rapid as forecast and that, therefore, the costs of transfer would be higher. However, other respondents claimed that the rate of penetration would be faster than forecast.
The costs of SIM cards have been included at £10 each. The remainder of the SIM unlocking fee is a transfer rather than a resource cost and therefore should not be included in an analysis of national benefits.
Some respondents expressed their concerns over the numbering policy in relation to the migration of mobile analogue customers onto digital.
This issue is unrelated to mobile number portability as such.
In April Oftel issued the Numbering Conventions which came into force in July 1997. The Conventions state that "operators must ensure that customers migrating from an analogue to a digital service adopt an 07 number for the new service".
Oftel's position in the Numbering Convention recognises that all 9-digit mobile numbers will have to migrate to 10-digit numbers in the near future. Therefore, any analogue to digital migration going on at present ought to take the opportunity of introducing a 10-digit number. The migration path for these numbers has been agreed with the industry and involves, in most cases, a minor change at the beginning of the code so that the first three digits become 077, 078 or 079.
Following consultation with operators Oftel has now reserved specific codes in the 07 range to enable this migration. This particular migration policy has been agreed with both the Numbering Advisory Group and individual operators. Responses to the mobile portability Statement would seem to indicate that operators are questioning the agreed migratory policy. Oftel's Numbering Advisory Group have suggested that further analysis is carried out on the number of customers likely to be affected, and the likely future use of the 07 numbering range. This work is in hand and will be complete by the end of November.
Service Providers and the Provision of Portability
The responses contain some comment on the relationship between service provider obligations and number portability. Some respondents suggest that due to differences in the obligations placed on operators to provide airtime through service providers, the proposals are not practical and in some cases anti-competitive.
Oftel considers that the specific policy on service providers is an entirely separate issue. It does not influence the proposals outlined in the mobile portability statement.
Any future asymmetry in service provider obligations will not constrain the ability of customers to port their numbers. The obligation placed on operators to provide potability is intended to ensure that subscribers can retain their number whether they change network operator, service providers, or both. The obligation includes the scenario in which the customer ports his number from a network operating through a service provider to a network who does not. Similarly, the obligation to provide portability also applies to the situation where the customer is porting his number from a network without a service provider, to a network operating through a service provider.
The suggestion that there should be a requirement for customers to be able to retain their existing service provider when changing to a network without a service provider is counter - intuitive, in many cases the service provider will be owned or 'tied' to the network operator. Similarly, the suggestion that the proposals may result in anti-competitive practices is misplaced. Existing service providers already compete with one another and other networks operators, the implementation of portability will enhance this competition. It will not disadvantage service providers and will be of benefit to mobile customers.
Termination rates and the cost of calls to ported numbers
Some respondents expressed their concern over the proposed rules on termination (retail) rates for calls to ported numbers. Oftel recognises that portability will lead to customers moving to new operators who might have higher or lower termination rates than the original operator. However, Oftel considers that callers to ported numbers should not face unexpected charges for those calls, and should not pay more than the call charge for the number before it was ported.
In order to differentiate between ported and non-ported calls, all operators - including fixed line operators - would have to conduct full digit analysis for all calls. Furthermore, the caller is not necessarily a party to the portability agreement and, therefore, is not in a position to determine whether the number has been ported. The most practicable solution would appear to be that the cost of calls to ported numbers remains the same, or at the normal tariff, this would reduce the administrative and technical burdens placed on operators and alleviate the potential for customer confusion.
The IPF (Interconnection Policy Forum) Focus Group on Mobile Portability
is currently examining commercial issues in order to agree the processes
for providing portability. Oftel would expect the group to negotiate on
the general principles needed to resolve the problems which may arise due
to differing call costs. It is the group's responsibility to agree these
arrangements.
