Chapter 1     Overview

Chapter 2     Terms and conditions of the roaming licence condition

Chapter 3     Additional information for further clarification

Annex A       Draft roaming licence condition

Annex A bis Proposed amendment to Condition 8 of the (draft) Mobile PTO

Annex B        National Roaming Licence Condition guidelines

Annex C         Glossary

1.1 The auction of third generation (3G) spectrum provides an opportunity for new mobile network operators to enter the UK telecoms market. The promotion of effective and sustainable competition for the provision of 3G services is an explicit objective of the auction. However, it is clear that new entrants without existing mobile networks will face a number of important disadvantages. Existing mobile operators who win a 3G licence will be able, when they launch a 3G service, to offer their customers access to existing services across their second generation (2G) networks. This gives them a major competitive edge over a new entrant who will only be able initially to offer services in areas covered by its own developing network. Oftel and the Radiocommunications Agency (RA) have been examining how to address some of these inherent disadvantages by introducing measures to level the playing field for a new entrant.

1.2 Roaming is the use by a customer of one mobile operator of another mobile operator’s network to make or receive a call, usually because the customer is out of range of his own operator’s base stations. Discussions with potential new entrants and financial modelling of a 3G business indicate that the single most effective way of levelling the playing field would be to guarantee access for customers of new entrant 3G operators onto an existing 2G network.

1.3 The RA consulted in November 1998 on whether the service provision condition in the new draft mobile licence was appropriate to provide access to 2G networks. (This was done in UACG 98 (18) paper circulated to members of the UMTS Auction Consultative Group and available on the RA web site at http://www.open.gov.uk/radiocom) The difficulty with this, however, is lack of certainty. The service provider obligations only apply to operators who have Market Influence under the terms of the new standard mobile licence template. If, in the future, there is effective competition in the mobile market it is unlikely that the Market Influence trigger will be pulled in any of the mobile PTO licences. Therefore the obligation to provide access to the networks to service providers would not come into effect.

1.4 In addition mobile operators currently offer a bundled range of services to service providers which include not only access to airtime but also, for example, voice mail, messaging services etc. The new entrant is likely to want access to unbundled wholesale airtime to allow it the opportunity to provide its own additional services to customers. Service provision is also technically clumsy. It will require two Subscriber Identity Module (SIM) cards, two numbers and two subscription charges. The initiative would remain with the 2G operator. There would also be the issue of the ownership of the SIM’s, access to the Home Location Register (HLR) and ownership of the customer.

1.5 Mandated access to a mobile network through roaming was seen as necessary to allow a new entrant to offer a service competing effectively against an existing player’s offering.

1.6 In discussions with potential new entrants the following areas were deemed to be important if roaming is made available:

• The need for a clear pricing basis, preferably based on a per minute charge.

• A ‘sunset’ provision (ie a date after which roaming will no longer be mandated).

• Provision for roaming to fade geographically as a new entrant builds out its network.

• The start date for roaming. This should be, at the latest, by commencement of services by the new entrant operator.

• There should be time limits in which negotiations should take place and a very clear determination procedure (referral to Director General (DG)).

1.7 DTI Ministers made clear in their statement on 9 February 1999 that the Government attaches great importance to the further development of competition in the mobile market, including the promotion of sustainable market entry. That statement proposed it should be a condition of bidding in the forthcoming auction for 3G spectrum that existing 2G operators accept a licence condition providing for national roaming on their networks for a new entrant. Views were invited on this proposal and on a draft roaming licence condition and guidelines. (See UACG 99 (2) which is available on the RA web site).

1.8 During the informal consultation on the roaming licence condition and guidelines, the 2G mobile operators maintained that they expected commercial roaming agreements with new entrants would be reached without regulatory intervention. It is hoped that roaming agreements may be reached between any new entrant and an existing 2G operator. However, this does not provide the necessary certainty that potential new entrants have said they need in order to bid in the auction for 3G radio spectrum. New entrants have said they need the assurance that roaming would be available if they are to enter the auction.

1.9 It is important, however, to be clear that Oftel would hope to see a roaming agreement reached commercially. The proposed licence condition is intended to act as a backstop in the event of a failure to reach an agreement with any of the incumbent operators. It is also important to note that it is not the intention that roaming would place an unfair burden on an incumbent operator or give the new entrant an unfair advantage. If roaming charges had to be determined they would be set on a ‘retail-minus’ basis. The DG regards roaming as resale of the operator’s network and not interconnection (which has normally been determined on a ‘cost plus’ basis). The aim of the licence condition and guidelines is to provide a non-discriminatory, balanced and transparent approach to access to 2G networks that is limited to the new 3G mobile operators – Oftel is not opening up the issues of 2G to 2G roaming – and also limited in time. This would allow the new entrant to compete on a more equal footing with the existing mobile operators while providing the necessary commercial incentive to roll out its 3G network.

1.10 The Auction Regulations, under section 3 of the Wireless Telegraphy Act 1998 (WT Act), will make it a requirement that any bidder or member of a bidder’s group that currently holds a public telecommunications operator’s (PTO) licence and a 2G WT Act licence can only pre-qualify for the auction if it has agreed to the insertion of the roaming licence condition into its mobile PTO licence. The licence condition and guidelines have been drafted to take into account the views of potential new entrants and the existing mobile operators. They seek to strike a balance between regulatory intervention and commercial negotiation. Sustainable competition is the overall objective behind the proposals to mandate roaming.

1.11 Oftel has taken account of all the comments made in the responses to the informal consultations and comments received in an earlier round of discussions with the 2G operators in Autumn 1998 and meetings in February and March 1999. The licence condition has been redrafted in the light of these discussions. This document is now the formal statutory consultation on the proposed licence modifications to insert the roaming licence condition as required under Section 12 of the Telecommunications Act 1984. It is also the statutory consultation on a consequential modification which will need to be made to the undue discrimination condition of the draft Mobile PTO licence (Condition 8). The proposed modifications are set out at Annex A together with guidelines which make clear what the DG would consider reasonable if he had to determine a request for roaming.

1.12 As noted earlier, Oftel’s approach is to ensure competitive neutrality between a new entrant and existing operators. This is reflected in its approach to the terms and conditions on which the DG would, if necessary, determine that roaming should be made available. The proposal will enable a new entrant to offer the same services as the existing operators over the same geographic area. Oftel is of the view that the roaming licence condition should contain the following provisions:

1. A new entrant who wins a 3G licence has the right to seek a roaming agreement any time after the award of its T Act licence.
2. Roaming does not have to be provided until the new entrant rolls out a network in a geographic area in which at least 20% of the UK population live.
3. Roaming should be mandated until 31 December 2009.
4. The roaming agreement should provide the opportunity for a new entrant’s customers to gain access to 2G teleservices and bearer services and not to any other particular services, such as Internet access, that are provided over a 2G network.
5. In the case of a dispute the DG will make one determination on one agreement at any one time and only if there is no other commercial agreement between the new entrant 3G operator and any 2G operator. The DG will only make a determination after a new entrant and incumbent operator have failed to reach agreement after serious commercial negotiations.
6. The roaming licence condition will apply to all operators with 2G and 3G spectrum, not just those designated with Significant Market Power (SMP) under the Interconnection Directive (ICD) or as having Market Influence (MI) in the mobile market.

2.1 It is proposed that a new entrant could begin commercial negotiations any time after award of its T Act licence. However, roaming does not have to be provided until the new entrant rolls out a network over a geographic area in which at least 20% of the UK population live. Representations were received from existing operators that roaming should not commence until the entrant’s network covered 40% or 50% of the population. The experience of Orange and One2One suggested that 40% to 50% of the population was the minimum coverage needed for successful launch.

2.2 However, Oftel is not persuaded by this line of argument because the 40% to 50% threshold applies in the absence of roaming. It is precisely the aim of roaming to allow the new entrant to launch a competitive service earlier than it would otherwise be able to do in the absence of roaming. Therefore it would be wrong to negate this by requiring coverage at a level comparable to that needed in the absence of roaming.

2.3 Oftel nevertheless understands the concerns of the existing network operators that a new entrant should be required to build a substantial amount of its network before it is eligible for roaming. The 20% roll out obligation will ensure that that the new entrant commits a substantial level of investment to its network and, taken together with the specified end date for roaming, should act as an appropriate incentive to build its own network whilst enabling it to provide national services at an early stage through the use of roaming. In addition, the overall roll-out obligation in the licence (80% population coverage by 2007), will ensure that the new entrant is fully committed to rolling out its own network and is not just trying to piggy-back on the incumbent operator’s networks. Of course, this licence requirement does not stop a new entrant from entering into a commercial roaming agreement with one of the 2G operators, which would allow the operator to start roaming at any time before then.

2.4 It is proposed that roaming should be provided until 31 December 2009. Roaming is intended to provide for a position of competitive neutrality between any new entrant and incumbent mobile operators by specifically addressing the need to provide national coverage to attract customers. The 2G network operators can do this from the start by virtue of already having rolled out their 2G networks. A new entrant will have to use its 3G spectrum to provide voice and data services in all geographic areas whereas a 2G operator has the option of providing the same services over its current network.

2.5 All four mobile operators currently offer in excess of 95% population coverage with their 2G networks. A new entrant will therefore need to provide a substantially higher coverage than 80%, when roaming is no longer available, to match the competitive offering of a combined 2G and 3G operator in terms of services and geographic area. Setting the same date for termination of mandatory roaming and meeting the 80% roll-out obligation would have the effect of placing a more onerous roll-out requirement on a new entrant’s 3G network than that for an incumbent operator. An additional two years have been proposed to enable the new entrant to roll out beyond the 80% coverage obligation on 31 December 2007.

2.6 2G operators have been concerned that roaming will provide the new entrant’s customers with access to their value added services and therefore act as a disincentive for existing mobile operators to invest in new innovative services and new 2G technology within their network. That is not the intention of roaming. The roaming agreement should provide the opportunity for a new entrant’s customer to gain access to 2G teleservices and bearer services as defined in the relevant European Telecommunications Standards Institute (ETSI) Global System for Mobile Telephony (GSM) Standards. Teleservices are telecommunication services, which provide the user with the necessary capacities, including terminal equipment functions, to communicate with any other users and cover speech, short message service and facsimile services. Bearer services are telecommunication services which give the user the capacity needed to transmit appropriate signals between certain access points. This will enable the new entrant to offer voice, facsimile and short message as provided by the incumbent operator and also provide its own value added services by having access to the necessary bearer capability over the incumbent’s 2G network.

2.7 Therefore roaming should also allow access to the bearer capacity provided by General Packet Radio Service (GPRS) if base stations using this technology are deployed in the 2G network by the incumbent operator. The reason for this is to place the new entrant and incumbent on an equal competitive footing in terms of the potential they have to provide innovative value added services. 3G mobile will essentially be a packet-based network and will inter-work closely with GPRS. Providing access to only circuit switched data is liable to place the new entrant at a significant disadvantage to an incumbent because it is expensive and inefficient and will not be attractive to the user in comparison with the services the 2G operators will be able to offer during roll-out.

2.8 Oftel is not specifying the structure of charging which might emerge from a commercial roaming agreement. Oftel will only become involved if a commercial agreement is not achieved. The retail-minus approach which Oftel would adopt if required to determine a roaming charge is intended to give new entrants the certainty that, if operators cannot agree, they will be able to obtain roaming at a charge which enables them to be competitive with the existing operators. For the purposes of calculating the roaming charge, ‘retail price’ shall be the average effective revenue from providing, to all customers, those 2G teleservices and bearer services which are available for roaming (including revenues from connections, rentals and calls, expressed in pence per minute, for the quarter in question) less costs saved by the 2G operator because he is serving another operator not a retail customer. Effective revenues may be calculated separately for different services, for example national and international calls, and for peak and off-peak periods. Because of the complexity of mobile tariffs, Oftel believes that the only workable solution is to base the roaming charge on an average of the prices charged for the roamed services (which may in practice be supplied over either 2G or 3G networks), when supplied to final customers. Oftel also notes that tariffs available to new customers may differ from those available to existing customers and that, in the case of some networks, this can give rise to distortions in calculations based on average revenues. It therefore believes that the retail minus calculation should be based only on those tariffs, which are on offer to new customers.

2.9 ‘Costs saved’ will be the costs incurred in undertaking those activities which must be carried out in order to serve a retail customer but which are not required in order to provide roaming to another network operator. The precise definition of the costs to be excluded cannot be decided in advance of a determination request. However, it is likely that they will include in whole or in part:

• The cost to the service provider of subsidising the price of handsets paid by customers;
• The cost to the network of acquisition bonuses paid to service providers;
• The costs of equipment maintenance or replacement;
• The costs of retail marketing and sales;
• The costs of finance and retail billing, including bad debt;
• Computing costs relating any costs of upgrades to systems to allow for roaming;
• Customer service costs (back and front office);
• For bearer services the costs of providing the content or other value added component conveyed using the network;
• Any administrative costs of servicing other operators (eg wholesale billing) will be taken into consideration.

2.10 Some operators have argued that the roaming charge should not be composed of a single per-minute rate but should have two or even three components including fixed fees. It is important to recognise that Oftel is not specifying the structure which might emerge from a commercial agreement, should one be reached. If operators can agree a two or three part-roaming tariff then Oftel would not expect to intervene. Oftel’s retail-minus approach is intended to give entrants the certainty that, if operators cannot agree, they will be able to obtain roaming at a charge which enables them to be competitive with the existing operators. Significant fixed charges which did not change over time would make this difficult because if, as expected, the volume of roamed traffic is low and declines over time as entrants roll out their own networks, fixed charges can result in the average effective per minute rate which entrants are charged for roaming becoming prohibitively high. In effect, invariable fixed charges are discriminatory because high-volume users get a lower average price than low-volume users. Oftel’s approach allows for a subscription charge and fixed elements but these are included in the per minute charge, averaged across all minutes.

2.11 It has also been argued that the roaming charge should be calculated on an industry average basis rather than as an average for the roamed network. However, it seems to Oftel that this would create a number of difficulties. Higher quality networks would not then be rewarded for their higher quality. Indeed there would be an incentive for the roaming operator always to choose the highest quality network as it would not have to pay whatever quality premium was reflected in the roamed network’s retail prices, in effect creating an arbitrage opportunity. In addition, the goal of competitive parity between the roamed and roaming networks suggests that the roamed network’s own retail prices are the appropriate benchmark.

2.12 Some network operators have argued that Oftel’s proposed retail-minus charge for roaming will not cover costs, including costs of installing capacity, in the more rural areas where traffic is lightest and where roaming is likely to be concentrated. This is because average costs per minute (including fixed costs) in such areas are higher than the geographically uniform retail charge. In effect, it is argued, it will create an arbitrage opportunity which will allow the new entrant to build a network in the most populous low cost areas and use the incumbent's in the higher cost areas, for less than cost.

2.13 Oftel has considered this argument and accepts that per minute costs may be higher than average, in low traffic volume areas. However, on balance, Oftel still believes that the retail minus proposal is fair and provides adequate reward for investment, for the following reasons. Much of the roaming traffic may be incremental to the roamed network and in areas where it would otherwise have spare capacity. The short run marginal cost of additional traffic could be very low in such areas because there is spare capacity, so roaming at retail minus could improve the roamed operator's bottom line if traffic is incremental. In a market which was fully competitive on the network side, one could expect to see efforts to attract incremental traffic at prices perhaps close to marginal cost. If there are technical reasons why roaming cannot be provided in specific areas (eg capacity) then the DG would not expect it to be made available. Market valuations indicate that all networks are expected to remain or become significantly profitable by 2002/3. Therefore there should still be a sufficient margin between average retail prices and average costs to allow retail prices to remain above costs even where the latter are some way above average. Of course, Oftel has proposed a basis for calculating roaming charges, which is intended to enable new entrants to compete with existing network operators. As noted above, the introduction of significant fixed charges – as proposed by the operators to redress this effect – could render roaming uneconomic for the new entrant.

2.14 Oftel has not put into the proposed Condition any timescales for reaching agreement between the operators, as it cannot dictate when commercial discussions should start or finish. However the DG can under [ ].2 (c) of the draft roaming condition set time limits within which negotiations on a national roaming agreement are be completed if requested by either of the parties.

2.15 The dispute resolution procedure is similar in structure to that contained in the Interconnection Directive (ICD). Oftel does not want to set up new procedures especially for a roaming licence condition so it would seem appropriate to follow existing procedures. The new entrant can only make a reference to the DG on one commercial agreement with one operator at any one time. The idea of only one reference is to avoid the new entrant operator trying to use this as a means of obtaining the best deal from different operators. It should be the position of last resort to be used only if the new entrant and the incumbent are unable to reach a commercial agreement. However, Oftel must give some form of guidance as to what issues the DG would take into consideration when making a determination. Oftel wants to see evidence of real commercial negotiation. Lack of response by incumbents would be seen as stalling.

2.16 Some of the existing 2G operators argued that a 2G operator who is unsuccessful in the auction should be able to roam onto a 3G network. Oftel believes that this is not appropriate because all the 2G operators are free to enter the auction and bid for 3G spectrum. There are no existing 3G networks. Therefore 2G to 3G roaming is not needed to address any disadvantages which the incumbents face in entering the auction. Moreover mandatory 2G to 3G roaming would seem to present a serious disincentive to new entrants to enter the auction. However, there is no regulatory constraint on such agreements being reached commercially. By contrast, new entrants do not have an existing national network or the opportunity to obtain 2G spectrum. 3G to 2G roaming is therefore necessary to allow the new entrant to enter the auction in the knowledge that it will be able to compete on an equal footing with the existing 2G operators which also have 3G spectrum.

2.17 Some operators have argued that roaming should only be imposed on operators with significant market power (SMP). Whilst Oftel’s policy is that obligations should not normally be imposed on operators without SMP or market influence (MI), in this case the overriding need for entrants to have certainty that they will be able to obtain roaming from at least one operator necessitates use of an un-triggered condition. All the 2G operators are expected to be profitable by 2002/3 and in a position of greater competitive parity than now. Any existing 2G operators who gain a 3G licence will have important advantages over the new entrant. The licence condition will allow the new entrant to compete on an equal footing with the existing mobile operators. It is therefore appropriate to place this obligation on 2G operators who bid in the auction for 3G spectrum. It should be noted that the condition is triggered in the sense that it will only bite on a 2G operator where that operator or a member of its group also has a 3G WTA licence. The new entrants could not be certain that the MI or SMP triggers would be pulled in future and this could deter them from bidding.

3.1 Comments received during the UACG consultation process on access to 2G networks raised a number of issues and concerns which needed further clarification. The licence condition has been redrafted to address some of them. This chapter provides additional information on matters not covered in the roaming licence condition, but which the DG would take into account when making a determination or which are dealt with in the draft mobile PTO licence.

3.2 Roaming will provide end to end delivery of a call over an incumbent’s 2G network when a new entrant’s customer is not in the coverage area of its own 3G network. At present it is not proposed that roaming should include in-call hand-over between 2G and 3G networks. Although it is technically feasible and it is likely that hand-over inter-operator will be available in early releases of 3G standards, there is doubt as to whether it will be implemented by manufacturers in equipment. During the informal consultations there have been no specific commercial imperatives raised that require in-call hand-over. Also there are alternatives to cater for dropped calls if a new entrant’s customer moves out of coverage of the 3G network. In the case of packet data it will be possible to re-establish the call over the 2G networks and in the case of a voice call it is possible to use automatic call re-set up.

3.3 The roaming agreement needs to take into account the technologies employed by the 2G and 3G networks. They will need to use standards that are compatible with existing GSM standards. If non-compatible standards are used significant re-engineering would be required to provide the necessary interfaces between the two networks to facilitate roaming. The DG would not expect a 2G operator to provide roaming if 2G and 3G standards were not compatible.

3.4 The earlier draft of the roaming licence condition contained provisions to prevent unfair discrimination and cross-subsidy and also a requirement to provide accounting separation information. In the light of the responses received during the consultation Oftel considers that these conditions should be removed from the roaming licence condition. Oftel believes that it can deal with any anti-competitive behaviour using the existing conditions in the draft Mobile PTO licence, subject to a minor modification to the wording of the undue discrimination condition (Condition 8 of the draft mobile PTO licence). This consultation is thus also the statutory consultation for that modification. The roaming condition should therefore be read in the light of the other conditions which appear in the draft Mobile PTO licence including, for example, the provisions relating to undue preference, undue discrimination and cross subsidies.

3.5 The unfair discrimination and cross-subsidy rules would require an operator providing roaming services to show that, in providing bundles of services, it may reasonably expect to make an adequate return over a reasonable period without forcing competitors to exit and covering all relevant costs. In considering any possible anti-competitive action Oftel would deem that the costs of the roamed services were the same as the rate charged to other operators for roaming. Incumbent operators will be expected to maintain the information necessary to establish that they expect to make such an adequate return. An ‘adequate return’ will normally mean one at least equal to the operator’s cost of capital, whilst a reasonable period will normally approximate to the life of the investment.

Oftel seeks the views of consumers and industry on the proposals contained in this consultation document by 11 June 1999. There will then be a 2-week further period during which comments on the representations made during the first period of this consultation are invited; this will end on 25 June 1999.

Comments should be made in writing and sent to:

Paul James
Regulatory Policy Directorate
Oftel
50 Ludgate Hill
London, EC4M 7JJ
Tel: 0171 634 8926
Fax: 0171 634 8924
E-mail: pjames@oftel.gov.uk

Written comments will be made publicly available in Oftel’s Research and Intelligence Unit except where respondents indicate that their responses, or parts of it, are confidential. Respondents are therefore asked to separate out any confidential material into a confidential annex which is clearly identified as containing confidential material. In the interests of transparency, respondents are requested to avoid confidentiality markings wherever possible. Appointments to view written comments in Oftel’s Research and Intelligence Unit, which must be made in advance, can be arranged by ringing: 0171 634 8761 (fax: 0171 634 8946).

Oftel would like to set up a link between this Consultative Document and any responses places on respondents own Internet pages. Please contact Lauren Ryner at Oftel on 0171 634 8753 or by e-mail to arrange this. Confidential responses should not be sent via the Internet.

Oftel has a free e-mail based mailing list to help people stay informed about the work that Oftel is doing. Each time an Oftel document is published and placed on Oftel's web site subscribers to the list receive an e-mail informing them about the document. If you would like to join please click here

Alternative Formats

• Copies of the full Consultative Document are available on disk.
• The Summary is available in large print, braille, and tape formats.

Please contact the Oftel Research and Intelligence Unit on 0171 634 8761, or by e-mail, or call textphone 0171 634 8769 for more information.

[ ].1        If and for so long as the Licensee or any member of its Group is authorised under the Wireless Telegraphy Acts 1949 to 1998 to use radio spectrum within the ranges 1900-1980 MHz, 2110-2170 MHz for the transmission of signals and for so long as it is authorised to use spectrum within the 880-915 MHz, 925-960 MHz, 1710-1785 MHz or 1805-1880 MHz bands under the Wireless Telegraphy Acts 1949 to 1998, it shall negotiate an agreement with a Relevant Mobile Operator or negotiate an amendment to such an agreement, as the case may be, within a reasonable period, if that Relevant Mobile Operator requires it to provide such National Roaming as may be reasonable. A National Roaming Agreement negotiated under this Condition shall take effect at the latest from the date on which the Relevant Mobile Operator has rolled out its 3G network to cover an area in which 20% of the United Kingdom population lives and shall be capable of having effect at least until 31^st December 2009. It shall cover at least Teleservices and Bearer Services supported over the Licensee’s 2G network.

[ ].1.1    Where the Licensee is under a duty to negotiate an agreement under paragraph [ ].1 above, it shall, in addition, be obliged when requested to do so by the Relevant Mobile Operator, to co-operate with it to ensure the Relevant Mobile Operator is in a position to take reasonable advantage of the National Roaming Agreement being or to be negotiated under paragraph [ ].1.

[ ].2        The Director may, if requested by either party, make a direction in order:

(a)    to specify issues which must be covered in a National Roaming Agreement; or

(b)    to lay down specific conditions to be observed by one or more parties to a National Roaming Agreement; or

(c)    if he thinks fit, to set time limits within which negotiations of a National Roaming Agreement are to be completed. Any such direction shall also set out the steps to be taken if agreement is not reached within these time limits.

This paragraph [ ].2 shall not apply where the parties have concluded a National Roaming Agreement under paragraph [ ].1.

[ ].3    The Licensee shall ensure that a National Roaming Agreement entered into or an amendment made under paragraph [ ].1 contains terms and conditions which are reasonable. To the extent that all or any of the terms and conditions of a National Roaming Agreement made under paragraph [ ].1 (whether on or after the coming into force of this condition) cease to be reasonable, the Licensee shall, within a reasonable period, negotiate with the Relevant Mobile Operator an amendment to the National Roaming Agreement so that the terms and conditions of the National Roaming Agreement are reasonable. In the event of a dispute as to the reasonableness of any term or condition under this paragraph [ ].3, either party may refer the dispute to the Director for determination. The provisions of paragraph [  ].6 of this Condition shall apply to such a determination.

[ ].4    The Licensee shall comply with:

(a)    the requirements of any direction made by the Director under paragraph [ ].2 or any determination under paragraph [ ].3 in relation to any National Roaming Agreement, or any negotiation of a National Roaming Agreement to which it is or is intended to be a party; and

(b)    the requirements of any determination made by the Director under paragraph [  ].6 in relation to any dispute over the terms of a National Roaming Agreement under paragraph [ ].1.

[ ].5    For the avoidance of doubt:

(a) any question as to whether any term or condition (including a charge) of a National Roaming Agreement is reasonable, shall be decided by the Director having regard to paragraph [ ].6 and any guidelines on the application of this Condition issued from time to time by the Director; and

(b) in considering whether a term or condition (including a charge) of a National Roaming Agreement is reasonable, the Director may take into account, inter alia, the effective date of the term or condition and the period during which that term or condition may already have been in effect; the Director may conclude that a reasonable charge is one which is offered or agreed, as the case may be, on terms that it takes effect in National Roaming Agreements made under paragraph [ ].1 from the date of a complaint or the date on which the term was first offered or accepted by the Licensee or a Relevant Mobile Operator or from any other date which is considered by the Director to be appropriate in the circumstances.

[ ].6    Where there is a dispute concerning National Roaming the Director shall, at the request of either party, take steps to resolve the dispute within six months of the date of the request. The determination which the Director makes to resolve the dispute shall represent a fair balance between the legitimate interests of both parties. In so doing, the Director shall take into account, inter alia:

(a)    the interests of users;

(b)    regulatory obligations or constraints imposed on the Licensee or the Relevant Mobile Operator;

(c)    the desirability of stimulating innovative market offerings, and of providing users with a wider range of telecommunications services;

(d)    the need to maintain the integrity of the public telecommunications network and the interoperability of services;

(e)    the nature of the request in relation to the resources available to meet the request;

(f)    the relative market positions of the Licensee and the Relevant Mobile Operator;

(g)    the public interest, such as the protection of the environment;

(h)    the promotion of competition; and

(i)    the desirability of the Licensee providing National Roaming to Relevant Mobile Operators at a price based on Retail Minus.

The determination shall be published in accordance with paragraph [ ].7 and shall be binding on the parties.

The Director shall not be required to take steps to resolve any dispute referred to him under this paragraph in respect of a Relevant Mobile Operator, where any other dispute has been referred to him under this paragraph or where he has previously resolved a dispute relating to a National Roaming Agreement involving that Relevant Mobile Operator in circumstances where that National Roaming Agreement is:

(i)    still valid and in existence; and

(ii)    remains in substantially the same form.

[ ].7    The Director shall ensure that up to date and specific information in accordance with paragraph [ ].6 is made available on request to interested parties, free of charge, during normal working hours.

[ ].8    In this Condition:

"Authorised Mobile" means an item of telecommunications apparatus or a telecommunications system that is Compliant Terminal Equipment designed or adapted to be capable of being used while in motion for the transmission or reception of messages at frequencies in the range 1900–1980 MHz, 2110–2170 MHz.

"Group" means for the purposes of this Condition, in relation to the Licensee:

(a)    any parent undertaking of the Licensee;

(b)    any subsidiary undertaking of the Licensee;

(c)    any subsidiary undertaking of any parent undertaking referred to in (a);

(d)    a shareholder or partner in the Licensee which beneficially owns (directly or indirectly) shares in the Licensee in circumstances where there is one other shareholder or partner in the Licensee which beneficially owns (directly or indirectly) the remaining shares in circumstances where neither shareholder or partner has control;

(e)    any undertaking of which the Licensee beneficially owns (directly or indirectly) shares in circumstances where there is one other shareholder or partner in that undertaking which beneficially owns (directly or indirectly) the remaining shares in circumstances where neither shareholder nor partner has control;

(f)    any undertaking in circumstances where two or more of its shareholders or partners which acting in concert together beneficially own (directly or indirectly) more than 50% of the shares or voting rights in that undertaking, acting in concert together beneficially own (directly or indirectly) more than 50% of the shares, or voting rights of the Licensee; and

(g)    any undertaking of which the Licensee beneficially owns (directly or indirectly) together with one or more undertakings acting in concert more than 50% of the shares or voting rights of that undertaking,

and:

(i) "parent undertaking" and "subsidiary undertaking" shall have the meanings given to them in section 258 of the Companies Act 1985;

(ii)    "undertaking" and "shares" shall have the meanings given to them in section 259 of the Companies Act 1985;

(iii)    "acting in concert" means acting in co-operation with another shareholder or partner to obtain or consolidate control of an undertaking; and

(iv)    "control" means the holding of a majority of the voting rights in that undertaking, the right to appoint or remove a majority of the board of directors of that undertaking, the right to exercise a dominant influence over that undertaking by virtue of provisions contained in that undertaking’s memorandum or articles of association or by virtue of a control contract, or the holding of the majority of the voting rights in that undertaking pursuant to an agreement with other shareholders or members.

"National Roaming" means the provision of Connection Services by means of the Applicable Systems to Authorised Mobiles in respect of Teleservices and Bearer Services pursuant to a National Roaming Agreement between the Licensee and a Relevant Mobile Operator.

"National Roaming Agreement" means an agreement which provides for Connection Services by means of the Applicable Systems to Authorised Mobiles in respect of Teleservices and Bearer Services.

Teleservices and Bearer Services means services defined within the relevant ETSI/GSM standards.

"Relevant Mobile Operator" means any operator which is authorised to use radio spectrum within 1900–1980 MHz, 2110–2170 MHz under the Wireless Telegraphy Acts 1949 to 1998 and licensed under section 7 of the Telecommunications Act 1984 to provide Mobile Radio Telecommunication Services other than such an operator which has been authorized to run systems and provide Mobile Radio Telecommunication Services before 1 April 1999 at frequencies in the ranges 880–915 MHz, 925–960 MHz, 1710–1785 MHz or 1805–1880 MHz bands or an operator which is a member of the Group of an operator authorized to run systems and provide Mobile Radio Telecommunications Services before 1 April 1999 at frequencies in the ranges 880–915 MHz, 925–960 MHz, 1710–1785 MHz or 1805–1880 MHz.

"Retail Minus" means the price charged by the Licensee for the provision of a service to end users less any elements of cost that are not incurred in providing the same service to a Relevant Mobile Operator; and

"2G" means, for the purposes of this Condition spectrum within the 880–915 MHz, 925–960 MHz, 1710–1785 MHz or 1805–1880 MHz bands

"3G" means, for the purposes of this Condition spectrum within the 1900–1980 MHz, or 2110–2170 MHz.

[ ].9     This Condition shall cease to have effect after 31 December 2009.

Condition 8.1(a) of the (draft) Mobile PTO licence will, subject to the outcome of this statutory consultation, be amended by the insertion of the number of the national roaming condition, as indicated in the text shown below as underlined:

8.1    The Licensee shall not (whether in respect of the charges or other terms of conditions applied or otherwise) show undue preference to, or exercise undue discrimination against, particular persons or persons of any class or description (including in particular persons in rural areas) as respects:

(a) the provision by means of the Applicable Systems of any telecommunication service which the Licensee is obliged to provide under Conditions 2, 3, 4 and [number of the roaming condition] to the extent that such Conditions are applicable to the Licensee.

The following Guidelines should be read in conjunction with the draft National Roaming Condition which is to be inserted into the Mobile PTO licences after statutory consultation. The aim of the Condition is to provide a mechanism under which the four current 2G mobile operators, in the event that they win Third Generation licences, will be obliged to negotiate national roaming with a New Entrant operator, who holds only a Third Generation licence, but does not have a Second Generation network. The Condition contains a dispute resolution procedure in the event that negotiations are not successfully concluded.

It should be noted that subject to this statutory consultation the roaming condition will be inserted in to the Mobile PTO licences [which are currently out for consultation]. It should be read in the light of the other conditions which appear in that text including, for example, the provisions relating to undue preference, undue discrimination and unfair cross subsidies.

The purpose of these Guidelines is to set out the approach that the Director General of Telecommunications (DG) is likely to take in applying the Condition so that interested parties are better able to assess for themselves the effect of the Condition. However, these Guidelines do not form part of the Condition. Furthermore, the Guidelines are not legally binding as the Director General cannot lawfully fetter his discretion in advance and therefore he retains the ability to depart from the Guidelines where circumstances warrant it. Although he would normally expect to follow the Guidelines and to give reasons if he departs from them, each case will be viewed on its merits. The Guidelines may be amended from time to time as necessary in the light of experience of their operation and after consultation with interested parties.

The basic premise of the Condition is that an incumbent 2G operator which wins a 3G licence is under an obligation to negotiate a national roaming agreement with a New Entrant (defined in the Condition as a "Relevant Mobile Operator"). This provision is in line with Oftel’s policy of withdrawing from detailed regulation wherever possible. Oftel hopes that the parties can arrive at a commercially negotiated solution. But if not Oftel will resolve a dispute about roaming, setting a charge if necessary.

However, paragraph [ ].1 does contain two specific provisions which the Agreement must contain:

• The agreement must be capable of lasting at least until 31 December 2009. The purpose of this provision is to ensure that the New Entrant can obtain national roaming at least until that date, whilst allowing for the possibility of terminating a National Roaming Agreement with one incumbent and entering a new Agreement with another operator.
• The agreement must cover at least Second Generation teleservices and bearer services as defined in the Condition (and may include more if the parties so wish).

As the Condition makes clear, roaming is to take effect from the date on which the Relevant Mobile Operator offers 3G services over a geographic area in which at least 20% of the UK population live.

It is a requirement of the Condition that the terms of the Agreement should be reasonable, and ultimately the question of whether a term or condition is reasonable is to be decided by the Director General.

The Director may if requested by either party make a direction specifying issues which must be covered in a National Roaming Agreement, or to lay down specific conditions to be observed by one or more parties to such an agreement. (Where the Director decides to make a direction or determination, he must follow the procedure set out in paragraph 4 of Part 1 of the new Mobile PTO Licence).

In addition, the Director General may set time limits within which negotiation of an Agreement must be completed.

In the event that there is a dispute between the parties, or negotiations are not completed within the time limit set by the Director General, there is a dispute resolution procedure set out in paragraph [ ].6 of the roaming condition. This envisages that a dispute will be resolved within six months of it being referred. Because of the importance of national roaming it is hoped that disputes can be settled well within that period. Before accepting a dispute for resolution, the Director will look for a clear indication that the parties have engaged in genuine negotiations which have proved unsuccessful. This reflects the fact that the dispute resolution procedure is intended to be a measure of last resort only. The preferred method of achieving roaming under this Condition is for the parties to reach commercial agreement. The dispute resolution procedure requires the Director General to ensure a fair balance between the legitimate interests of both parties when resolving disputes and it also lists in points (a) to (i) a number of matters to which the Director General must have regard. The list is not exhaustive.

It is hoped that recourse to the dispute settlement mechanism will not arise save in exceptional cases, and this is reflected in the last part of paragraph [ ].6. This sets out circumstances in which the Director would not be required to resolve disputes.

In considering the matters set out in paragraph [ ].6 the Director General will view the following features of an Agreement as particularly important:

Item (i) of paragraph [ ].6 requires the Director General to consider the desirability of the licensee providing national roaming at a price based on "retail minus". Retail minus is defined in the Condition. The Director General regards roaming as resale of the operator’s network. Thus charges for national roaming will not usually be determined on a "cost plus" basis, which is the norm for interconnection. The maximum charge for roaming shall be calculated by subtracting from the retail price (defined below) the "costs saved" by serving other network operators as opposed to retail customers. For these purposes, "retail price" shall be the average effective revenue from providing to all customers services which are available for roaming, including revenues from connections, rental and calls, expressed in pence per minute, for the quarter in question. This may be calculated separately for national and international calls and for peak and off-peak periods. Because of the complexity of mobile tariffs, Oftel believes that the only workable solution is to base the roaming charge on an average of the prices charged for the roamed services, when supplied to final customers.

Furthermore, Oftel notes that tariffs available to new customers may differ from those available to existing customers and that, in the case of some networks, this can give rise to distortions in calculations base on average revenues. It therefore believes that the retail minus calculations should be based only on those tariffs which are on offer to new customers.

‘Costs saved’ shall be the costs incurred in undertaking those activities which must be carried out in order to serve a retail customer but which are not required in order to provide roaming to another network operator and may, for example, include in whole or in part:

• The cost to the service provider of subsidising the price of handsets paid by customers;
• The cost to the network of acquisition bonuses paid to service providers;
• The costs of equipment maintenance or replacement;
• The costs of retail marketing and sales;
• The costs of finance and retail billing, including bad debt;
• Computing costs relating any costs of upgrades to systems to allow for roaming;
• Customer service costs (back and front office).
• For bearer services the costs of providing the content or other value added component conveyed using the network

It will normally be assumed that the retail price is adequate to cover any additional investment incurred unless the Licensee can show that the additional costs incurred solely to provide roaming are significant, in which case then this would be taken into account in assessing the charges for roaming.

As services and functions will be defined by the network onto which the new entrant’s customers roam, the Director General will be sympathetic to issues of branding such as the roamed networks name appearing on the customer terminal while roaming is taking place.

The Agreement would be expected, initially, to provide national coverage but could limit access of roamed subscribers onto the GSM network for technical reasons. These might include:

• where there is insufficient network capacity to meet projected traffic demand in specific geographic areas which will lead to quality of service problems for the 2G operator and his customers; and
• geographical coverage could be reduced or even withdrawn in areas where the new entrant has rolled out a network to ensure that the GSM network is not used to provide a safety net in the event of 3G network failures.

Paragraph [ ].1 requires that the roaming agreement should cover 2G teleservices and bearer services supported over the Licensee’s network as defined in the relevant ETSI GSM standards. These teleservices are speech, emergency call, facsimile and short messages. The bearer services are defined as the circuit switched and packed switched data capabilities that are supported by the 2G networks. The capability of the network to support data will depend on the specific version of 2G standards implemented within the network at any time.

It is expected that national roaming will be implemented in a similar way to international roaming so that the customers of a new entrant only require a single SIM card in their handsets and will have the same number for the 3G and 2G networks. It will be necessary for the networks to use compatible standards. It is not expected that in-call hand-over will be a necessary requirement of the Roaming Agreement.

The roaming condition requires that a National Roaming Agreement should be capable of lasting at least until 31 December 2009. A new entrant will be able to terminate his agreement before that date if he so wishes, and enter into a new agreement with another operator.

In resolving disputes, the Director General would normally require that roaming services are provided from the time the New Entrant provides 3G services in a geographical area where 20% of the UK population live.

Oftel
May 1999

Bearer Services – Telecommunication services which give the user the capacity needed to transmit appropriate signals between certain access points.

DG – Director General of Telecommunications

DTI – Department of Trade and Industry

ETSI – European Telecommunications Standards Institute which has the primary responsibility within Europe for the production of telecommunications standards for pan–European application.

GPRS – General Packet Radio Service

GSM – Global Standards for Mobile Telephony (Vodafone and Cellnet currently operate GSM networks in the UK).

HLR – Home Location Register

Interconnection Directive (ICD) – The European Union Directive which came into effect from 31 December 1997, setting rules, amongst other things on those who have rights and obligations for interconnection and the terms on which interconnection should take place.

Market Power/ Market Influence – the ability to raise prices above the competitive level for a non–transitory period

Oftel – Office of Telecommunications

PCN – Personal Communications Network. High capacity digital cellular networks (Orange and One2One currently operate PCN networks in the UK).

Public Telecommunications Operator (PTO) – network operators providing services to the public with powers granted by the Secretary of State for Trade and Industry, under the Telecommunications Act 1984, to enable them to install their systems on public and private land, property etc.

RA – Radiocommunications Agency, an executive agency of the DTI responsible for the allocation, maintenance and supervision of the UK radio spectrum.

Radio spectrum – the range of frequencies used for broadcasting fixed and mobile telephony for radio, terrestrial television and satellite television. For fixed telephony the frequencies available in the UK are 2.4, 3.4 and 10 GHz ranges. For mobile telephony the frequencies for 2G are 880–915 MHz, 925–960 MHz, 1710–1785 MHz or 1805–1880 MHz bands, and for 3G are 1900–1980 MHz, 2110–2170 MHz.

Retail Minus – means the price charged by the Licensee for the provision of a service to end users less any elements of cost that are not incurred in providing the same service to a Relevant Mobile Operator.

Roaming – ‘National Roaming’ means the provision of Connection Services by means of the Applicable Systems to Authorised Mobiles in respect of Teleservices and Bearer Services pursuant to a National Roaming Agreement between the Licensee and a Relevant Mobile Operator.

Second Generation (2G) – 2G means spectrum within the 880–915 MHz, 925–960 MHz, 1710–1785 MHz or 1805–1880 MHz bands

Service provider – provider of telecommunication services, or services with a telecommunication service component, to third parties whether over its own network or otherwise.

SIM – Subscriber Identity Module

Significant Market Power (SMP) – the SMP test is set out in various European Directives, notably the Interconnection directives. It is used by the National Regulatory Authority (in UK this is Oftel), to identify those operators who must meet additional obligations under the relevant Directive

Telecommunications Act – The Telecommunications Act 1984

Teleservices – are telecommunication services which provide the user with the necessary capacities including terminal equipment functions, to communicate with any other users and cover speech, short message service and facsimile services

Third generation (3G) – means, for the purposes of this Condition spectrum within the 1900–1980 MHz, 2110–2170 MHz.

Third generation auction – The auction for radio spectrum in the 2 GHz band at 1900–1980 MHz, 2110–2170 MHz

Third generation mobile systems – A European 3G mobile communications system will provide an enhanced range of multimedia services (eg high speed Internet access). 3G networks are expected to enter service in 2002/3 using radio spectrum in the 2GHz bands.

WT Act – The Wireless Telegraphy Acts 1949 to 1998