Chapter 1 Oftel statement on national roaming

Annex A National roaming licence condition

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

Annex B National roaming condition guidelines

Annex C Oftel’s response to issues raised during the consultation

Annex D Glossary

1.1 In the consultation document Access to 2^nd Generation (2G) Mobile Networks for New Entrant 3^rd Generation (3G) Mobile Operators Oftel set out its views on the terms and conditions for mandated roaming. The consultation period ran until 11 June 1999 with two further weeks allowed for comments on responses. A statement on National Roaming was issued by Oftel in July 1999.

1.2 In accordance with Section 12 of the Telecommunications Act 1984, the Director General wrote to the 2G operators on 20 August 1999 asking them to consent to the inclusion of the roaming Licence Condition as drafted, by 3^rd September.

1.3 In the light of comments received, Oftel has made a number of minor changes to the Licence Condition and one change to the guidelines. These changes are summarised below:

To the National Roaming Condition

• at paragraph [ ].6, a new clause to be added, new (f): the need for the Licensee to maintain quality of service and for the Relevant Mobile Operator to provide accurate and timely information in order to facilitate network planning;

• at paragraph [ ].6, a change to existing clause (j): the provision of National Roaming to Relevant Mobile Operators at a price based on Retail Minus, as defined in this condition and in any guidelines which the Director may from time to time issue

• a new paragraph [ ].7: any determination made under this paragraph [ ].6 shall automatically lapse upon the entry into force of any subsequent National Roaming Agreement to which the same Relevant Mobile Operator is a party.

• to the definition of "Retail Minus": "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 plus any elements of cost reasonably incurred solely to provide roaming services;

To the guidelines

• added to paragraph B1.11 the words: "These shall be costs not exceeding those which would be incurred by the 2G operator or its tied service providers in order to serve its retail customers. Where network acquisition bonuses are used by the service provider to subsidies handsets, such bonuses shall not be 'double counted' in calculating retail minus."

To aid readers, changes to the guidelines and condition are underlined.

Oftel considers that these changes do not represent substantive changes to the principles set out in the statement and guidelines issues in July 1999. We do not propose to enter into another statutory consultation on these changes, but to offer the incumbent 2G operators a final opportunity to agree to the National Roaming Condition. If no agreement is forthcoming, the Director General will refer the matter to the Competition Commission for resolution.

1.4 The National Roaming Condition is attached at annex A, the revised guidelines at Annex B. Annex C contains Oftel’s response to other issues raised during the consultation period.

1.5 It is useful here to re-state the governing principles Oftel has followed in proposing the roaming Condition and its application in case of a dispute. These principles remain unchanged in this document from that of July 1999.

1.7 It is important to be quite clear that Oftel hopes to see a roaming agreement reached commercially. The Director General will look for clear indications that the parties have used best endeavours to reach a commercial agreement and have engaged in genuine negotiations that have proved unsuccessful before he accepts a dispute for resolution. Oftel would not expect that it should be asked to construct the main body of a roaming agreement. Rather, Oftel will address only those specific issues within a substantially developed agreement when that the parties have been unable to agree.

1.8 The Director General will only resolve a dispute involving a roaming agreement between a new entrant and one 2G operator. While that roaming agreement remains in force and is not going through any termination notice period, the Director General will not normally accept another dispute involving a roaming agreement between that new entrant and a different 2G operator.

1.9 Oftel accepts that a new entrant may need to terminate a roaming agreement if the agreement becomes obsolete because of changes in technology, company ownership or market structure for example. In such a case, the Director General will accept disputes over a subsequent roaming agreement. However, Oftel will not allow a new entrant to use the dispute resolution procedure to play the 2G operators off against one another. This reflects the fact that the dispute resolution procedure is intended to be a measure of last resort only. The purpose of the roaming Condition and the dispute procedure is to provide certainty to potential new entrants that they will be able to obtain national roaming on one 2G network in order to compete with the existing 2G operators.

1.10 The Government attaches great importance to the further development of competition in the mobile market, including the promotion of sustainable market entry. The auction for 3G spectrum presents an opportunity to increase competition by the entry of a fifth mobile operator.

1.11 It is not Oftel’s intention that the roaming Condition should place an unfair burden on the incumbent operator or give any new entrant an unfair advantage. However, a new entrant faces considerable disadvantages competing with 2G operators that have an established customer base and established 2G networks. Potential new entrants require certainty that roaming will be provided to offset, for a limited period, some of the disadvantages they will face if they enter the UK mobile market.

1.12 National roaming specifically addresses the need of a new entrant to provide national coverage and offer national services in order to attract customers before it has fully established its own 3G network. The roaming condition is temporary; the Condition includes a date after which a 2G operator is no longer required to provide roaming services. In addition, the 2G operator will not be required to provide roaming services in areas where the new entrant has rolled out a network. The obligation of the 2G operators to provide roaming thus diminishes geographically over time.

1.13 It is not possible to specify the exact method by which Oftel would determine a charge for national roaming in advance of a request for a determination. However, a determination based on a "retail minus" approach should provide that the incumbent 2G operator has broadly the same profit on roaming services provided to a new entrant as on retail services provided to its own customers.

1.14 A charge for roaming services that is set on a retail-minus basis means that it is unlikely that the provision of retail services based on the use of a 2G network alone will be profitable for the new entrant. This will ensure that the new entrant rolls out its network as soon as possible. However, the new entrant should obtain roaming services at a fair, non-discriminatory price that allows it to offer national services quickly.

1.16 Potential new entrants are concerned that their customers will not be offered the same access to the 2G network as the incumbent’s own customers, particularly if the 2G network has capacity problems. Equally, incumbent 2G operators are concerned that the quality of service offered to their own customers should not be adversely affected by the extra traffic generated by roaming customers.

1.17 The 2G operator is obliged to offer roaming services on a non-discriminatory basis to the new entrant. Oftel would expect a commercial agreement to contain specific arrangements designed to manage any capacity problems on the 2G network caused by the new entrant’s traffic. If the 2G operator can show that any additional investment costs are incurred solely to provide roaming services, these costs may be taken into account in the price to provide roaming services. It is also reasonable that the commercial agreement includes procedures for the new entrant to provide the 2G operator with sufficient and timely information in order to facilitate network planning and provision of capacity.

1.18 In the revised guidelines Oftel has responded to issues and concerns raised by both the 2G operators and potential new entrants during the consultation period. The revised guidelines address these concerns and provide greater clarity on the approach that Oftel will adopt in applying the Condition if it is required to resolve a dispute over roaming.

1.19

The national roaming Condition is designed to addresses the need of a new entrant to provide national coverage as it rolls out its own national network. However, through the 20% coverage requirements, a new entrant will be required to commit a substantial level of investment to a network before national roaming becomes available.

1.20 Some respondents argued that a higher roll out obligation should be placed on the new entrant on the basis that a network that covers only 20% of the UK population can be established readily and does not represent a substantial level of investment committed to a network. 2G operators argued that 40% to 50% coverage is required in order to launch a commercial service. Other respondents argued for no minimum coverage obligation as new entrants have commercial incentives to rollout a network quickly and therefore there is no need to impose a minimum coverage obligation.

1.21 Oftel considers that a coverage obligation of 20% before roaming is made available represents a balance between the requirement for the new entrant to commit investment to a network and the objective of roaming, which is to allow the new entrant to provide service before it has established an extensive network. 40+% coverage was the figure for launch of a commercial service in the absence of roaming. Oftel wants to see early launch of a 3G new entrant’s service in competition with the incumbentsexisting operators.

1.22 However, some respondents pointed out that a new entrant could rollout a ‘thin’ network not capable of providing a commercial service. This would mean that in effect the 20% coverage obligation had been met. The guidelines now make clear that the 3G new entrant must roll out a network capable of supporting a commercial service available to 20% of the UK population before a 2G network operator is obliged to provide roaming services. It is not necessary for the 2G operator to provide roaming services in areas where the new entrant has rolled out a network; this should ensure that the network build that the new entrant claims constitutes 20% coverage is genuinely capable of supporting a commercial service. It is not Oftel’s intention that the new entrant could use the 2G operator’s network as a safety net in the event that its own network cannot support its customers.

1.23 The Condition contains a date, 31 December 2009, after which 2G operators will no longer be obliged to provide roaming services to a new entrant. This ‘sunset’ clause, along with the other measures by the Director General of a charge for roaming based on retail minus and a roll out obligation of 80% by end-2007 in 3G Wireless Telegraphy Act licences, ensures that incentives for the new entrant to roll out a network are maintained.

1.24 Some respondents argue that the end date of roaming should be end-2007 (the same date as the 80% roll out obligation) on the basis that there is no regulatory obligation for an operator to establish greater than 80% coverage. It will be a commercial decision of the new entrant whether to roll out a network beyond that which is required to meet the 80% coverage obligation.

1.25 Potential new entrants argue that the proposed end date effectively forces a new entrant to rollout a network by 2009 that covers almost all of the UK population in order that the new entrant remains competitive with the 2G operators and that roaming should be provided past 2009. As explained previously, Oftel sees the Condition as a temporary measure designed to offset some of the disadvantages that a new 3G entrant will face. It is not a mechanism to implement domestic roaming permanently but is intended to support sustainable entry without continuing regulatory props. Oftel considers that the end date for roaming of 2009 represents a fair balance between the need to maintain incentives for the new entrant to rollout its network and the need for measures that allow the new entrant to compete with the 2G operators. The obligation on the 2G network operators to provide roaming services will therefore end in 2009. After that, the provision of roaming services is purely a matter for commercial negotiation.

1.26 2G operators expressed concern that the Condition should not create disincentives for the 2G operator to develop innovative value added services. New entrants are concerned that their customers should be able to access a range of services that would normally be available while roaming.

1.27 It is not Oftel’s intention that innovative valued added services provided by the incumbent 2G operator to its own customers should be ‘resold’ by the new entrant. However, it is Oftel’s intention that the new entrant should be able, as far as is technically feasible, to provide its own value added services to its own customers while they are roaming on a 2G network. The 2G network operator would not be expected to provide roamed customers access to its own Internet Service Provider (for example), but would be expected to allow roamed customers access to the new entrant’s Internet Service Provider.

1.28 The exact range of services to be provided should be the subject of commercial negotiations. However, the Condition does require that at least Bearer Services (including GPRS) and Teleservices should be provided. If it is feasible to provide Standard GSM Supplementary Services (such as CLI, call forwarding and call barring) to customers while roaming, Oftel expects 2G operators to enter negotiations with new entrants in order to agree arrangements for the provision of these services. In the case of a dispute over services to be provided, the Director General will consider that, subject to technical constraints and the consideration of the cost to the 2G operator, Standard GSM Supplementary Services should be provided to roamed customers.

1.29 Oftel received representations that the obligation to provide roaming services to a new entrant should only be triggered in the Mobile PTO licences by a Market Influence (MI) or Significant Market Power (SMP) designation.

1.30 Previous consultations showed that in the case of national roaming for a new 3G operator, the overriding need was for potential new entrants to have certainty that they will be able to obtain roaming. This necessitates use of an un-triggered condition. If potential new entrants cannot be certain that the MI or SMP triggers will be pulled for any operator in the future, and this may deter them from bidding for 3G spectrum.

1.31 Oftel considers that all four 2G operators have the advantages of established 2G networks. They will all be in a position to lever these advantages into the provision of 3G services and it is therefore appropriate that they should all accept the obligation to negotiate roaming.

1.32 National roaming is not indirect access or a form of service provision but is a mechanism to help level the playing field for a new 3G network operator. Roaming allows the new entrant complete control and ownership of its customers and allows the new entrant to use another operator’s network to provide national coverage to these customers. Service provision and indirect access do not allow the same arrangements to be implemented. In addition, only operators designated with SMP are obliged to provide Indirect Access or accommodate service providers so there are problems with certainty of provision, as discussed above.

1.33 Some respondents to the consultation expressed concern that Oftel’s recent paper on Mobile Virtual Network Operators (MVNOs) would negate the need for national roaming. Oftel’s MVNO paper is intended to initiate a discussion on the consumer, economic and regulatory factors that need to be considered in relation to MVNOs. This paper does not contain any firm proposals for regulatory action. Even if regulatory action is taken at some point in the future in order to facilitate the introduction of MVNOs, Oftel would expect charging for the use of network facilities by MVNOs to be based on the principle of retail minus. This does not put MVNOs in the same position as a new network operator that will ultimately use its own network to provide service to customers.

1.34 New entrants generally expressed concern that the absence of inter-operator in-call handover might generate a perception of poor quality of a new entrant’s service if calls are frequently dropped as customers move in and out of 3G network coverage.

1.35 Oftel considers that in-call handover should be covered by a roaming agreement if the standards allow. Oftel notes that there are concerns that this feature may not be available in the first release of Third Generation equipment. However, subject to technical constraints and the consideration of any extra costs incurred by the 2G operator, if inter-operator in-call handover is feasible and established in the standards, Oftel expects 2G operators to enter negotiations with a new entrant regarding the provision of this service. If in-call hand over is the subject of a dispute, Oftel will address it in any determination and may take into account any costs incurred by the 2G operator in providing inter-operator in-call handover.

1.36 During the consultation period, both 2G operators and new entrants expressed concerns that further guidance was required on the issue of branding.

1.37 In the response to the consultation, 2G operators presented different views regarding the display of 2G brand names on the customer terminal when the new entrant’s customers roam onto the 2G network. Some 2G operators insist that their brand should appear on the roamed customer terminal while others insist that it should not.

1.38 Oftel is of the opinion that branding issues are best resolved through commercial negotiation, particularly since different 2G operators have expressed different views.

1.39 The consultation period was also the statutory consultation for the modification to condition 8 (insertion of a reference to the roaming Condition) of the mobile PTO licences. This modification, along with the existing conditions in the Mobile PTO licences, will allow Oftel to deal with anti-competitive behaviour in relation to roaming services.

1.40 Concerns were raised that a 2G operator will restrict access to the 2G network for roaming customers on the basis that the 2G network has capacity constraints. The 2G operator that provides roaming services is obliged not to exercise undue discrimination against the new entrant. Oftel expects a commercial agreement to contain specific arrangements designed to manage any capacity problems on the 2G network caused by the new entrant’s traffic. It is reasonable that the commercial agreement also includes procedures for the new entrant to provide the 2G operator with timely information in order to facilitate network planning and provision of capacity and provision for ensuring that forecasts are accurate and sufficient.

1.41 In the event of a dispute resolution addressing the service provided to the new entrant by the 2G operator, the Director General would expect to ensure that a new entrant’s roaming customers get as far as possible a service technically equivalent to that on offer to the 2G operator’s customers.

1.42 Potential new Eentrants expressed concern that the 2G incumbent operator might target customers roaming on the 2G network to attract them to its own business. Such issues should, in the first instance, be addressed in the commercial agreement between the parties. It would be sensible for the commercial agreement to also deal with related issues such as the branding of the roaming service, non-disclosure of information and other measures designed to prevent the 2G operator using its position as a supplier of roaming services to gain a commercial advantage over the new entrant. Disputes and complaints about anti-competitive behaviour will be dealt with by Oftel in the usual manner.

1.43 The unfair discrimination and cross-subsidy rules require an operator providing roaming services to show that, in providing bundles of services to retail customers, 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 whether any charges might be anti-competitive, Oftel would deem that the costs of the roamed services were the same as the rate charged to the new entrant 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.

1.44 Oftel’s response to some of the other issues raised during the consultation (and further explanation of some of the issues covered above) is set out in
Annex C.

Oftel
October 1999

[ ].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:

1. to specify issues which must be covered in a National Roaming Agreement; or
2. to lay down specific conditions to be observed by one or more parties to a National Roaming Agreement; or
3. 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:

1. 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
2. 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:

1. the interests of users;
2. regulatory obligations or constraints imposed on the Licensee or the Relevant Mobile Operator;
3. the desirability of stimulating innovative market offerings, and of providing users with a wider range of telecommunications services;
4. the need to maintain the integrity of the public telecommunications network and the interoperability of services;
5. the nature of the request in relation to the resources available to meet the request;
6. the need for the Licensee to maintain quality of service and for the Relevant Mobile Operator to provide accurate and timely information in order to facilitate network planning;
7. the relative market positions of the Licensee and the Relevant Mobile Operator;
8. the public interest, such as the protection of the environment;
9. the promotion of competition; and
10. the provision of National Roaming to relevant Mobile Operators at a price based on Retail Minus, as defined in this condition and in any guidelines which the Director may from time to time issue.

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:

1. (i)still valid and in existence; and
2. (ii)remains in substantially the same form.

[ ].7 Any determination made under this paragraph [ ].6 shall automatically lapse upon the entry into force of any subsequent National Roaming Agreement to which the same Relevant Mobile Operator is a party.

[ ].8 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.

[ ].9 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:

1. any parent undertaking of the Licensee;
2. any subsidiary undertaking of the Licensee;
3. any subsidiary undertaking of any parent undertaking referred to in (a);
4. 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;
5. 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;
6. 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
7. 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,

(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 plus any elements of cost reasonably incurred solely to provide roaming services; 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.

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

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.

B1.1 The following Guidelines should be read in conjunction with the National Roaming Condition. It is proposed that this roaming Condition be inserted into the Mobile PTO licences of 2G operators. The Condition requires the four current 2^nd Generation (2G) mobile operators, in the event that they win Third Generation (3G) wireless Telegraphy Act (WT Act) licences, to negotiate national roaming with a New Entrant operator who holds a 3G WT Act licence and does not have a 2G network. The Condition contains a dispute resolution procedure in the event that negotiations are not successfully concluded.

B1.2 The Condition should be read in conjunction with the other conditions which appear in the Mobile PTO licences including, for example, the provisions relating to undue preference, undue discrimination and unfair cross subsidies. The modification to Condition 8 (insertion of a reference to the roaming Condition) of the Mmobile PTO licences will allow Oftel to deal with any anti-competitive behaviour in relation to roaming services.

B1.3 The purpose of these Guidelines is to set out the approach that the Director General of Telecommunications is likely to take in applying the Condition so that interested parties are better able to assess 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.

B1.4 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"). 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. If Oftel resolves a dispute it will only address the specific issues that the parties have been unable to agree. Issues that have been commercially agreed between the parties will not be addressed by Oftel. It is hoped that recourse to the dispute settlement mechanism will not arise save in exceptional cases.

B1.5 Before accepting a dispute for resolution, the Director will look for clear indications that the parties have engaged in genuine negotiations that have proved unsuccessful. The Director General will only resolve disputes involving a roaming agreement between the New Entrant and one 2G operator. While that roaming agreement remains in force and is not going through any termination notice period, the Director General will not normally accept another dispute involving a roaming agreement between the New Entrant and a different 2G operator. Oftel accepts that the New Entrant may need to terminate a roaming agreement if the agreement becomes obsolete because of changes in technology, company ownership or market structure for example. In such a case, the Director General will accept disputes over a subsequent roaming agreement. However, Oftel will not allow the New Entrant to use the dispute resolution procedure to play the 2G operators off against each other. This reflects the fact that the dispute resolution procedure is intended to be a measure of last resort only.

B1.6 The Director may, if requested by either party, make a direction specifying issues that must be covered in a National Roaming Agreement negotiated between a New Entrant and a 2G operator, 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.

B1.7 Oftel will not accept a dispute for resolution unless significant effort has been made to agree on the issues that could reasonably be expected to be covered by a commercial agreement. Oftel expects a commercial roaming agreement to address among other things, such issues as traffic forecasting, provision of capacity, branding, services and supplementary services, quality of service, call routing, network management and technical issues, duration of agreement and review procedures, charging structures and prices.

B1.8 In the event that there is a dispute between the parties, the dispute resolution procedure envisages that Oftel will take steps to resolve a dispute within six months of it being referred to the Director General. Because of the importance of national roaming it is hoped that disputes can be settled well within that period. The dispute resolution procedure requires the Director General to ensure a fair balance between the legitimate interests of both parties when resolving disputes. Paragraph [ ].6 of the Condition lists in points (a) to (i) a number of matters to which the Director General must have regard. The list is not exhaustive but includes:

• The relative market positions of the 2G operator and the New Entrant;
• The desirability of the 2G operator providing National Roaming to the New Entrant at a price based on Retail Minus;
• The nature of the request in relation to the resources available to meet the request.

B1.9 The Director General regards roaming as resale of the 2G operator’s network. Thus charges for national roaming will usually be determined on a "retail minus" basis. Retail minus is defined in the Condition. If Oftel resolves a dispute about roaming by setting a charge, the objective of the price determination would be to allow the New Entrant a chance to compete effectively with the existing 2G operators. It is not the intention to place an unfair burden on the incumbent operator or give the New Entrant an unfair advantage.

B1.10A determination based on retail minus should ensure that the incumbent 2G operator has broadly the same profit on services provided to a New Entrant as on services provided to its own retail customers and that the New Entrant should obtain roaming services at a fair, non-discriminatory price.

B1.11Oftel wishes to avoid prescribing any aspect of a commercial roaming agreement unless the dispute resolution procedure is invoked. It is preferable that all prices and charging structures result from commercial negotiation. However, in order to provide certainty to new entrants that (in the event of a dispute) they will be able to obtain roaming at a price that enables them to compete with operators that have both 3G spectrum and 2G networks, Oftel’s likely approach to a price determination for roaming is set out here:

• The consultation document on the Condition suggested that the retail-minus charge for roaming would be expressed as a single pence per minute rate based on average retail prices because of the concern that high fixed fees could make roaming uneconomic. Network operators argued that the roaming charge should include fixed fees as a contribution to the costs of providing coverage in areas where traffic is light as well as to cover the installation of new capacity on the basis of uncertain forecasts of roaming traffic. Oftel is not specifying the structure which might emerge from a commercial agreement, should one be reached. If operators can agree a roaming tariff which includes fixed fees then Oftel would not expect to intervene. Therefore, whilst Oftel will not necessarily rule out the inclusion in a roaming agreement of some fixed charges, in the event that it is asked to make a determination, it will examine carefully the justification for such charges and their likely effect;

• The charge for roaming would be calculated by subtracting from the retail price the costs saved by serving other network operators rather than retail customers and adding any extra costs incurred by providing network operators with roaming services;

• The retail price would be taken as the average effective revenue from connections, rental and calls for those 2G services that are available to roaming customers. This may be calculated separately for different services, such as national and international calls and peak and off-peak periods;

• For some services, notably GPRS services, minutes used may not be the most appropriate charging basis. Such services may be more appropriately charged according to usage or "by the bit". In the event that the parties cannot agree on a charging basis, Oftel is likely to determine that roaming usage will be charged on the same basis as the 2G operator's relevant retail products taking into account charges for content or other value added components not provided ;

• The retail revenue will be calculated from the 2G operator’s total revenue and total minutes. Adjustments may be made to allow for operator specific tariffs and pricing strategies (such as free calls) where these are not available 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. 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;
• Retail computing costs;
• Customer service costs (back and front office);
• For bearer services the costs of providing the content or other value added component using the network.

• Costs incurred in providing a roaming service to another network operator will also be taken into account. These may include:

• Additional wholesale billing costs which are incurred as a result of providing roaming;
• Computing costs (including system upgrades to allow roaming) of servicing other network operators;
• Any additional administrative or operational costs associated with the provision of roaming services;
• Any additional investment costs which can be shown to be incurred solely to provide roaming services. In the case of a dispute, Oftel will consider carefully if the retail price can be considered to cover any additional investment necessary to provide roaming services.

• For simplicity, it is likely that the ‘net’ avoidable costs (ie costs saved less those additional costs incurred) will be calculated as a percentage of the average effective revenue. This percentage reduction in the retail price will be applied to the initial retail price and any subsequent changes in retail price. This will ensure that roaming charges will track changes in retail prices. The value of the net avoidable costs will be revised annually.

B1.12 In the response to the consultation on these guidelines, 2G operators expressed different views regarding the display of 2G brand names on the customer terminal when the New Entrant’s customers roam onto the 2G network. Some 2G operators insist that their brand should appear on the roamed customer terminal while others insist that it should not. Oftel is of the opinion that branding issues are best resolved through commercial negotiation, particularly since different 2G operators have expressed different views. New Entrants expressed concern that the 2G incumbent operator might target customers roaming on the 2G network. Such issues should, in the first instance, be addressed in the commercial agreement between the parties. However, disputes and complaints about anti-competitive behaviour will be dealt with by Oftel in the usual manner.

B1.13 In resolving disputes, the Director General would normally require that roaming services be provided from the time the New Entrant provides services in a geographical area where 20% of the UK population live.

B1.14 In the case of a dispute over the actual percentage of the population that is covered by the New Entrant’s network it will be for Oftel to decide if the New Entrant has established a network that covers 20% of the UK population. Oftel does not consider that the New Entrant needs to establish 20% coverage in one single area, that is, Oftel would consider it acceptable that the New Entrant meets the 20% roll out figure by coverage of several different areas (eg network in several major cities).

B1.15 Oftel would expect that the New Entrant would roll out a network capable of supporting a viable commercial service in a geographical area in which 20% of the UK population live before an incumbent 2G operator is obliged to provide roaming services to the New Entrant. In the case of a dispute, Oftel considers that it will not need to measure network quality or capacity of the New Entrant’s network to determine if this network is capable of supporting a ‘commercial’ service. The incumbent 2G operator will not be obliged to offer roaming services in areas where the New Entrant has rolled out a network. If an incumbent 2G operator does not provide service in the areas where the New Entrant has network build, this will ensure that the New Entrant’s network has to be capable of supporting a commercial service. It is not Oftel’s intention that the New Entrant should use the 2G network as a safety net in the event that its own network cannot support its customers.

B1.16 The Condition is intended to provide a temporary mechanism that will offset some of the disadvantages that a New Entrant will face when competing with the established 2G operators. Therefore, the Condition contains a date after which the 2G operator is no longer required to provide roaming services to a New Entrant.

B1.17 Oftel does not consider that the 2G operator is under any obligation to provide roaming services in areas where the New Entrant has rolled out a network. If roaming coverage is reduced or even withdrawn in areas where the New Entrant has rolled out a network, this will ensure that the 2G network is not used to provide a safety net if the 3G network fails.

B1.18 The Condition requires that a National Roaming Agreement should be capable of lasting at least until 31 December 2009. The parties can commercially agree an earlier or later end date but if Oftel resolves a dispute, it is likely to set an end date of 31 December 2009.

B1.19 The Agreement would be expected, initially, to provide roaming services that allow a New Entrant to provide national coverage. The roaming agreement should allow the New Entrant to sell services to subscribers in areas other than those in which it has network build. However, Oftel expects that the New Entrant will market services primarily based on 3G to customers based inside its coverage area because a roaming charge based on retail minus will give the New Entrant little margin on roamed traffic.

B1.20 The 2G operator providing roaming services is obliged not to exercise undue discrimination against the New Entrant. Oftel expects a commercial agreement to contain specific arrangements designed to manage any capacity problems on the 2G network caused by the New Entrant’s traffic. It is reasonable that the commercial agreement includes procedures for the New Entrant to provide the 2G operator with timely information in order to facilitate network planning and provision of capacity and provision for ensuring that forecasts are accurate and sufficient

B1.21 As discussed previously, if the 2G operator can show that any additional investment costs are incurred solely to provide roaming services these costs may be taken into account in the price to provide roaming services.

B1.22 It is not the intention that innovative valued added services provided by the incumbent 2G operator to its own customers (such as, for example, internet service provision or mobile banking and cash services) should be ‘resold’ by the New Entrant. It is the intention that the New Entrant should be able, as far as is technically feasible, to provide its own value added services to its own customers while they are roaming on a 2G network.

B1.23 The exact range of services to be provided by the 2G operator under the roaming agreement should be the subject of commercial negotiations. However, Paragraph [ ].1 of the Condition requires that the roaming agreement should cover at least Teleservices and Bearer Services supported over the Licensee’s network as defined by ETSI in the GSM series of standards.

B1.24 The GSM standards support 2G network Bearer Services in either packet switched or circuit switched modes. The capability of the network to support different types of Telecommunication services will depend on the specific version of 2G standards implemented within the network at any time.

B1.25 Oftel considers that any roaming agreement should, if the New Entrant wishes, cover all Bearer Services (including GPRS) and Teleservices. All essential Standard GSM Supplementary Services should also be addressed by a commercially negotiated roaming agreement. Standard GSM Supplementary Services include Number Identification (Calling Line Identification), Call Offering (Call Forwarding) and Call Restriction (Call Barring). If it is technically feasible for the incumbent GSM network to provide standard GSM Supplementary Services to roamed customers, Oftel expects the incumbent 2G operator to enter into negotiations with the New Entrant about the provision of these services. Any determination by Oftel that resolves a dispute over services will address the issue of GSM Supplementary Services.

B1.26 In-call hand-over between 2G and 3G networks owned by different operators may be technically feasible. Inter-operator hand-over may be available in early releases of 3G standards. If Oftel resolved a dispute about inter-operator in-call handover it would consider that the service should be offered to a New Entrant if the service is supported by the 3G standards. Oftel notes that there are concerns that this feature may not be available in the first release of Third Generation equipment. If this feature should become available after any roaming agreement is in place then it would be expected that the service would be offered and the roaming agreement modified to reflect this (subject to technical constraints and the consideration of any extra costs incurred by the 2G operator).

B1.27 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 mobile subscriber number for the 3G and 2G networks. It will be necessary for the networks to use compatible standards.

B1.28 The roaming agreement needs to take into account the technologies employed by the 2G and 3G networks. If non-compatible standards are used significant re-engineering may be required to provide the necessary interfaces between the two networks to facilitate roaming. The Director General would not expect the 2G operator to provide roaming if incompatibility between 2G and 3G standards render national roaming impractical.

Oftel
October 1999

C1.1 This document provides Oftel’s response to some of the counter arguments put forward or alternative approaches proposed during the consultation period, which have not been addressed in Oftel’s Statement on Roaming and the revised guidelines to the roaming Condition. It is not possible to respond here to every comment that Oftel received during the consultation period but the issues most frequently raised by the respondents have been addressed. Of course, because a comment is not addressed here does not mean it has not been taken into account.

Argument: Cost-plus

C1.2 Roaming is an interconnect service. Charges for roaming should be set at network average cost plus a reasonable rate of return. If the 2G operator sets roaming charges on the basis of retail tariffs the scope for the new entrant to offer innovative is limited.

C1.3 Roaming is not interconnection. It is resale of calls provided over another operator’s network. It would be inappropriate to set the roaming charge on a network average cost-plus basis for a number of reasons. Firstly, this could allow entrants to profit simply by arbitrage of the existing network operators’ services and could lead to inefficient entry. Secondly, it would not be appropriate to use roaming as a back-door means of controlling mobile prices, as this could stifle the competition which Oftel believes is developing in the mobile market and which will be enhanced by the entry of a new operator. In addition, it would be inconsistent with the approach that Oftel has taken to other forms of access to mobile networks where it has also adopted retail minus as the charging basis.

C1.4 Oftel’s proposed retail-minus charge for roaming will not cover costs, including capacity costs, in the more rural areas where traffic is lightest and where roaming is likely to be concentrated, because average costs per minute (including fixed costs) in such areas are higher than the geographically uniform retail charge. Oftel’s proposal 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. Some operators have therefore argued that the roaming charge should not be composed of a single per-minute rate as Oftel has proposed but should have two or even three components including fixed fees.

Oftel’s response:

C1.5 Oftel has considered this argument and accepts that per minute costs may be higher than average in low traffic volume areas. This may mean, although it does not necessarily follow, that costs in some areas where roaming is likely to take place are above average retail prices.

C1.6 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 rule 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 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, fixed charges may be discriminatory because high-volume users get a lower average price than low-volume users.

C1.7 Therefore, whilst Oftel will not necessarily rule out the inclusion in a roaming agreement of some fixed charges, in the event that it is asked to make a determination, it will examine carefully the justification for such charges and their likely effect.

C1.8 Oftel also believes that some roaming traffic is likely to 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 increase the roamed operator's profits 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. Indeed, an expert witness to the Australian regulator (the ACCC) suggested that this outcome was to be expected as a result of competition amongst the existing operators to provide roaming. In this case, Oftel would not be required to make a determination, although the expert evidence suggested that the threat of a determination might well be crucial.

C1.9 Differences between the 2G networks are substantial. The four operators have very different ‘effective retail revenue’ figures. Oftel’s proposal does not reflect that fact that the retail prices of an operator are part of its entry strategy and the retail price reflects a variety of influencing factors. Quality of network is not the only reason for price differentials between the mobile operators.

C1.10 It was suggested that the two newer (1800MHz) operators should have effective revenues set at the industry weighted average revenue, while the two 900MHz network operators would be free to charge at their actual effective revenue.

C1.11 Oftel believes that a number of difficulties would be created if the roaming charge were to be calculated on an industry average basis rather than as an average for the roamed network. 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.

C1.12 Oftel also believes that, by 2002/3, the newer networks should be established competitors and it will no longer be appropriate to regard them as new entrants. It may well be that no one network is cheaper than the others for all customers or over a sustained period. However, Oftel acknowledges the distortion caused to One-2-One’s average revenues by its legacy of customers with rights to free calls and proposes that any charge for roaming onto the One-2-One network should be adjusted to remove this.

C1.13 A new 3G operator should not benefit from reselling 2G airtime. If service providers today can profit on a margin of around 25% against the retail price, ‘costs saved’ should not be more than 10% of the retail price. This will ensure that the new entrant does not profit from selling 2G roaming services. This approach would also simplify calculations as there is likely to be considerable difficulty experienced in determining costs saved on a per minute basis.

C1.14 Oftel agrees that it may be a convenient simplification to express the "costs saved" as a percentage of the retail price. However, it does not believe that the percentage should be capped without regard to the actual costs saved by supplying other network operators rather than retail customers. The agreements which network operators have with their service providers will not necessarily be an appropriate comparison since, for example, one of the main tasks of the service provider is customer acquisition on behalf of the network. The service provider’s margins and bonuses are designed to give them an incentive to attract new subscribers and the payments which service providers make to the networks for wholesale airtime may include amounts intended to recover the acquisition bonuses paid by the networks. This is not relevant to roaming by one network’s subscribers on another network.

C1.15 The proposed sunset clause represents a disincentive for the new entrant to invest in network build. Setting the sunset date after the obligation for 80% roll out goes further than the intended use of roaming for entry assistance. The new entrant will have rolled out a network in metropolitan areas but there will be no incentive to roll out into unprofitable rural areas. The new entrant will be tempted to ‘cherry pick’ and avoid establishing network in extremely high cost/low revenue generating rural areas.

C1.16 Successful bidders will be required to have rolled out a third generation network covering the area in which 80% of the population live by 2007. However, the importance of coverage for competition in the mobile market suggests that entrants will have to build out beyond this in order to compete effectively with the existing networks. Until they do so, they will need the ability to roam onto the existing networks in order to attract customers. Therefore, if roaming were also to cease in 2007, it would in effect place a more onerous coverage obligation on the entrant than the 80% specified. This would be an inappropriate burden on the new entrant. However, Oftel believes that the entrant can reasonably be expected to have achieved fully competitive coverage by 2009. See Oftel’s response to 1b on geographically averaged charges.

C1.17 The new entrant should be set interim network rollout obligations. These interim milestones are required in order to prevent the new entrant cherry picking and delaying network build in rural areas.

C1.18 Oftel and the RA consider that it is not appropriate to impose interim rollout obligations in the new entrant’s WT Act licenceOftel considers that it is not appropriate to impose interim roll out requirements on the new entrant as conditions for the continued availability of roaming. The new entrant will have a strong commercial incentive to build out its network. Oftel believes that between the limits of a 20% coverage requirement before roaming becomes available and the WT Act licence 80% roll out obligation by end-2007, the new entrant should be able to rollout its network in accordance with its commercial strategy. Roaming on retail-minus terms should also maintain incentives on the entrant to roll out its network.

C1.19 There is a risk that given the degree of development still required before a 3G network can be established a new entrant operator may not be able to achieve 20% coverage from 1s^t January 2002 for reasons entirely outside its control. The provision of roaming should not be linked to a coverage requirement it should start on a specified date.

C1.20 Oftel also received representations that roaming should not commence until the entrant’s network covered 40% or 50% of the population, on the basis that the experience of Orange and One 2 One suggested that this was the minimum coverage needed for successful launch.

C1.21 Oftel is not persuaded that roaming should not commence before a new entrant has rolled out a network that covers 40% - 50% of the UK population. The 40% - 50% coverage figure required for a commercial service 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 be able to do so in the absence of roaming. Therefore, it would seem perverse to negate this by requiring coverage at a level comparable to that needed in the absence of roaming. However, Oftel understands the concerns of the existing network operators that some significant network build should be required of entrants before they were eligible for roaming. A 20% rollout obligation seems to strike a reasonable balance.

C1.22 Oftel is not persuaded by the argument that because equipment availability might delay the roll out of 3G networks, roaming should start on a specific date. If 3G equipment is not available, this will delay the roll out of all 3G networks. The roaming Condition is designed to help level the playing field for a 3G new entrant while it establishes its own 3G network, it is not designed to provide a substitute 2G network to the new entrant.

C1.23 Oftel must make public the basis of the calculations that demonstrate that roaming is necessary for a new entrant. Interested parties should have the chance to comment on the assumptions and analysis used to justify mandated roaming.

C1.24 In the consultation document Oftel stated that: 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

C1.25 It is not appropriate to make details of the financial modelling that has been carried out on a 3G business publicly available. These financial models contain forecasts for the growth of 3G services and mobile market revenues, publication of them could distort the spectrum auction. The Government does not intend to publish a guide price for the 3G spectrum; publication of the assumed business case for 3G is tantamount to doing so.

C1.26 Respondents argued that Oftel’s regulatory intervention in pricing will undermine the investment incentives for existing 2G operators. Respondents also argued that post award licence modifications (such as the insertion of the roaming condition) contribute to uncertainty about future regulatory action and thus have a negative long-term effect.

C1.27 Oftel long-term strategy is to withdraw from regulation as competition develops and to allow normal market pressures to determine the shape of the telecoms industry. Oftel recognises that regulation should not be the cause of uncertainty and therefore endeavours to make clear statements about the future regulation of the mobile market. The most recent Oftel statement (Oftel’s review of the mobile market) can be found on Oftel’s web site.

C1.28 Oftel sees network competition as one of the key factors in delivering choice, quality and value for money to consumers. Mindful of the need to avoid affecting investment plans and adversely affecting the development of network competition, Oftel has taken a consistent approach to the recommended pricing for all forms of access to mobile networks. This ‘retail-minus’ approach is also the approach that Oftel will adopt if it is required to resolve a dispute about roaming by setting a charge for roaming services. A charge for roaming based on retail-minus will ensure that the 2G operator has the same profit on roaming services as from services provided to its own retail customers. However, see also Oftel’s response to 1b above.

C1.29 The Australian Competition and Consumer Commission (ACCC) published a report (Public Inquiry into Declaration of Domestic Intercarrier Roaming under Part XIC of the Trade Practices Act 1974, March 1998) in March 1998 detailing its decision on intercarrier domestic roaming. One 2 One quoted extracts from Professor King’s (the ACCC’s economist) report, which appeared to suggest that roaming would obviously be offered in Australia in the absence of regulatory intervention. One 2 One stated that the ACCC reached the opposite conclusion to the Oftel by concluding that a regulated roaming right was unnecessary because the existing mobile operators would compete to supply roaming services to new entrants.

C1.30 Oftel will only intervene to require roaming if commercial negotiations fail. This seems to be consistent with the position in Australia and the submission by Prof. King, part of which was quoted by One-2-One.

C1.31 The numerical example quoted by One-2-One is only one of a number provided by Prof. King. In others, roaming is not necessarily the (only) equilibrium outcome, which is sensitive to the assumptions about the profits of the entrant and the incumbent. For example, Prof. King states that (in another example), "So long as each existing carrier believes that no other carrier is going to offer roaming, then it will not offer roaming...If a carrier thought that the ACCC would eventually intervene and require one existing carrier to provide roaming, then that carrier would want to provide roaming and would probably do so before any ACCC intervention...An ACCC watching brief may be a powerful tool in these circumstances". Oftel notes that the threat of intervention is crucial. This seems to lend support to Oftel’s position.

C1.32 No persuasive arguments have been put forward to substantiate Oftel’s argument that the market will fail to provide national roaming. Oftel should not regulate ex-ante particularly when there are clear indications from Vodafone and BT Cellnet that incentives for commercial roaming being offered to new entrants will be strong. One 2 One has gone further and expressly stated that it is prepared to offer roaming to the new entrant.

C1.33 The option of recourse to a determination by the Director General means that national roaming conditions and charges will not be set by competitive process. The new entrant will expect to achieve the terms and conditions that Oftel has set out. The backstop in the event that the parties cannot make an agreement should be some form of commercial arbitration rather than regulatory intervention

C1.34 If there are sufficient commercial pressures for the 2G operators to provide roaming to a new entrant it is likely that the terms and conditions offered by the 2G operators will be better than those which Oftel would impose if it had to resolve a dispute. If the market was fully competitive, it is conceivable that the new entrant would be offered roaming at a price closer to cost than a price determination by Oftel, which would be based on a retail-minus approach. In this case, it would be unlikely that Oftel will be called on to intervene. As discussed in the response to item 7, Oftel notes that the threat of regulatory intervention could promote the provision of roaming on commercial terms and conditions.

C1.35 A clause in the Mobile PTO Licences that specifies Alternative Dispute Resolution (ADR) as a means to resolve roaming disputes is not acceptable. It is possible that this could give rise to a situation in which the Director General might not be able to fulfil his statutory duties under the Telecommunications Act 1984; in particular sections 3, 47 and 49 of that Act. As an example, a ruling by an ADR panel that certain terms and conditions, including charges, should apply could run counter to the Director General’s duty, under Section 3, to promote the interests of consumers, purchasers and other users of telecommunications services. The ADR’s panel’s view would not necessarily be that of the Director General, and the provision of paragraph 8 of Schedule 1 of the 1984 Act (which permits the Director General to delegate) could not cure this difficulty. Furthermore, if an ADR panel ruled that certain provisions must be included in a roaming agreements, and those provisions became the subject of a complaint under Section 49 of the Act, a situation could arise under which the Director General would have to investigate the ADR panel’s ruling.

C1.36 Oftel has argued that a new entrant cannot be sure that it will obtain national roaming if the roaming Condition is triggered by a Market Influence (MI) or Significant Market Power (SMP) designation because it might be the case in the future that no mobile has MI or SMP. This argument is irrelevant. If no operator has MI or SMP then the market is competitive and there is no reason to suggest that roaming will not be provided in a competitive market.

C1.37 Whilst Oftel’s policy is that obligations should not normally be imposed on operators without SMP or 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 untriggered condition. Entrants could not be certain that the MI or SMP triggers would be pulled in future and this could deter them from bidding in the 3G spectrum auction. Oftel considers that all four 2G operators have the advantages of established 2G networks. They will all be in a position to lever these advantages into the provision of 3G services and it is therefore appropriate that they should all accept the obligation to negotiate roaming

C1.38 If a roaming agreement is negotiated when the mobile market is fully competitive, it is likely that the new entrant could obtain better terms and conditions than Oftel would impose in a determination. If this were the case, the dispute resolution procedure would be unlikely to be invoked and roaming would be negotiated without regulatory intervention. However, the absence of an operator with SMP or MI does not guarantee that roaming will be offered commercially. Potential new entrants require certainty that roaming will be provided under any circumstances, the un-triggered licence Condition is designed to provide this certainty.

C1.39 The Director General’s proposals are not within the categories of permitted conditions, and are discriminatory, disproportionate and anti-competitive in direct violation of the EU Licensing Directive and UMTS Decision for the following reasons:

• The roaming Condition places obligations on existing 2G operators which will not be imposed on new bidders, and impose on one of the existing 2G operators conditions which are not imposed on others;

• The measures are not objectively justified but based on financial analysis that has been devised in order to favour potential applicants for a fifth 3G licence;

• The proposals are disproportionate in that they overly favour the new 3G entrant by mandating roaming even when the new 3G entrant may have built significant network;

• The measures are designed to provide entry assistance rather than to support competition.

C1.40 Oftel is satisfied that the roaming condition is consistent with all relevant EC measures and general UK and EC competition law. In response to the specific points raised above:

• The roaming Condition does not place obligations on only one 2G operator. All four 2G operators who win a 3G WT Act licence will have will have the obligation to negotiate roaming. The obligation to provide roaming could fall on each of the four at some point between 2002 and 2009.

• The proposals are objectively justified and are based on the promotion of competition, which is a key feature of the Licensing Directive. Oftel has carefully reviewed the categories of licence conditions mentioned in the Licensing Directive annex within which the roaming condition might fall and it satisfied that the roaming condition fits into these.

• The proposals are not disproportionate. Roaming is the only satisfactory means of achieving the desired ends. Other methods of providing access to 2G networks (such as service provision) are not satisfactory solutions as discussed during the consultation process.

• The measures are designed to promote competition. Clearly, a new entrant must be able to enter the market; otherwise, there would be no additional competition.

C1.41 It is not appropriate to mandate roaming for all new entrants. In particular, Dolphin has considerable 2G network of its own and would have a significant market entry advantage when compared with a ‘genuine’ new entrant.

C1.42 Oftel does not believe that Dolphin should be treated in the same manner as the existing GSM operators. Oftel is of the view that it is too early to reach any conclusions about whether Dolphin will effectively compete with the GSM operators. Dolphin’s plans indicate the possibility that it may compete to a limited extend in the provision of some services, it remains to be seen whether customers regard the services as substitutable and whether Dolphin competes on price with the GSM networks.

C1.43 Dolphin’s capacity to carry services in competition with the GSM networks will be very much lower than that of any of the 2G operators and there are no current plans to develop standards for interworking between TETRA and UMTS or other 3G standards. It seems unlikely therefore that Dolphin will have significant advantages over a number of other potential entrants, who may also be established in related fields, and any advantage which it does have will be of a different order of magnitude to those of the 2G operators.

C1.44 The dispute resolution procedure requires the Director General to ensure a fair balance between the legitimate interests of both parties when resolving disputes. Paragraph [ ].6 of the Condition lists in points (a) to (i) a number of matters to which the Director General must have regard. The list is not exhaustive but includes the relative market positions of the 2G operator and the new entrant.

C1.45 National roaming does not contribute to efficient use of spectrum. Although a new entrant has been assigned spectrum, it has no immediate incentive to use it extensively. It is less risky for a new entrant to use national roaming rather than build out a network.

C1.46 The new entrant should obtain roaming services at a fair, non-discriminatory price. Oftel expects that the new entrant will market services primarily based on 3G to customers based inside its coverage area because a roaming charge based on retail minus will give the new entrant little margin on roamed traffic. The new entrant should have commercial incentives to roll out a network as quickly as possible fully using the spectrum awarded to it.

C1.47 It is an unfair burden that one operator handles all the traffic. The 2G networks should share the burden of providing roaming services and roamed traffic should be shared equally between them.

C1.48 Oftel do not believe that roamed traffic should be shared equally between the four mobile operators for the following reasons. If roaming were to be mandated on the four operators simultaneously it would require four sets of set-up costs, four sets of billing costs, four sets of administrative costs and require network planning measures to be undertaken on all four networks. This would turn out to be very expensive for the new entrant and increase the overall administrative burden for new entrants and incumbent operators alike.

C1.49 The consultation document implies that only a new entrant using GSM MAP will be provided with roaming by the 2G GSM operators.

C1.50 The Condition does not specify that only new entrants using GSM MAP must be provided with national roaming by a 2G operator. Any new entrant has the right to seek national roaming on a 2G network. However, if Oftel is required to resolve a dispute over roaming, the Director General will not expect a 2G operator to provide roaming if differences between the standards employed render roaming technically infeasible.

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