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Explanatory memorandum Chapter 1 Introduction Chapter 2 Market Influence Chapter 3 Successful ISPs and the MI regime Chapter 4 Conclusion Annex A List of respondents to the Consultation Annex B Summary of the costs and benefits of the MI regime Annex C Points raised following publication of the Draft DecisionsS.1 This document contains determinations to remove the determinations, made in April 2001, that Vodafone and BT Cellnet have Market Influence (MI) under Condition 56 of their respective licences. S.2 A determination of MI made under Condition 56 of the standard mobile PTO licence triggers additional licence conditions that require the licensee to:
S.3 Following consultation, the Director General for Telecommunications (the Director) has decided to make determinations to remove the MI determinations made in April 2001, because:
S.4 The full reasons for this decision and Oftel’s response to the points raised during the final period of consultation are set out in the explanatory memorandum accompanying these determinations. Further details on this decision can be found in the explanatory memoranda accompanying the:
To remove the Determination that Vodafone has Market Influences under the provisions of Condition 56 of its Telecommunications Act 1984 Licence (Under Paragraph 6 of Part 1 of Schedule 1 of Vodafone’s Licence) WHEREAS: 1 Condition 56 of the Licence granted by the Secretary of State for Trade and Industry to Vodafone Ltd ("Vodafone") ("the Licensee") under section 7 of the Telecommunications Act 1984 (the "Licence") provides for a power of the Director General of Telecommunications ("the Director") to determine the Licensee to be an Operator having Market Influence in relation to any particular telecommunications market specified by him; 2 The Licensee was determined by the Director as being an Operator having Market Influence as referred to in Condition 56 of its Licence in the market for mobile telephony in the UK, for the reasons given in the Explanatory Memorandum which accompanied the Determination published on 11 April 2001 (the "MI Determination"). 3 For the reasons set out in the Explanatory Memorandum to this Determination, the Director considers that the MI Determination should no longer apply to the Licensee; 4 The Director considers that for the time being the market for the purposes of making or removing a determination of Market Influence under Condition 56 of the Licence is the market for mobile telephony in the UK; 5 In accordance with the consultation procedure set out in paragraph 6 of Part 1 of Schedule 1 of the Licence the Director issued a Notice on 12 December 2001 inviting comments on his intention to remove the MI Determination; on 5 March 2002 the Director issued a Draft Decision to proceed with the proposed MI determination and Oftel’s response to comments received during the first stage of the consultation process. Oftel invited comments on the Draft Decisions by 20 March 2002. 6 In making this decision the Director has taken into consideration representations and observations received as part of the consultation process, and the matters described in the Explanatory Memorandum to this Determination; NOW THEREFORE THE DIRECTOR, FOR THE PURPOSES OF CONDITION 56 OF THE LICENCE, AND HAVING CONSIDERED THE ARGUMENTS OF THE LICENSEE AND INTERESTED PARTIES, HEREBY DETERMINES THAT: 1 The Determination of 11 April 2001 that the Licensee is an Operator having Market Influence as referred to in Condition 56 of its Licence in the market for mobile telephony in the UK no longer applies to the Licensee and is now removed, for the reasons given in the Explanatory Memorandum which accompanies this Determination. 2 Words and phrases in this Determination shall have the meanings ascribed to them in the Licence or the Telecommunications Act 1984 as appropriate. Peter Waller 5 April 2002 To remove the Determination that BT Cellent has Market Influence under the provisions of Condition 56 of its Telecommunications Act 1984 Licence (Under Paragraph 6 of Part 1 of Schedule 1 of BT Cellnet’s Licence) WHEREAS: 1 Condition 56 of the Licence granted by the Secretary of State for Trade and Industry to BT Cellnet Ltd ("BT Cellnet") ("the Licensee") under section 7 of the Telecommunications Act 1984 (the "Licence") provides for a power of the Director General of Telecommunications ("the Director") to determine the Licensee to be an Operator having Market Influence in relation to any particular telecommunications market specified by him; 2 The Licensee was determined by the Director as being an Operator having Market Influence as referred to in Condition 56 of its Licence in the market for mobile telephony in the UK, for the reasons given in the Explanatory Memorandum which accompanied the Determination published on 11 April 2001 (the "MI Determination"). 3 For the reasons set out in the Explanatory Memorandum to this Determination, the Director considers that the MI Determination should no longer apply to the Licensee; 4 The Director considers that for the time being the market for the purposes of making or removing a determination of Market Influence under Condition 56 of the Licence is the market for mobile telephony in the UK; 5 In accordance with the consultation procedure set out in paragraph 6 of Part 1 of Schedule 1 of the Licence the Director issued a Notice on 12 December 2001 inviting comments on his intention to remove the MI Determination; on 5 March 2002 the Director issued a Draft Decision to proceed with the proposed MI determination and Oftel’s response to comments received during the first stage of the consultation process. Oftel invited comments on the Draft Decisions by 20 March 2002. 6 In making this Determination the Director has taken into consideration representations and observations received as part of the consultation process, and the matters described in the Explanatory Memorandum to this Determination; NOW THEREFORE THE DIRECTOR, FOR THE PURPOSES OF CONDITION 56 OF THE LICENCE, AND HAVING CONSIDERED THE ARGUMENTS OF THE LICENSEE AND INTERESTED PARTIES, HEREBY DETERMINES THAT: 1 The Determination of 11 April 2001 that the Licensee is an Operator having Market Influence as referred to in Condition 56 of its Licence in the market for mobile telephony in the UK no longer applies to the Licensee and is now removed, for the reasons given in the Explanatory Memorandum which accompanies this Determination. 2 Words and phrases in this Determination shall have the meanings ascribed to them in the Licence or the Telecommunications Act 1984 as appropriate. Peter Waller 5 April 2002
Explanatory memorandum Introduction 1.1 In its 1999 review of competition in the mobile market (Oftel’s review of the mobile market, July 1999), Oftel concluded that Vodafone and BT Cellnet had market power. In March 2000, Oftel determined that Vodafone and BT Cellnet had Market Influence (MI) in the market for mobile telephony. 1.2 As a consequence of the Judgment in R v. Secretary of State for Trade and Industry, Ex parte Orange Personal Communications Ltd, the March 2000 MI determinations were made invalid. Therefore, in April 2001, the Director re-imposed the MI determinations on Vodafone and BT Cellnet. At that time the Director made clear that this decision was without prejudice to the findings of the Effective competition review: mobile consultation published in February 2001 (the mobile review consultation), that was ongoing at the time. 1.3 In September 2001, Oftel published its statement on the level of competition in the mobile sector, Effective competition review: mobile (the mobile review statement), which concluded that although Vodafone and BT Cellnet continue to posses market power, the mobile sector is prospectively competitive. Oftel also suggested that there were reasons to consider that the MI regime was no longer appropriate. 1.4 As a result of the findings of the mobile review, Oftel began the consultation on the removal of the MI determinations on Vodafone and BT Cellnet. 1.5 Having considered all representations, comments and observations received during the consultation process, as set out in paragraph 6 of part 1 of schedule 1 of Voafone’s and BT Cellnet’s respective licences, the Director remains of the view, expressed in the Notices, that the MI determinations made in April 2001 should be removed from Vodafone and BT Cellnet. 1.6 Oftel continues to consider that it is appropriate and proportionate to remove the MI determinations because:
1.7 The following explanatory memorandum sets out, in more detail, the reasons for the Director’s decisions and Oftel’s response to the points raised during the final period of consultation. Please refer to the explanatory memorandum to the Notices and the explanatory memorandum to the Draft Decisions for further details. Consultation process 1.8 On 12 December 2001, the Director published Notices of his proposed decision to remove the determinations that Vodafone and BT Cellnet have MI under Condition 56 of their respective licences. Representations on these Notices were invited from interested parties by 18 January 2002. Representations were received from 8 respondents. There then followed a second period of consultation, ending on 20 February 2002, during which interested parties had the opportunity to comment on the representations received. Oftel received one response during this period of consultation. 1.9 On 5 March 2002, the Director published his Draft Decisions to remove MI from Vodafone and BT Cellnet. Interested parties had 14 days, until 20 March 2002, on which to comment on the Draft Decisions. Comments were received from three respondents. A list of the respondents to all stages of the consultation is provided at Annex A to this document. 1.10 Pursuant to paragraph 6(g) of Part 1 of Schedule 1 of the licences of Vodafone and BT Cellnet, in addition to the publication of these determinations, these determinations are being sent to both Vodafone and BT Cellnet.
Market Influence 2.1 A determination that a mobile operator has MI triggers additional obligations in an operator’s licence. An operator designated as having MI is required to:
Lawfulness of the Director’s decision 2.2 Under Condition 56 of the mobile PTO licence the Director has discretion to impose, or remove, a designation of MI on an operator with market power. Comments by respondents 2.3 Two respondents to the consultation argued that the decision to remove MI from Vodafone and BT Cellnet is unlawful as Condition 56 of the Licence does not convey a discretionary power on the Director to remove MI from operators with market power. Oftel’s response 2.4 Condition 56.1 of the mobile PTO licence states that: "The Director may, in accordance with the procedure set out in paragraph 6 of Part 1 of this Licence, determine the Licensee to be an Operator having market influence […]". (Emphasis added). 2.5 Use of the word ‘may’ in this context clearly demonstrates that the Director has discretion in deciding whether to determine that a mobile Licensee has MI. It follows from this that the Director also has discretion to decide that a MI Determination should no longer apply to a mobile Licensee. 2.6 Furthermore, paragraph 6 of Part 1 of the Licence states that: "Where the Director makes a [MI Determination], or decides that such a determination shall no longer apply, the procedure shall be as follows […]" (emphasis added.) Thus, the Licence gives the Director not only the discretion to, but also the power to, dis-apply a determination that a mobile Licensee has MI. 2.7 In addition, the Director has a duty under Directive 97/13/EC (the Licensing Directive) only to impose or maintain Licence conditions which are proportionate. As noted in this document, the explanatory memorandum to the Notices and the explanatory memorandum to the Draft Decisions, the Director does not consider that the MI-triggered conditions are proportionate. 2.8 Therefore, based on the reasons set out in this document, the explanatory memorandum to the Notices and the explanatory memorandum to the Draft Decisions, the Director is exercising his discretion and dis-applying the MI Determinations on Vodafone and BT Cellnet. 2.9 The effect of these determinations will be to remove the determinations, made in April 2001, that Vodafone and BT Cellnet have MI, which as a consequence will de-trigger the additional obligations, outlined in paragraph 2.1 above, in the licences of both Vodafone and BT Cellnet. The impact on competition of the MI regime 2.10 Oftel’s goal is to ensure that consumers get a good deal in terms of quality, choice and value for money. Oftel believes that the best way to ensure that consumers get a good deal is through the development of sustainable and effective competition. Where market forces fail to deliver competition, Oftel will apply appropriate and proportionate regulation. Comments by respondents 2.11 In its response, the Mobile Independent Service Provider group (MISP) questioned the consistency between this goal, ensuring that consumers are adequately protected, and the proposal to remove MI given that the mobile market is not effectively competitive. Oftel’s response 2.12 Oftel does not consider, for the reasons given in this document, the mobile review statement, the explanatory memoranda to the Notices and Draft Decisions, that the current MI regulations are appropriate or proportionate and therefore has decided that they should be removed. Oftel believes that this is consistent with its goals and objectives and its strategy of using appropriate and proportionate regulation. 2.13 Furthermore, it appears that the costs of the MI regime outweigh the benefits and therefore this regulatory regime is not in the best interests of consumers. Annex B looks in more detail at the costs and benefits of the MI regime. Impact on end user prices 2.14 The MI-triggered obligations to supply service providers and the associated prohibition of undue discrimination have the potential to increase consumer choice, by increasing the number of suppliers and retail products that are available. It appears, however, that the existence of service providers has had little impact on end user prices. Figure 1 shows a long-term trend of prices in the mobile sector. Figure 2 shows the downward trend of ISP market share over the same period, although the actual number of consumers provided by ISPs has remained fairly constant over that time. Figure 1: Results from Oftel’s mobile price index
Figure 2: Percentage of subscribers supplied by ISPs trend over time
2.15 Between June 1999 and September 2001, on average, mobile retail prices have decreased by over 17%, while the market share of ISPs, in terms of subscribers, shows a decrease of nearly 5%. These trends show a decline in prices at the same time as a decline in the market shares of ISPs. This information is consistent with the view that the impact of ISPs on the downward trend of retail prices has been relatively small. Comments by respondents 2.16 In response to the Notices, MISP comments that the downward trend in market share of ISPs over time is misleading because ISPs are unable to provide their customers with the same range of services available to the mobile operators. In particular, ISPs do not offer pre-pay services and Orange does not support ISPs. MISP argues that if the number of subscribers using pre-pay and services from Orange were removed from the total number of subscribers, it would be evident that the market share of service providers has actually increased over the period considered. 2.17 MISP notes that Virgin and Telecom Plus are two ISPs that have helped to achieve the recent increase in subscribers supplied via an ISP. Oftel’s response 2.18 It is evident that the market share of ISPs has grown by a few percentage points over the second half of the period covered by the data presented if pre-pay subscribers and Orange subscribers are omitted from the calculation. However, the fact remains that overall, over time, prices have decreased during the same period that the total ISP market share has declined. 2.19 The most recent figures, up to the end of September 2001, show a slight increase in ISP market share over the past three months. Although this is a small increase over a short period, it is relevant to the Director’s decision to remove the MI determinations that the ISPs helping to achieve this growth (as noted by MISP), Virgin and Telecom Plus, operate outside of the regulatory framework. This suggests that this most recent growth is unrelated to the MI regime and supports Oftel’s argument that some operators will continue to supply services providers in the absence of regulation. Impact on choice and quality 2.20 In response to the mobile review consultation, ISPs argued that they have the potential to increase the quality of mobile service provision, increase the range of services and tariffs, and provide a bespoke service that business customers, in particular, value. 2.21 Consumer satisfaction surveys continue to show a high level of consumer satisfaction with mobile services. Oftel’s latest research shows that 74% of consumers rated line quality as good, very good or excellent and 76% rated customer service as good, very good or excellent. Oftel’s most recent consumer satisfaction survey, found that 94% of consumers said that they were satisfied with their mobile service overall. 2.22 In the mobile review consultation, Oftel consulted on the range of services in the UK mobile sector and concluded that this range is comparable to that found in other major European countries. Oftel also concluded that the statistics on coverage and comparative call success rates coupled with information that the operators submitted to Oftel on the level of annual investment in their networks (extending coverage, capacity and quality), customer care and billing, suggests that there is active competition on quality in the mobile sector. 2.23 Oftel recognises that some ISPs do provide a service that consumers, in particular business consumers, value. This is evidenced by the fact that a number of ISPs have built up large customer bases and can count many large corporate companies and institutions amongst their customers. However, given the statistics on overall consumer satisfaction, (which have for the past 12 months been at or above 90%) and the quality and the range of services available, it does not appear that regulatory intervention to improve overall consumer satisfaction, extend the range of tariffs and services, or support alternative providers to increase the quality of mobile services, is justified or necessary. Comments by respondents 2.24 In response to the Draft Decisions, Energis questions Oftel’s reliance on the results of satisfaction surveys. In particular, Energis notes that in the mobile review statement Oftel recognised that the overall satisfaction results may reflect limited consumer awareness of certain aspects of their mobile service. Oftel’s response 2.25 Oftel recognises that the consumer satisfaction figures may be inflated because consumer awareness of some aspects of mobile services is low, but satisfaction levels are high and this is a positive indicator of competition. Furthermore, even if the consumer satisfaction figures are slightly inflated, due to low consumer awareness, the impact would need to be dramatic before Oftel would find the level of dissatisfaction sufficient justification for the continuation of the MI regime, in a sector that is prospectively competitive. New, innovative deals at the wholesale level 2.26 Oftel expressed concern in the mobile review consultation that the MI framework may cause some service providers, which resell airtime branded and tariffed by the network operator, to rely unnecessarily on regulation to secure the appropriate wholesale components. It is also possible that the presence of the current regulatory framework distorts commercial negotiation as service providers may tend to resort to a standard model offered by the network operator to meet its regulatory obligations. 2.27 In addition, the existence of a set of regulatory obligations which have been in place, substantially unchanged, for 16 years, may tend to focus regulated operators’ attention on minimising the impact of these obligations and avoiding the setting of precedents which might broaden the scope of current obligations. Many service providers which have chosen to rely on regulation have tended to focus their attention on optimising the terms on which this particular form of relationship is offered. These factors may have given a disproportionate weight to one business model at the expense of others. Comments by respondents 2.28 In its response to the Notices, MISP states that this argument is ‘fallacious’ as the MI obligations place a prohibition on undue discrimination, not on discrimination per se. The obligations therefore allow for a degree of discrimination in the supply of services to service providers. 2.29 Both Wireless Intelligent Network Ltd (an independent service provider) and Vodafone argue that MI is hampering the development of new services and also preventing operators from offering flexible and distinctive services to service providers. Oftel’s response 2.30 Given the responses received, on balance, the Director believes that the weight of the arguments suggest that the prohibition on non-discrimination, (notwithstanding that legally the prohibition relates to undue discrimination) and the tendency of service providers and network operators to focus on a particular business model might be adversely affecting the development of innovative wholesale deals between service providers and operators.
Successful ISPs and the MI regime 3.1 The segment of the supply chain below the service provider tier has never been subject to regulation. Nevertheless, all four operators have chosen to build relationships with an extensive network of distributors and retailers through whom the operator’s services are supplied to end-users. These relationships have been developed through commercial negotiation without any regulatory obligation, and provide a high degree of consumer choice at the retail level. 3.2 The ISP sector has been subjected to widespread restructuring and rationalisation over recent years, and this trend appears to be continuing. Whilst, in many instances, ISPs have been acquired by network operators, it is also the case that some ISPs have been acquiring the customer bases of their competitors and, by doing so, have built a significant base of their own. 3.3 The resulting pattern of supply to ISPs across the four mobile networks is very variable, and the variations do not follow the pattern of regulation. Most recently available statistics, for September 2001, show that nearly 43% of contract customers (16% of all Vodafone customers), connected to Vodafone’s network are now connected through ISPs. Only 8% of contract customers (2% of all BT Cellnet’s customers) are connected to BT Cellnet through ISPs. 3.4 Both Vodafone and BT Cellnet are subject to the same MI triggered obligations, and the differences in the extent of involvement with ISPs seems likely to reflect a different commercial approach rather than a different approach to compliance with these obligations. 3.5 A comparison of the position between One2One and Orange, neither of whom is obliged to supply ISPs, also provides a striking contrast. One2One’s strategy of negotiating service provision arrangements with selected organisations has resulted in 13% of all customers using the One2One network being customers of an ISP. The proportion of One2One customers connected through ISPs is now five times higher than the corresponding proportion for BT Cellnet. However, the proportion of consumers using the Orange network connected by ISP remains less than 1%. 3.6 The MI regulation therefore appears to have had little impact on the extent to which each of the operators use ISPs to deliver services to consumers. Indeed there is no clear correlation between successful ISPs and the regulated framework, which suggests that the regulated obligation to supply is now redundant. Comments from respondents 3.7 In its response to the Notices, MISP argues that the removal of MI will lead to a convergence of market shares between the four operators as they seek to vertically integrate their retail and wholesale businesses. Energis also argues, in its response to the Draft Decisions, that Oftel has failed to properly assess the competitive impact that service providers make on vertically integrated mobile operators. In particular, Energis note that it is counter intuitive to suggest that a vertically integrated operator with market power would supply downstream service providers. 3.8 Vodafone, however, suggests that the choice of supplying ISPs is a commercial rather than a regulatory decision and points to the apparent lack of correlation between how different operators use service providers and the MI regime. Oftel’s response 3.9 Oftel believes that there is evidence to suggest that some operators will continue to supply services to service providers in the absence of regulation where service providers can provide a competitive advantage to the mobile operator. 3.10 Furthermore, while Oftel accepts that where there is a degree of market power at the wholesale level there is the incentive to leverage this power into the downstream retail level, the incentive and ability to do so decreases as competition increases. Oftel believes that the now established market position of Orange and One2One constrains the ability of either Vodafone or BT Cellnet from leveraging their position of market power sufficiently to weaken competition at the retail level. Reasonable demand from service providers 3.11 The Director has a general duty under Section 3 (1) (‘Section 3(1) duty’) of the Telecommunications Act 1984, to ensure that all reasonable demand for telecommunications services is met. The interpretation of this duty as it applies to service provision was clarified by the Judgment in R v. the Director General of Telecommunications, Ex Parte Cellcom Limited. 3.12 As mentioned above, Oftel fully expects that, in the absence of regulation, all reasonable demand from service providers will be met. This does not mean however that all demand will be met or that all operators will meet each kind of demand. Rather, that Oftel believes that service providers that have some value to add will be supplied by mobile operators, in the same way as those operators that are not bound by the MI determinations supply ISPs today. 3.13 Oftel will continue to collect information on the supply of services to service providers, to ensure that its view that market forces will meet demand from service providers is correct. Comments from respondents 3.14 In its response to the Notices MISP asks how, in the absence of the MI regulations, the Director plans to collect information relating to the supply of services to service providers, and suggests that the decision to remove MI, once taken, will be irreversible. Oftel’s response 3.15 Oftel currently collects market information from a variety of sources. All of the mobile operators provide information, including that on the provision of services to service providers, to Oftel on a voluntary basis. Oftel sees no reason why this should not continue if the MI obligations are removed. 3.16 These monitoring arrangements, alongside information provided directly from the service providers will allow Oftel to re-trigger the MI obligations swiftly should it become evident that service providers’ reasonable demands are not being met. For this reason, notwithstanding the evidence on which the decision to remove MI is based, the Director does not intend to remove the MI triggered conditions (Conditions 56-58) from the licences of the mobile operators.
Conclusion 4.1 In making this decision the Director has taken into account the representations, comments and observations made by respondents to the consultation and still considers that: a There is sufficient evidence to indicate that some operators will continue to supply service providers even in the absence of regulation. This is supported by the data and arguments presented in Chapter 2 above. b There is no clear correlation between successful ISPs and the MI regime. The proportion of customers connected to Vodafone and BT Cellnet (as regulated operators) through ISPs is disparate, and when compared to the proportion of customers connected via ISPs to the networks of Orange and One2One (as operators free of MI regulation) does not appear to follow the pattern of regulation. c The costs of the MI regime outweigh the benefits. Annex B looks in more detail at the cost and benefits of the MI regime. 4.2 In addition, the Director notes that:
4.3 On the basis of the points outlined above, the arguments set out in more detail in this document, and in the explanatory memoranda to the Notices and Draft Decisions, the Director considers that the MI regime is no longer appropriate. 4.4 The Director has therefore decided to publish the determinations to remove the determinations that Vodafone and BT Cellnet have MI under Condition 56 of their respective licences.
Respondents to the Consultation Mobile Independent Service Providers group
(MISP) Comments on comments BT Cellnet Responses to the Draft Decisions BT Cellnet
Summary of the costs and benefits of the MI regime B.1 This annex looks more closely at the costs and benefits of the MI regime. Part A looks at the costs and benefits of keeping the present MI framework. Part B looks at the costs and benefits of removing the MI framework. Part A: Keeping the current MI framework Costs B.2 The regulatory framework has the potential to distort commercial negotiations between service providers and network operators. Oftel believes that the MI obligation to supply tends to focus service providers’ attention on maximising the terms of the ‘standard’ wholesale product that has developed around the regulatory framework and the network operators’ attention on minimising the regulatory burden. The service provision model in the UK has barely changed in the 16 years that the regulatory framework has been in place. Freed from regulation, commercial deals between network operators and services providers may be more innovative and may change and adapt as the mobile sector moves to 3G and new services develop. Costs of compliance B.3 Regulation also imposes direct costs in the form of costs to the operators to comply with regulation and costs to Oftel (recovered from licence fees) on ensuring compliance. The mobile operators will incur costs associated with:
Oftel incurs the costs of:
Benefits Guaranteed choice of supplier B.4 The obligation to supply guarantees the alternative supply of mobile services to consumers. However, as mentioned previously, overall consumer satisfaction remains continually high, being at or above 90% over the last 12 months. Satisfaction on choice and quality also appears high, with over 70% of consumers rating line quality and customer service as at least good. These statistics, set against a background of only 7% of all customers being supplied by ISPs, suggest that the benefit to consumers of guaranteed alternative supply of mobile services is relatively small. Part B: Removing the current MI framework Costs Potential that choice will be reduced B.5 An alternative to the mobile operators for the supply of mobile services will no longer be assured. This could have the effect of reducing the choice available to consumers. However, this would only be true if mobile operators stopped supplying wholesale services to service providers altogether. Oftel does not believe that this will be the case. There are a number of service provision deals that have been agreed outside the regulatory framework; deals other than the traditional service provision offering required through the MI regulation have evolved; and there appears to be very little correlation between successful ISPs and the regulatory framework. Benefits Innovation B.6 As discussed above, Oftel believes that the current regulatory framework may be unduly focussing attention on the ‘standard’ service provision model. If the MI regulations were removed, Oftel believes that there would be a greater likelihood that bespoke deals between ISPs and mobile operators (that may contribute to the development of competition in the mobile sector) would emerge. Removal of unnecessary regulation B.7 Removal of the MI regulations would also removes the associated regulatory and compliance costs from Oftel and the operators. C: Conclusion B.8 In conclusion, Oftel believes that the overall costs of keeping the MI regime are outweighed by the benefits of removing it. B.9 The main cost of the current regime is that it has the potential to distort commercial negotiations, which may hinder the development and emergence of more innovative deals that would evolve as the mobile sector changes. The benefits of the current regime are less well defined - the extent to which competition at the retail level is enhanced or promoted by the current regime is debatable. While consumers may benefit from the MI regulation, evidence suggests that the benefits are small. Furthermore, current service providers appear to have little impact on retail prices and consumers already benefit from high levels of choice and quality. B.10 On the other hand, there are few costs associated with the removal of the MI regime. The state of competition in the mobile sector is such that network operators will supply ISPs that bring value to both consumers and network operators. The potential benefits of removing the current regime are an increased likelihood of the emergence of innovative wholesale deals together with the removal of the costs of unnecessary regulation. Consumers also stand to benefit if the regulations are removed, they will still have a choice of supplier of mobile services but in addition will also benefit from the impact at the retail level of increased competition, through innovative deals and partnerships at the wholesale level of the market.
Points raised following publication of the Draft Decisions Prospectively competitive market C.1 In its response Energis states that it is unconvinced by Oftel’s finding in the mobile review statement that the mobile sector is prospectively competitive. Energis argues that it is unclear whether the future developments noted in the mobile review statement, notably the launch of Hutchison 3G, support this finding. Energis also raises concerns over Oftel’s use of high consumer satisfaction results, falling retail prices and evidence that UK consumers, in comparison with other European consumers benefit from a good deal. Oftel’s response C.2 The mobile review statement sets out in detail why Oftel considers the mobile sector to be prospectively competitive. For the reasons set out in the mobile review statement Oftel’s opinion is that the mobile sector is prospectively competitive.
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