|
|
|
|
 |
|
|
|
|
|
|
|
 |
 |
 |
|
||||
|
Determinations that Vodafone and BTCellnet have Market Influence under Condition 56 of their respective licences |
|
||||||
 |
 |
 |
|
||||
 |
|
|
|
 |
|
||
|
|
|
|||||
|
March 2000 Annex A Respondents to the consultative process DECISION UNDER PARAGRAPH 6 OF PART 1 OF SCHEDULE 1 OF THE TELECOMMUNICATIONS ACT LICENCE (THE "LICENCE") OF TELECOM SECURICOR CELLULAR RADIO LTD ("BTCELLNET") THAT BTCELLNET HAS MARKET INFLUENCE AS REFERRED TO IN CONDITION 56 OF THE LICENCE
DECISION WHEREAS:
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:
David Albert Edmonds DECISION UNDER PARAGRAPH 6 OF PART 1 OF SCHEDULE 1 OF THE TELECOMMUNICATIONS ACT LICENCE (THE "LICENCE") OF VODAFONE LTD ("VODAFONE") THAT VODAFONE HAS MARKET INFLUENCE AS REFERRED TO IN CONDITION 56 OF THE LICENCE
DECISION WHEREAS:
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:
David Albert Edmonds
Introduction 1. In November 1999, Oftel published Notices of Determinations that Vodafone Ltd (Vodafone) and Telecom Securicor Cellular Radio Ltd (BTCellnet) have Market Influence in the market for mobile telephony in the UK. Oftel invited comments on those Notices by 7 December 1999. Comments were received from 5 respondents. There was then a further period of consultation – to 11 January 2000 – during which period interested parties had the opportunity to comment on the responses made during the first stage of consultation. Oftel received comments from 1 respondent during this stage of consultation. In February 2000, Oftel published the Director General’s draft Decision and a Statement of the reasons for it. Oftel received 4 responses to that consultation. A list of respondents to each stage of the consultation to date is at Annex A of this document. Oftel is grateful to all who have participated in this consultative process. 2. This explanatory memorandum explains the reasoning behind the Director General’s decision to determine that Vodafone and BTCellnet have Market Influence in the market for mobile telephony in the UK. It also contains Oftel’s reaction to points raised in responses to the draft Decision and Statement. The Director General’s decision 3. Having taken due account of comments received during the consultation on Oftel’s Notices to determine that Vodafone and BTCellnet have Market Influence, and in response to the draft Decision and Statement, the Director General has decided to proceed with the making of the determinations. The reasons for the Director General’s decision 4. The Director General has made this Determination on the basis of the information available to him. 5. Representations made during the consultation periods have not altered the Director General’s conclusion that Vodafone and BTCellnet have Market Influence in the market for mobile telephony in the UK. This conclusion was reached following an assessment of the market. The results of that assessment were published in November 1999 in the explanatory memorandum to the Notices of the Director General’s intention to make the Determinations. Oftel’s response to points raised in response to the draft Decision and Statement of reasons Market definition 6. Respondents have commented on the definition of the market used in Oftel’s analysis. Oftel has defined the market for mobile telephony in the UK using the ‘hypothetical monopolist’ approach to market definition. This approach focuses on the existence of constraints on the ability of firms to set prices. Constraints are characterised by the possibility of demand side substitution – that is the ability of customers to respond to a price increase by switching to alternative products, or supply side substitution – which occurs when firms producing other products switch resources into producing a product. 7. Using this approach, Oftel has identified the relevant market as the single mobile telephony market in the UK. The analysis behind this definition is explained in the explanatory memorandum published with the Notices of the Determinations in November 1999. 8. Some have argued that the substitution of mobile for fixed services is becoming more prevalent and so the relevant market should include fixed services as well. Oftel has acknowledged that substitution of calls between fixed and mobile services does take place. The key point for the purpose of market definition is whether there is a common pricing constraint between fixed and mobile services. Oftel believes that this is not the case. 9. Respondents have expressed concern that the Determinations will result in inappropriate regulatory intervention in emerging markets for mobile data services. Oftel has stated clearly that its strategy is to withdraw from regulation wherever effective competition is able to provide quality, choice and value for money to customers (see Oftel strategy statement: Achieving the best deal for telecoms consumers published in January 2000). Consistent with this, Oftel will not impose regulation which has the effect of stifling effective competition and innovation in emerging markets. Oftel is happy to continue existing dialogues on this issue with industry players. Elements of the Market Influence test 10. Respondents have commented on the indicators of Market Influence. Oftel’s analysis identified the existence of a barrier to market entry, the profitability of Vodafone and BTCellnet, and their market shares as the key factors indicative of the possession of Market Influence in this case. This does not mean – as one respondent suggested – that these 3 factors have more weight than others in a Market Influence test. Oftel will take account of all relevant factors when it conducts a Market Influence test. Barriers to entry 11. A barrier to entry to the current GSM mobile market exists because no further spectrum is to be made available for GSM networks. In itself, this does not necessarily mean that Market Influence exists because an effectively competitive outcome is possible in a 4-operator market. Respondents have suggested that the barrier is being overcome through use of alternative spectrum (eg TETRA) and that it will not constrain the entry of competitors developing 3rd generation networks. 12. It is clear that TETRA networks (eg Dolphin) are providing mobile services. However, these networks are not fully established and it is not yet evident how much demand or supply side substitution between GSM and TETRA will take place. The impact of TETRA on GSM operators is therefore likely to be small at present. 13. Services are unlikely to be provided over 3rd generation networks until 2002 at the earliest and so the advent of 3rd generation cannot currently be regarded as having a constraining effect on the pricing of GSM services. 14. Oftel will take account of the availability of mobile services on non-GSM networks in future assessments of the mobile market. Profitability 15. Respondents to the draft Decision and Statement again commented on Oftel’s assessment of the profitability of the networks. 16. Oftel does not regulate the rate of return of mobile operators. However, the level of profitability is an established element in the standard test for Market Influence. Oftel assesses profitability with reference to a firm’s return on capital employed (ROCE) and has stated that ROCE consistently above the cost of capital is indicative of market power (Market Influence). Of course, profitability is not considered in isolation and the rate of return earned by a firm is considered along with all other elements of the Market Influence test. 17. Respondents have again questioned the assessment of ROCE against the cost of capital. Oftel has acknowledged that ROCE is an imperfect measure of economic profit. However, it has also stated that it is likely to be a reasonable approximation for practical purposes. Furthermore, this approach is in widespread use by competition authorities including the OFT and the Competition Commission. 18. Respondents have also commented that profitability may not remain at current levels and that future investment requirements and current factors like changes in customer usage patterns and payment methods may affect profitability. This is of course true and Oftel will take account of contemporary information on profitability and trends in profitability in future assessments of the mobile market. Market share 19. Respondents have commented that the market shares of Vodafone and BTCellnet are declining. Oftel has acknowledged this but noted that they still have market shares consistent with the possession of Market Influence. 20. Oftel has stated in previous publications on the mobile market that there are signs that the market will become effectively competitive. Trends in market shares is one of these. Oftel will continue to observe trends in market share and they will be taken account of in future assessments of the mobile market. Market Influence Guidelines 21. Respondents have commented that, at the time of publication of the draft Decision and Statement, Oftel had not yet published its Guidelines on Market Influence, which had previously been published in draft. Oftel’s Guidelines on Market Influence determinations were published in March 2000. This making of this Determination is consistent with the principles and methodology explained in those Guidelines. Oftel
Respondents to the consultative process 1st stage of consultation – ending 7 December 1999 BT BTCellnet Orange Project Telecom Vodafone 2nd stage of consultation – ending 11 January 2000 BT Draft decision and statement BT BT Cellnet Orange Vodafone
Glossary Barriers to Entry – An additional cost which must be borne by entrants but not by firms already in the industry; or other factors, which enable an incumbent to maintain prices above the competitive level without inducing entry. GSM 900/1800 – Global System for Mobile Communications in the 900 and 1800 MHz frequency band. Market Influence/market power – The ability to raise prices above the competitive level for a non-transitory period without losing sales to such a degree as to make this unprofitable. Network operator – the operator of a telecommunication network with a Public Telecommunication Operator (PTO) licence, which provides, amongst other things, network services. Radio spectrum – the range of wavelengths used, for example, for broadcasting radio, terrestrial television and satellite television. Usable wavelength ranges from about 100 KHz to about 400 GHz although there are as yet no broadcasts above about 12 Ghz. Return on Capital Employed (ROCE) – the ratio of accounting profit to capital employed. The measure of capital employed can be either historic or current cost accounting. Substitutability – whether an increase in the price of one product would lead consumers to switch to other competing products or services (demand–side substitutability) or lead producers to switch rapidly into the supply of the good in question (supply–side substitutability).
|
|
||||||
|
|
||||||
 |
 |
|
|||||
 |
|
||||||
