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1. Wholesale SMS termination (“SMST”) is the service necessary to enable delivery of an SMS (text) from the user of one network, to another network (ie, without it an operator could only deliver SMSs to customers on its own network). This service is referred to as wholesale because it is sold and purchased by network operators rather than retail customers.

2. Both mobile and fixed network providers supply wholesale SMS termination. Purchasers of mobile termination can be fixed and mobile operators, but also aggregators or intermediaries, who bundle all their customers’ demand for SMS services and purchase SMS messages in bulk from SMS termination suppliers.

3. The market for SMS is a growth market. The Ofcom Communications Market report 2006 estimates the total retail revenues from mobile SMS revenues in 2005 to be £2.1 billion. Fixed SMS termination is a nascent market and to date Ofcom has no revenue figures. Figures are also currently not available with regard to the revenues from wholesale mobile and fixed SMS termination. Ofcom intends to obtain information about such revenues as part of the review which has been announced today.

4. As part of the review Ofcom will be analysing the price and cost of the provision of wholesale SMS termination. Ofcom has not analysed this cost to-date.

5. The retail price for an SMS varies across networks and is dependent on the customer’s package. Many network providers offer consumers bolt on packages for SMS which reduce the price of SMS. Ofcom’s report ‘The Communications Market 2006’^(-1-) estimates the average price of an SMS message in 2005 to be 6.3 pence per text.

6. There are a number of reasons for today’s announcement that Ofcom intends to review the market or markets within which SMS termination is provided as part of its 2007/08 work-plan. Ofcom has been and is mindful of the growth in the significance of SMS as a service used by many UK mobile customers. In deciding to conduct a review, Ofcom has taken account of the European Commission’s new proposed recommendation on markets discussed below. In addition, Ofcom also notes that the French regulator has already undertaken a review of wholesale SMS termination and has decided to impose a price cap on SMS termination. The price cap for SFR and Orange is 3 euro cents per text, for Bouygues, the cap is set at 3.5 euro cents per text^(-2-). Further, some stakeholders have raised the issue of wholesale SMS termination with Ofcom.

7. As a result of all these factors, Ofcom is planning to include a review within its work programme for 2007/8. The appropriate way to consider those issues in a transparent and open way is within a market review, where all viewpoints can be considered and any conclusions can be subject to public consultation and comment.

8. The starting point for a review of a market is the Framework Directive (Directive 2002/21/EC). The European Commission has adopted a Recommendation on relevant products and services markets (“the Recommendation”) which identifies markets within the electronic communications sector, the characteristics of which may be such as to justify the imposition of regulatory obligations. NRAs such as Ofcom are obliged to take the utmost account of the Recommendation when defining markets appropriate to national circumstances. If Ofcom considers a market reviewed is not effectively competitive, it must consider imposing remedies where appropriate on undertakings with SMP within that market. The Recommendation’s Market 16 is the market for voice call termination on individual mobile networks.

9. The European Commission is reviewing the Recommendation and is consulting on a proposal, amongst others, that market 16 should be widened to include termination of SMS. SMS termination is not being considered within the present CTM market review as Ofcom considers (discussed in the CTM consultation paragraph 3.84-3.88) that it is a limited substitute for calling a mobile and is not part of those markets.

10. Reviewing a market is not the same as deciding to impose regulatory rules. In keeping with any market review, Ofcom would only impose regulation on any operator if and to the extent there is significant market power and that it was proportionate and appropriate to do so. The decision by the French regulator does not itself mean that Ofcom will come to a similar conclusion. The nature of markets varies across Europe. The outcome in the UK will depend on what Ofcom concludes as part of its review.

11. The review will not be a review of the retail mobile SMS market.

12. The next step will be the start of the review during 2007. The review will take 12 – 18 months and is likely to involve at least one and possibly a series of consultations. The process and timetable for this review will be determined after consultation with interested stakeholders. As an indication of timelines, the voice call termination review commenced in 2005 and will be finished next year.

Footnotes:

1.- http://www.ofcom.org.uk/research/cm/cm06/

2.- See press release by ARCEP, http://www.arcep.fr

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