MEMORANDUM SUBMITTED BY THE DIRECTOR GENERAL
OF TELECOMMUNICATIONS
MOBILE TARIFFS
1. In the recent hearing, the Chairman suggested
that mobile tariffs were "a matter of rather more urgency
than your leisurely policy of consulting and chatting with the
people requires". As the Director General responded, the
price of mobile phone calls is an area in which Oftel has taken
a strong interest. The price of mobile phone services has fallen
by 21 per cent since January 1999, with prices for pre-pay—now
accounting for the vast majority of new subscribers—falling
by 40 per cent over the same period. This suggests a functioning
marketplace.
2. Oftel is pursuing further work in the
area of transparency of mobile tariffs both in defining the scale
of the problem and ensuring appropriate information is available.
This memorandum describes that work. It is being given priority
and is very thorough.
DEFINING THE
SCALE OF
THE PROBLEM
3. Tariffs are complex. But competing operators
do provide a wide range of packages and prices to suit the differing
needs of different groups of consumers. Because tariffs are usage
based there is no simple single figure that could be imposed to
allow the easy comparison of mobile tariffs, such as APR in the
financial services market. It is doubtful if any such measure
could be devised. Additionally, the imposition of tariff structures
on operators and service providers could have a detrimental effect
on the extent of price competition and therefore consumers in
the long term.
4. Oftel will be working with DTI to investigate
the issue of tariff transparency in the mobile market and whether
there is consumer detriment from alleged tariff complexity. This
work has begun.
5. In order to monitor price movements by
operators in the mobile market, in 1998, Oftel appointed National
Economic Research Associates (NERA) to construct a suitable model
for the tracking of mobile price changes over time for a wide
range of different customer types. The results from this model—reflecting
the actual price paid by customers—are published quarterly.
The latest results, produced below, show that there have been
significant price reductions for all user types.
MOBILE PRICE REDUCTIONS, JANUARY 1999 TO
JUNE 2000
| Overall Index |
Usage Level |
| Package Type
|
| Zero | Low |
Low/medium | Medium | Medium/high
| High | Pre-pay | Monthly contract
| Advance contract |
| 21% | | |
| | |
| | | |
| 30% | 18% |
20% | 24% | 21% |
20% | 40% | 15% |
10% |
6. The NERA model can compare the actual revenues of
the mobile sector with the revenues that would have been generated
had all customers been on the optimum tariff for their particular
customer type. Preliminary analysis suggests that a large proportion
of customers are already on the cheapest available package for
their type. Oftel will complete a fuller analysis of mobile pricing
as part of its current review of competition in the mobile market,
all of which will of course be published.
7. We are continuing to track consumer satisfaction with
mobile services, including such issues as price and quality of
service. Our research indicates that satisfaction remains high
overall (approximately 93 per cent). The research also indicates
that consumers understand the fast changing market and the range
of deals available—about half consumers think that their
deal is still the cheapest for their needs despite the rapid introduction
of new tariffs. Recent market research carried out by Oftel indicates
that two in three mobile phone consumers are using some comparative
price information to assist their decision making. In the main
consumers were satisfied with the range and type of information
available. We recognise that, whilst satisfied, they may not necessarily
be receiving impartial and independent advice. However, our research
also indicates that consumers are aware that retailers may have
their own agendas.
ENSURING CONSUMER
INFORMATION IS
AVAILABLE
8. The best way to ensure consumers receive the best
deal, whilst ensuring that innovation and price competition is
not hindered, is to facilitate consumers' decision making by ensuring
access to valid, unbiased price comparison services. The Phonebills.org.uk
initiative that Oftel initiated for fixed-link, residential telecoms
services has proved successful and is in the process of determining
whether a similar scheme is required for mobile telephony. This
decision will depend on a number of issues including the availability
of other sources of information and an assessment of the actual
consumer detriment. When Oftel initiated Phonebills.org.uk there
was no other price comparison service for fixed telephony. However,
currently there are a number of price information sites for mobile
phone, such as Carphone Warehouse (www.carphonewarehouse.co.uk)
and One Stop Phone Shop (www.onestopphoneshop.co.uk) to name but
two.
9. As there are already established price comparisons
sites, which may meet the needs of consumers adequately, Oftel
is considering the establishment of an accreditation scheme for
third party customer information sources. This would work in the
same way as the DTI's TrustUK scheme by assuring consumers that
the site was providing accurate and unbiased information.
10. A further option would be to initiate a telecommunications
information website for consumers. This would act as a gateway
to a range of information covering all aspects of consumers' choices
of telecommunications services, including price, quality of service,
range of services/products, and a jargon buster, amongst other
things. Oftel has already initiated and endorsed a similar scheme
for small businesses (www.TelecomsAdvice.org.uk).
11. As a result of these initiatives Oftel is expanding
the resources dedicated to consumer information within Oftel.
It is the intention that, as well as ensuring the best deal for
consumers in terms of choice, quality, and value for money, Oftel
will be an example of best practice as a provider and facilitator
of consumer information.
PAYPHONES
1. In the recent hearing, the Chairman of the Committee
used the phrase "your complacency is quite appalling"
in the context of the Director General's answers on call boxes.
This memorandum supplements Oftel's evidence to the Select Committee
by setting out more information on:
— the universal service obligation in relation to
payphones;
— Oftel's plans for the future.
2. It demonstrates—as the Director General said
to the Committee—that there is no complacency. In summary,
Oftel:
— has initiated major consumer research on usage
and expectations of payphones services;
— has encouraged awareness of the scope to install
additional uneconomic payphones through contact with local authority
associations;
— has ensured continued free access to Directory
Enquiry services for users with special needs;
— has powers to intervene in cases of disputed payphones
removal, but received only two complaints on this subject in the
last two years. In the calendar year 2000, the number of payphone
sites has increased;
— monitors payphone prices, but believes that there
is no current case for intervention in the light of both the declining
profitability and the competition within the sector;
— plans to maintain the current level of universal
service obligation in relation to payphones; and
— will be initiating a major consultation exercise
on the future regulation of payphones in the first half of next
year.
MARKET TRENDS
3. There are currently more than 145,000 Public and Managed
Call Boxes in the UK (Managed Call Boxes are those boxes which
look like Public Call Boxes but which are located on private land
such as railway stations, service station forecourts, etc). This
compares with approximately 77,000 in 1984. By comparison Germany
has slightly fewer Public and Managed Call Boxes for a larger
population (137,000 serving 82 million).
4. More than 95 per cent of BT's PCBs are currently in
good working order (this compares with roughly 77 per cent in
1987). More than 85 per cent of PCBs allow wheelchair access.
The exceptions are the traditional boxes that tend to be retained
for aesthetic reasons in areas of architectural importance or
at the request of local residents. All PCBs are required to be
accessible to persons using hearing aids.
5. The Public Call Box (PCB) market in the UK, as in
the rest of Europe, has been significantly affected by the very
high take up of pre-paid mobile phones. Call minutes and as a
result call revenues have sharply declined (for example in Germany
according to figures provided by the German regulator the average
monthly revenue for a PCB has fallen from 770 DM in 1997 to less
than 400 DM at present). Many of those who have recently acquired
mobile phones are younger users (such as school children) who
have traditionally been heavy payphone users.
6. Oftel's understanding is that BT and its competitors
in the Public Call Box market are facing similar pressures.
PRICING
7. Often has never subjected PCB charges to formal price
control because:
— the turnover from the payphone business has been
in decline for a number of years;
— there is some degree of competition amongst payphone
providers;
— geographic averaging of prices ensures that all
payphone users across the country benefit from the competitive
pressures which are exerted in the more profitable and therefore
competitive parts of the country; and
— Oftel believes that by not formally price controlling,
more PCBs would be installed than if formal controls were imposed
(see para 3).
8. The minimum fee for making a call from a BT PCB was
set at 10p in 1984. Oftel is advised by BT that approximately
63 per cent of local calls from its PCBs are single unit calls.
Under the 10p charge, these calls were loss-making as the cost
of establishing the call exceeded the single unit revenue received.
9. BT increased the minimum fee from 10p to 20p in October
2000. The time allowed for the minimum fee increased from 55 seconds
to 110 seconds. A single inland fee (within the UK) of 11ppm for
local and national calls was introduced. Previously, local calls
were charged at 9ppm and national calls at 14ppm. Therefore callers
making local calls will pay more but callers making national calls
of more than one unit duration will pay less under the revised
price structure.
10. BT argue that charging for directory enquiry calls
is necessary due to the £18 million per annum cost of providing
a free directory enquiry service to all users. The cost of a directory
enquiry call from a BT PCB will average 20p, which is half the
cost of a directory enquiry call from a BT residential line and
substantially less in most cases than a call to a mobile directory
enquiry service.
11. Free directory enquiry calls from both fixed lines
and BT's PCBs (via the 195 code and a PIN number) will remain
for visually impaired users in addition to other users who would
have difficulty using a conventional paper directory.
UNIVERSAL SERVICE
12. The universal service obligation placed on BT (and
Kingston Communications) requires them to ensure, inter alia,
the provision of reasonable geographic access to PCBs across
the UK at an affordable price.
13. In 1997 when Often established the current level
of universal provision for the four year period from 30 September
1997 to 29 September 2001, BT agreed with Oftel to install up
to 500 additional uneconomic payphones, subject to pre-agreed
criteria, which examine
— the size of the local population;
— the type of housing (whether quality private;
private; mixed private and private rented; good social housing
and poor social housing); and
— access to an existing BT PCB.
Applications for siting of non-economic payphones are made
by local authorities (but may be made by any interested party)
and are scored against these criteria by BT. The most recent figures
Often has (June 2000) indicate that 30 per cent of requests for
the siting of such phones were granted in the preceding 12 months.
Oftel has received one new complaint so far this year about the
refusal of a request which it is currently examining with BT.
14. In September 2000 Oftel wrote to local authority
associations in the UK reminding them of the criteria and asking
those associations to invite their members to consider further
requests for installations.
15. Oftel is currently reviewing the Universal Service
Obligation. Its proposals, published for consultation in September
2000, recommend no change in the obligation in respect of geographic
coverage or uneconomic payphones.
REMOVALS
16. BT must obtain the written consent of the local planning
authority and, if appropriate, the relevant Parish Council before
resiting or removing any public call box location. The Director
General of Telecommunications may make a determination overriding
any such consent if he considers that local circumstances do not
require the removal or resiting. This power has not been used
in practice: over the last two years Oftel's Consumer Representation
Service has received only two complaints in relation to PCBs that
were removed without consultation. As far as Oftel is aware these
complaints have been resolved to the satisfaction of the complainants
following referral to BT's Complaint Review Service. It is far
more common for Oftel to be asked to assist in the removal or
resiting of a PCB, which has become a local nuisance.
17. There is no evidence of an increasing trend of payphone
removal. Indeed in the calendar year to date BT information indicates
that there has been a net increase of 170 PCBs. An additional
356 PCBs have been installed, with 186 PCBs removed for the following
reasons:
At customer request (eg, local residents, police or local
council) 84
Out of service (eg, kiosk destroyed or repeatedly vandalised)
45
Site improvement (eg, redevelopment of local housing) 33
Wayleave revoked (by landowner and no suitable alternative)
22.
FUTURE OFTEL
PLANS
18. In order to better understand the current state of
the payphones market from consumers' point of view, Oftel has
commissioned independent consumer research across the UK examining
both usage patterns of higher volume PCB users and their needs
and expectations of a PCB service. In particular, Oftel will seek
views on whether the recent price increases have affected usage.
19. The results of this research will inform the consultation
document on payphones which Oftel will be producing in the first
half of 2001. The Consultation will examine the most appropriate
form of future regulation for payphones as a whole, in particular:
— the future of the payphone access charge. The
payphone access charge is a payment which compensates BT (although
it is intended that it will be extended to other operators) for
allowing freephone calls from its PCBs for which it would otherwise
receive no revenue;
— possible changes to the criteria for installation
of non-economic call boxes;
— competitiveness within the market overall and
by region; and
— any additional policy or regulatory action necessary
to maintain accessibility of services.
20. Oftel will separately continue to work with the Home
Office and the payphone industry to tackle the public nuisance
of prostitutes' cards in public call boxes.
30 November 2000
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