Memorandum submitted by Vodafone
1. Vodafone welcomes this opportunity to provide
input to the Trade and Industry Select Committee on issues related
to new forms of access to telecommunications networks.
2. We understand that the primary focus
of the Committee is on recent developments in fixed Local Loop
Unbundling and, in particular, on steps Oftel has taken to secure
effective and timely unbundling of BT's network to ensure competitive
access to fixed higher bandwidth services.
3. Vodafone's primary business is the provision
of mobile services, including voice and data. Consequently we
have not taken an active role in recent initiatives regarding
fixed network unbundling. However, we wish to comment on the state
of competition in mobile and the role of new forms of access to
networks now emerging in the UK.
4. The mobile industry is developing rapidly.
Penetration has now reached 60 per cent of the population and
will rapidly rise to over 80 per cent (see Annex 1) Competitive
pressures are intense and investment levels are rising dramatically
as players compete on service quality (see Annex 2) and to develop
and launch new products and services.
5. The recent auction of new spectrum has
raised considerable sums for HM Treasury and there are now strong
incentives for the development of a competitive higher bandwidth
mobile market. Two national infrastructure players have grown
to five (including Dolphin) and this will reach six from 2001.
Vodafone and BTCellnet's market shares continue to decline (see
Annex 3) and market entry is evident at the retail level including
from Virgin, Centrica, Carphonewarehouse, GM, Tesco and Sainsbury's.
6. Oftel's own evidence illustrates how
well the British mobile customer is currently being served.
7. "Overall [mobile telephony] prices
are now 18 per cent cheaper than at the start of 1999. Pre-pay
prices are 28 per cent lower, while advance and monthly contract
prices are 10 and 15 per cent cheaper respectively." 
8. "International benchmarking (of
France, Germany, Italy, Sweden and the UK) shows: the UK has,
on average, the lowest prices of the countries considered; [ .
. . ]. The UK's overall favourable position is secured by a combination
of low priced pre-paid packages for low usage consumers and favourably
priced post-paid packages suitable for high usage." 
9. "In a survey conducted on behalf
of Oftel by MORI, amongst 2,070 adults during May 2000, [ . .
. ] 50 per cent claimed to personally have a mobile phone [ .
. . ] the vast majority of consumers, 94 per cent [who expressed
a preference] said they were satisfied with their mobile phone
10. Given the rapid pace of technological
and market development in communications, Vodafone fully supports
the Government's decision to review the basis of regulation of
the converged sector. The Communications White Paper provides
an ideal vehicle for this review.
11. Vodafone supports the replacement of
multiple regulatory bodies with overlapping responsibilities for
telecomms and broadcasting with a more coherent structure for
the sector. However, irrespective of the precise structure chosen,
legislation must contain clear economic objectives for individual
regulatory bodies. These should:
recognise the increasingly dynamic
and unpredictable nature of the sector;
provide an environment which specifically
promotes investment and supports innovation in new services such
as Third Generation mobile; and
presume forbearance to achieve economic
objectives: market solutions are inherently more efficient than
regulatory intervention in meeting customers' needs.
12. In forthcoming legislation the Government
needs to identify a "convergent path" from detailed
sector-specific regulation to treating communications on a par
with other high-tech sectors. The principal economic regulatory
mechanism should be Competition Law. Consumer protection measures
should be proportionate to the real risk of consumer harmnot
more intense because of a legacy of regulatory action.
13. Where there is an effectively competitive
marketas now exists in mobilelevels of regulatory
intervention should be reduced not increased. In particular, regulators
should avoid the blind importation of approaches which are appropriate
to the fixed market to the mobile market.
14. Regulation of access to promote competition
can only be justified where there is continuing dominance, such
as BT's position in fixed local access, or an otherwise extreme
market positionone which will not be corrected through
the market process.
15. The mobile services market is radically
different from fixed. In contrast to BT's continuing dominance
in fixed there will soon be six national infrastructure players.
Market entry is vibrant at the retail level and new technologies
are facilitating this process. In particular, Vodafone anticipates
a multiplicity of new local radio access technologies, such as
Bluetooth, which will challenge traditional perceptions of how
mobile communications operates and lower barrier to entry.
16. Vodafone (and BTCellnet) are deemed
by Oftel to have Market Influence and Significant Market Power
in the mobile market. Consequently we are already subject to forms
of mandated access. Two are worth specific mention: the obligation
to provide services to service providers and the more recent decision
by the Regulator to require indirect access on mobile copying
a regulatory approach adopted in the fixed market.
17. The obligation to provide services to
service providers is a legacy of the original duopoly in UK mobile.
The obligation is accompanied by additional regulatory rules requiring:
non-discrimination, that the same
offering must be offered to all;
accounting separation; and
price publication undermining the
rationale for commercial deals.
18. These rules are costly to administer,
limit the attractiveness of Vodafone as a wholesale partner and
restrict our ability to increase the rate of new product development
as they render the product production and configuration process
much more complex.
19. While (arguably) necessary in a duopoly,
these rules now inhibit competition. In particular they threaten
the ability of Vodafone to develop more commercial relationships
with our existing independent service providers and to sell customised
access products to new independent channels. Rather than encouraging
additional competition in mobile, regulated access distorts the
market process suppresses diversity and limits competitive intensity.
20. Non-discrimination hampers Vodafone's
ability to serve wholesale channels effectively as the same approach
must be available to all prospects irrespective of their commercial
attributes or service requirements. We believe that new retail
partnerships have emerged more readily from other suppliers specifically
because the underlying mobile network operator is able to discriminate
in wholesale supply.
21. Mandated access particularly acts to
limit the diversity of customer experience. There is evidence
customers now prefer the certainty of dealing with newer strongly
branded suppliers (such as Virgin or Tesco) rather than businesses
based on obsolete forms of regulated access. Vodafone believes
that a single significant wholesale access deal (such as One2One's
deal with Virgin) will do more to enrich the UK customer experience
than the aggregate effect of indirect access on mobile.
22. Other parties may press for additional
rules to promote access to mobile networks for reasons of narrow
commercial advantage. Such rules are now wholly unnecessary. The
competitive situation in mobile is such that there are strong
incentives for operators to offer new forms of wholesale services
which are inherently superior for the customer than mandated access.
Regulation should encourage such competitive offerings rather
than discourage them.
3 November 2000
1 Oftel: A Price Index for Mobile Telephony-June 2000. Back
International Benchmarking Study of Telecommunication Services
A report prepared by Teligen for the Director General of Telecommunications
May 2000. Back
Consumers' use of mobile telephony, Summary of Oftel residential
survey-Q1 June 2000. Back