Select Committee on Trade and Industry Appendices to the Minutes of Evidence


Memorandum submitted by the Communications Management Association

The overall message we would like to leave with the Committee is that CMA, as the major consumer group representing business consumers of telecommunications products and services, is not satisfied that the approach taken by Oftel to introduce a relaxed style of regulatory control is appropriate at this stage in the development of the market. Whilst any market is best served by minimum sector-specific regulation, in the case of UK telecommunications such a step is premature. The local loop is the latest example of a failure to exercise proper control over a mission-critical segment of the telecommunications market. Competition in the mobile sector is likely to be the next example unless a firm regulatory grip is exercised. Oftel's intention to stimulate competition will not succeed unless existing market failures are at the same time addressed with vigour and determination and rectified appropriately.


  There is no doubt that Oftel made a serious error in not intervening in the market earlier—and the DG has publicly admitted as much. While that is water under the bridge (in the sense that the damage has been done and the situation cannot be retrieved) there is nevertheless a valuable lesson to be learned from the experience. The telecommunications market in the UK is not yet fully competitive either at the product level or on a geographic basis, and it is counter-productive to claim that it is. It follows that if concept of light-touch regulation and co-regulation are to be applied it must be with very great care if they are to be successful. In the case of unbundling the desire to allow the industry to regulate itself was almost certainly based on the belief that the market was sufficiently competitive and that all operators concerned would act in an appropriate manner. The issues of competition, market forces, regulatory intervention and unbundling are thus tightly interwoven.

  In publicly declaring its belief, every time it is challenged on this subject, that consumers are benefiting from widespread competition, Oftel falls victim to its own propaganda. In its January 2000 Strategy Statement, Oftel announced its intention to pull back from hands-on regulation and focus on promoting competition. In our response, we said:

    "TMA is concerned that Oftel appears to want to abandon its key task and the defining aspect of its current role when few if any, perhaps other than BT, believe this role to have been fulfilled. Statements about how the telecoms market can now regulate itself are lacking in substantive evidence."

  We concluded that while Oftel's intention to put more effort into achieving a competitive market was laudable, the continuing dominance of BT must not be overlooked.

  Nine months on and the current reality is exposed by CMA's annual survey, which yet again (September 2000) confirms that senior communications professionals (78 per cent) inside the UK's private and public sector corporations regard Oftel as having "failed to deliver effective competition in all parts of the UK". They say (74 per cent) that businesses can only obtain competitive service in the major conurbations. For 74 per cent of user organisations there is no competition in the last mile for leased lines. In the fixed communications services market BT still dominates, with 80 per cent of organisations using BT as one of their suppliers and with 59 per cent using the company as their main supplier.

  The same survey shows that business users (86 per cent) regard broadband (ADSL) rollout as being too slow. They (86 per cent) want access to broadband to be provided to anyone on demand, as part of the Universal Service Obligation. Half of the Survey respondents (49 per cent) report that their own organisations are unlikely to have access to ADSL for at least two years. Nearly as many (45 per cent) say that their businesses are already inhibited by the lack of broadband services in the local loop.

  Members of CMA's Scottish Forum are particularly concerned by lack of competition, which they see as denying them access to broadband unless their businesses happen to be in Edinburgh or Glasgow. The Scottish press carried many letters on this subject during September and October, all triggered by a statement by the Managing Director of BT Scotland that BT would be rolling out ADSL "only where it made commercial sense to do so". While this is an understandable statement from a commercial entity it also underlines the yawning gap between Oftel's claims and reality and emphasises the need for intervention in an imperfect market.


  This part of our response is taken from the recent CMA submission to Oftel, replying to their latest consultation on leased lines. We have been providing evidence to Oftel on this issue for over three years, including a survey and other information that the UK market in leased lines was not competitive, and that UK consumers were paying up to 10 times as much for leased lines as were their competitors overseas. It was clear that Oftel was reluctant to intervene, repeatedly asking us for more and more evidence, claiming that the UK consumers were as well treated as most others, and finally refusing to "micro-regulate" in the leased line area. Finally, and coincidental with a move by the Commission to launch a major investigation into the sector, Oftel decided to conduct an investigation into the UK leased line market. That investigation was launched in November 1999 and its results were announced in September this year, together with yet another consultation on how price control should be applied. By the time Oftel gets round to controlling leased line prices the ADSL market will be providing strong competition, but only in urban centres—those businesses which require broadband connectivity in the shires will have to remain customers of BT's leased line product for the foreseeable future.

  Oftel now acknowledges this in their most recent report:

    "the market for retail leased lines is not effectively competitive"; and

    "the market for retail leased lines will not become effectively competitive unless the lack of effective competition in the market for wholesale terminating segments is remedied".

  Oftel also finds that market distortion is occurring when terminating segments of leased lines are involved in an interconnection arrangement. This has always been the CMA view and hence we see as crucial the consideration given in the consultation document to the differentiation between wholesale and retail conditions. However, the focus for CMA remains clearly on conditions in the retail market.

  The price differences between international half circuits and national circuits of the same characteristics and distances remains a concern, even though the comparison with other EU conditions indicated BT to be average. The fact that BT prices have generally remained static for some time is an issue that may require some further evaluation. Oftel's conclusions are strong indicators that business customers in the UK could be at a disadvantage.

  The recent Leased Line Sector Enquiry carried out by DG Competition indicates the same findings for some types and distances of leased lines in certain relevant geographic markets. The DG Competition inquiry is now beginning a second phase of analysis to facilitate a more detailed understanding of the variables in both benchmarking and other issues. CMA will evaluate the second phase findings as they become available and compare them with the actual situation in the UK.

  The Trade and Industry Committee might like to take special note of, and encourage further work on, Oftel's objective to extend scrutiny of leased line prices to include the higher speed, higher order leased lines running at 34, 45, 140, 155 and 622 Mbps, and thus to widen the field addressed by the Leased Line Directive, (92/44/EEC amended by Directive 97/51/EC).

  We wish to conclude our comments on leased lines with a note from a very large enterprise centred on the City (taken from our original submission to Oftel):

    "Other Licensed Operators (OLOs) are reluctant to supply services below 2Mbit/s even in central London; some do not offer 64kbit/s circuits at all, because they choose not to invest in this market. Discounts are not to blame for this situation because (as recognised by Oftel) they represent a commercial tool that has been used with great success on both supply and demand sides of the industry in the USA. In short, users are forced to buy leased lines from BT because:

    (i)  BT is the only operator having a Universal Service Obligation;

    (ii)  there is usually a dearth of alternative options; and

    (iii)  customers prefer the higher service levels only achievable on a single vendor's network. From the perspective of a company dealing in real-time financial data, multiple points of failure and ownership are not an attractive proposition.

    "Some companies will put in two leased lines to their own or customer sites for resilience, and take them from different carriers to ensure full diversity. For many customers this means that the second circuit will be a BT one, as many buildings even in central London are served only by BT and one other carrier".


  In common with other regulators across the EU, Oftel seems reluctant to get to grips with the powerful lobbies of the mobile sector. CMA, together with consumer groups in other member states, has consistently maintained that the GSM operators show uncomfortable signs of operating a cartel. We now note that they are being investigated for collusion in spectrum auctions recently held in the Netherlands, Italy and in Austria.

  CMA recommends a continuing need for strong sector-specific and competition legislation to ensure that niche players and service providers are given the opportunity to compete on equal terms with the national operators and global players.

  Annex B to this submission is the International Telecommunications User Group (INTUG) paper on Roaming between mobile networks. CMA was a contributor to the paper, which was submitted last week to the Commission. The paper concludes as follows:

    "The costs of international roaming are a very serious concern of users, which are being inadequately addressed by the operators. Politicians and regulators have become more alert to the problems and action is beginning to be taken to introduce the necessary elements of competition. Businesses have increased their pressure on operators to deliver cost-effective global services. Nonetheless, operators seem loathe to lower roaming charges."

    "The problem arises from the nature of the licences and the manner in which the operators have sought to exclude competition and to obtain the maximum leverage. The solutions lie is simple regulatory intervention to increase competition through carrier selection and MVNOs. Competition law is also useful where, as is frequently the case, operators are jointly dominant."

    "There is a need to ensure that roaming on third generation networks does not create similar and worse problems. Moreover, because of the much wider range of services there are complex issues of data protection and privacy which must be addressed urgently."


  INTUG the International Telecommunications Users Group (INTUG) is an association of national telecommunications users associations. INTUG was founded in 1974 to act as a single voice for users of telecommunications. The mission of INTUG is to ensure that users have access to affordable, interoperable telecommunications services and that their voice is heard wherever telecommunications policy is decided. For over 25 years INTUG has argued for the introduction of competition in telecommunications and that all users must have access to the benefits of such competition.

  Introduction: —Amongst the costs which are of the greatest concern to telecommunications users and manager are those arising from international roaming with mobile telephones. These charges are increasingly seen as unjustifiable; some would say outrageous. They result from the absence both of competition and of regulation in this market.

  Once users have picked their mobile operator they have to accept the schedule of roaming charges. It is a sufficiently difficult task selecting the most economical package of national and international call costs without having to allow for the highly variable and extremely complex roaming prices. Once an operator has been chosen, it is often difficult or expensive to change to another; especially in countries where mobile number portability has yet to be introduced.

  In order to minimise roaming costs a user requires to consider the time of day, the range of available operators and the destination of the call, all of which affect the charges. It is a Herculean task which few, if any, undertake.

  While the costs remain high, and sometimes exorbitant, they discourage use and hold back the adoption of new business practices. Senior executives continue to control roaming costs by instructions to staff limiting the use of mobile phones when abroad.

  The operators seem to be determined to gather revenues from their existing patterns of business. Without competition and in the absence of a longer term perspective, the operators have no incentive to look to potential developments which would encourage use. New entrants are blocked by the absence of licences and by the refusal of licence-holders to admit alternative carriers and virtual operators.

  As we move towards roaming on third generation networks and roaming between second and third generation networks it is vital to eliminate the demonstrable failings of the existing model in order to deliver the services that users require. Roaming must become genuinely global. The markets for roaming services must become competitive. With sufficient competition in the market, prices will be driven down and held in check. However, in order to achieve that measure of competition it is essential that there is regulatory action.

  The expanded range of services in roaming on third generation networks creates a range of additional concerns. These relate to privacy, especially location information, and how services will be selected, contracted and paid for.

  Mobility for work—increasingly, businesses operate beyond the national level. The number of managers who work internationally, at least for part of their time, has also risen. This is made possible by telecommunications in general and by mobile telecommunications in particular, with a very significant role played by roaming on mobile networks.

  It is taken for granted that when someone wishes to be away from their office that there can be minimal interruption to their connection with customers, supplies and colleagues. Voice, data and electronic mail will continue to be accessible. The widespread adoption of the GSM standard played a significant part in creating that constant communication.

  Businesses would like to make contracts for global mobile telecommunications services. However, the market and the underlying regulatory structures make that impossible. It is necessary to buy these country by country and patch them together. Mobile operators do the same, through their roaming agreements. It is far from satisfactory and not at all efficient.

  Businesses presently have large and cost effective Virtual Private Networks (VPNs). When an employee moves to a different site then the full functionality of the VPN is available with no increase in cost. A similar level of functionality is expected to mobile telecommunications. The objective is the integration of mobile telecommunications with VPNs, together with the elimination of roaming charges.

  Mobility for leisure. —There are ever growing numbers of people travelling across national borders for holidays, often more than once a year. They are increasingly expecting and expected to be available on mobile phones, both for voice and for Short Message Services (SMS). The complexity and high level of charges discourages their use of roaming.

  The introduction of pre-paid cards has brought a major and beneficial expansion of the market in a wide variety countries. It has proved to be a very dynamic sector of the market. These customers are now expecting to take their phones when they travel abroad. This presents special challenges to operators to ensure that roaming call charge information is provided and that when abroad their customers can purchase more units. An important element is the high cost of incoming calls.

  The cost of roaming. —There are additional costs for network operators in providing services for the roaming clients of other operators. However, when compared with the very high charges levied on roamers and the profits which accrue it seems out of all proportion.

  Operators need to negotiate roaming agreements with other operators. A process that is now helped by roaming brokers. The GSM Association has facilitated roaming with the development of Standard Terms for Inter-Operator Roaming Agreements (STIRA), Inter Operator Tariff (IOT) and Transfer Accounting Protocol (TAP). The IOT, when combined with TAP3, is intended to allow for very flexible tariffing and the early notification of price changes. However, by decoupling the roaming prices from any competition in the retail market, it may assist in maintaining high prices. An operator will add anywhere from 15 to 35 per cent to the foreign operator's IOT before billing its own customers.

  INTUG became concerned about the growing level of charges for international roaming in the late 1990s. The evidence from the INTUG regional surveys into roaming prices in 1999 and 2000 is that the charges to users can be extremely high and also that they vary in unpredictable ways. The causes of the high charges are the:

    —  absence of competition;

    —  absence of regulation;

    —  strong disincentive on operators to negotiate lower prices;

    —  fragmented nature of the market reducing the purchasing power of users; and

    —  locking out of alternative operators.

  Information about roaming—An important step in addressing the problems of roaming is the provision of accurate information to users. Unfortunately, it is difficult and sometimes impossible to obtain such information. Some of the information provided is obsolete. Some is so severely qualified by the operator with warnings about the fluctuations of exchange rates and unpredictable tariff changes by foreign operators that it is of little value. Sometimes vital information is missing, such as the units of billing or the times when peak rates apply. The generally inadequate customer care of the mobile sector is reflected in the poor quality of the information provided and the lack of support for users.

  The complexity of charging is daunting, even to specialists. There are different charges to users depending on which network is being used, the destination of the call and the time of day. In most cases, the choice of the network is made by the handset picking the strongest signal when switched on. Given that users do not normally pick the network and are not provided with the information necessary to facilitate the most economical choice of network it is not clear why they should be asked to pay different prices. It would be much easier for operators to set a single rate for a group of countries and standard times for peak and off-peak calls for all countries.

  Accurate and accessible information is essential to enable users to check their bills. Given the delays before roamed calls appear on bills, information needs to be available for some months after the call. (Such information can be provided without qualifications.) Bills cannot and should not be taken on trust. Where the bills or charges for individual calls cannot be agreed, there is a need for a rapid dispute resolution procedure with the home operator and not with the foreign operator.

  The present provision of information is unacceptable. In some instances it may be unlawful in terms of contract and consumer protection law. It is far from unreasonable to expect that operators provide their customers with accurate and comprehensible information about the charges which they will incur and the bills they must pay.

  There are technical solutions which could be delivered. For example, least cost routing could be performed by the handset, using information downloaded from an operator or a third party. Existing standards have for some years allowed for the real-time display of the per minute or the cumulative cost of a call on the LCD panel which should be implemented without delay.

  Competition and consumer protection law—There is no single body to which complaints about roaming can be made. It is necessary to go to each country in turn to make very similar complaints or to approach a pair of countries to address a specific problem. It is unclear which set of regulatory authorities is responsible, those of the country where the contract was taken out or of the country being visited. Indeed, in some cases neither admits responsibility. It may be a matter for a telecommunications regulator, a competition authority or for a national government. Roamers can seem to be operating outside the conventional regulatory framework.

  This is wholly unacceptable and must be regularised. The contract of the user is with the home operator and responsibility must lie there and it must also be regulated there. The obligation should be on the operator when entering into roaming agreements to uphold the regulatory principles and practices of the domestic market. Any exceptions must be declared both to the user and to the home NRA.

  Regulation—Radio spectrum is, for the present, a scarce resource. Consequently only a small number of licences can be issued in any country. This creates a bottleneck or essential facility which gives the operators holding a licence leverage far above the value of their business. In many countries they have joint dominance of the market.

  A significant factor in the high cost of roaming is that the underlying charges for international calls are themselves high. This results from the lack of competition in international calls from mobile handsets. The regulatory solution to this problem is well established in the fixed telephony market. The introduction of carrier selection would immediately open the market and lead to competition and in turn to falling prices. A few countries have introduced this, such as Denmark and Finland.

  A more sophisticated regulatory option is to license Mobile Virtual Network Operators (MVNOs). Companies could develop brand name services of global or continental scope, encompassing calls to national and international networks. Plus roaming services.

  Third generation roaming—It is vital that third generation roaming be as close to global as possible; though this will be no simple task. There are five frequency bands approved for IMT 2000 and three different technologies. It is proposed to use software defined radio to overcome the different frequencies and protocols. The concern here is that the user should only pay for a cost-effective handset and not for unnecessary technology. In remote, mountainous and polar regions access to mobile telecommunications may require the use of satellite services and special handsets.

  The present complexity of pricing for roaming must be eliminated before a whole range of services is added.

  It is expected that location-based services will play an important role in third generation services. These are of two types, commercial and emergency services. In the case of a call to an emergency services number, then such location information as is available must be passed on, overriding any privacy concerns. It can assist the emergency services in arriving speedily at the correct location. This is especially important when the individuals in distress are in a foreign country and may not speak the local language or may be uncertain where they are. However, commercial services will require that a user opt-in before user location data is passed to an operator or service provider and with an additional override function which can be used to block the location being passed on a one-off basis.

  There are complex data protection issues which arise when roaming. Logically and legally, the jurisdiction for data protection is the country being visited, rather than the country from which the roamer comes. However, the roamer may not know the nature of the data protection regime in force or its consequences. In some cases, the service providers may not be aware that the customer is roaming. An obligation falls on the home operator, since the identity of the customer is provided through the SIM card and the database. It is essential that the privacy of users must be protected seamlessly.

  In m-commerce there will be a default URL or its equivalent and a menu of services which is likely to vary from country to country. This raises issues which are well established in competition law for airline customer reservation systems and television electronic programme guides. It will be necessary to regulate carefully the provision of such services to ensure that there is a competitive market. If the default URL or menu settings can be changed by a third party, perhaps in a pretext of customising for local services, then it opens issues of security and creates a real danger of "slamming". The user needs to be in control and no change or additional charge should occur without a warning and a positive acceptance by the user in a language acceptable to the user, not necessarily the local language. An audit trail will also be necessary.

  Conclusion—The costs of international roaming are a very serious concern of users, which are being inadequately addressed by the operators. Politicians and regulators have become more alert to the problem sand action is beginning to be taken to introduce the necessary elements of competition. Businesses have increased their pressure on operators to deliver cost-effective global services. Nonetheless, operators seem loathe to lower roaming charges.

  The problem arises from the nature of the licences and the manner in which the operators have sought to exclude competition and to obtain the maximum leverage. The solutions lie in simple regulatory intervention to increase competition through carrier selection and MVNOs. Competition law is also useful where, as is frequently the case, operators are jointly dominant.

  There is a need to ensure that roaming on third generation networks does not create similar and worse problems. Moreover, because of the much wider range of services there are complex issues of data protection and privacy which must be addressed urgently.

6 November 2000

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