APPENDIX 32
Memorandum submitted by Vodafone
SUMMARY
Mobile networks have already unlocked explosive
growth in delivering personal communication systems in the UK
and internationally. This is an area where European companies
are market leaders. With the development of Third Generation networks
and services, mobile will play a central role in delivering the
Government's broadband objectives.
Vodafone is concerned that OFCOM's main objective
should be to ensure that a competitive communications environment
delivers genuine benefits to British consumers through the workings
of the market.
The delay to the planned UK communications legislation
will allow the efficient and effective incorporation of the finalized
1999 package in the forthcoming Communications Act. Ensuring the
smooth translation of this agreed European package of telecommunications
legislation into UK law should be a key objective of the Government's
proposed legislation.
Vodafone supports the decision to appoint a
board to lead OFCOM. Appointments to the OFCOM Board should be
based on relevant skills and experience rather than as representatives
of particular stakeholder groups. More generally Vodafone would
urge that the Culture, Media and Sport Committee support the approach
to independent regulation advocated by the Better Regulation Task
Force under Lord Haskins.
Since the publication of the Communications
White Paper the Government has announced a substantial strengthening
of the role and powers of the Office of Fair Trading. Vodafone
believes that the OFT should have formal oversight of OFCOM to
ensure competitive doctrine is consistent across the UK economy.
Where competition has developed OFCOM should have a formal obligation
to withdraw from sector-specific economic regulation and rely
on Competition Law.
Vodafone plans to offer an increased range of
mobile-based internet services during 2002. While such services
will initially be targeted at higher volume users Vodafone is
confident that the competitive process in the mobile industry
will act to spread the ownership of mobile internet-based terminals
widely—as it has already done for voice terminals.
To encourage mobile broadband development Vodafone
advocates a regulatory environment which is supportive of new,
risky, high-tech investment in the UK and, in particular, does
not intervene in the mandating of particular service approaches,
market structures and/or service prices unless there is evidence
of anti-competitive activity.
Vodafone is looking to the forthcoming Communications
Act to provide this minimalist framework. Legislation which discourages
investment or makes it harder to achieve a satisfactory return
on investment would adversely affect incentives on providers and
make the Government's goals for broadband service deployment harder
to achieve.
1. Vodafone is pleased to provide a written
submission to the Culture, Media and Sport Committee regarding
its new inquiry into the communications sector. As a provider
of mobile communications services to customers throughout Great
Britain, Vodafone is among those companies presently regulated
by Oftel under the Telecommunications Act 1984 and will be regulated
by OFCOM under the forthcoming Communications Act. Consequently
this planned legislation will have a direct and substantial impact
on Vodafone's business.
2. Mobile networks have already unlocked
explosive growth in delivering personal communication systems
in the UK and internationally and this is an area where European
companies are market leaders. The next wave of this growth is
now emerging in the form of mobile data services which are supplementing
well established mobile voice services. With the development of
Third Generation networks and services, mobile will play a central
role in delivering the Government's broadband objectives.
3. Vodafone is concerned that OFCOM's main
objective should be to ensure that a competitive communications
environment delivers genuine benefits to British consumers through
the workings of the market. Debate around the formation of OFCOM
and the Communications Act has generally focussed on the needs
and interests of the broadcasting community. This is legitimate,
however, a focus on broadcasting should not leave other economically
and socially important forms of communications marginalized. For
this reason Vodafone welcomes the current inquiry by the Culture,
Media and Sport Committee.
(i) Implications of the delay to the expected
legislation establishing OFCOM & significant issues raised
by the paving Bill currently before Parliament
4. Vodafone was one of those companies which
argued against the inclusion of telecommunications in the Utilities
Bill, given the distinctive nature of the communications sector.
At the same time Vodafone recognizes that the current UK framework
for the regulation of telecommunications (the 1984 Telecommunications
Act) is increasingly out of date and that legislation to revise
this framework is required.
5. Revision to the broad framework for telecommunications
has been discussed extensively in the 1999 European telecommunications
package. Vodafone believes that the delay to the planned UK communications
legislation is welcome as it will allow an opportunity for the
efficient and effective incorporation of the finalized 1999 package
in the forthcoming Communications Act. Ensuring the smooth translation
of this agreed European package of telecommunications legislation
into UK law should be a key objective of the Government's proposed
legislation.
6. The paving Bill which has been put before
Parliament is, inevitably, in outline form only. Vodafone supports
the decision to appoint a board to lead OFCOM rather than to continue
with the historic model of an individual regulator. In as much
as Vodafone has concerns over the contents of this Bill it is
that those appointed to the nascent OFCOM Board should be appointed
for their relevant skills and experience rather than as representatives
of particular stakeholder or interest groups. The example of the
Postcomm Board which has a relatively small number of members,
one of who is part-time chairman and another a full-time chief
executive, appears to provide a positive framework for leadership
in the complex and evolving communications sector.
7. More generally Vodafone would urge that
the Culture, Media and Sport Committee support the approach to
the operation of independent regulators which has been advocated
by the Better Regulation Task Force (BRTF) under the chairmanship
of Lord Haskins. In particular, the recent BRTF report into independent
regulation advocated that:
— there should be clear prioritisation
of objectives for independent regulators and that the linkage
between objectives and decisions taken should be explained explicitly
by regulatory bodies;
— there should be greater use of Cost/Benefit
Analyses to support the decisions of independent regulators which
have a significant impact on business activity;
— the board members of regulators should
include both executive and non-executive members. Board members
should be appointed for their expertise, rather than represent
particular stakeholder groups;
— that regulators should include in
their work plans more innovative approaches to consultation; and
that
— regulators should have clear exit
strategies for regulation and that these should be should be implemented
where regulation has become obsolete.
8. As OFCOM will be the first substantial
new regulatory body to be planned and established since the BRTF
report this will be an ideal opportunity to establish a best in
class approach to independent regulation, taking into account
these recommendations.
(ii) Recent developments in policy
9. Since the publication of the Communications
White Paper the Government has announced a substantial strengthening
of the role and powers of the Office of Fair Trading (OFT). This
move increases the ability of the OFT to intervene in situations
of concern regarding anti-competitive behaviour in all sectors
of the UK economy.
10. Given these additional powers on the
part of the OFT the Communications Bill should clarify that competition
issues in the communications sector should be treated on an equivalent
basis to those in other high-tech markets.
11. To achieve this Vodafone believes that
the OFT should have formal oversight of OFCOM to ensure competitive
doctrine is horizontally consistent across the UK economy, including
in the communications sector. This would represent a modification
in approach to that proposed by Government in the Communications
White Paper and would strengthen the leadership role of the OFT.
12. In communications markets where competition
has developed, sector-specific economic regulation will no longer
be relevant. OFCOM should have a clear formal obligation to withdraw
from sector-specific economic intervention in these circumstances
and to rely on Competition Law approaches. This obligation should
be formalized in legislation.
13. As well as a formal obligation to review
and roll-back regulation when it is no longer required, OFCOM
should have a duty apply the "minimum necessary regulation"
required to meet its objectives and demonstrate that it has achieved
this. Economic regulation of the overall communications sector
should converge fully with approaches to other sectors of the
economy within the lifetime of the proposed legislation. Vodafone
believes that this should be anticipated in forthcoming legislation.
14. Participants in the communications market
should have access to an appropriate form of independent appeal
of OFCOM decisions. Vodafone does not believe that judicial review
is appropriate for challenging decisions which may be reached
after consideration of complex economic evidence. The Communications
Bill must provide for an accessible appeals mechanism which allows
challenges to be made on the facts and merits of a decision to
an independent expert body in a timely manner.
15. While OFCOM will be a single regulator
distinct domains of regulation require different approaches. In
particular, Vodafone believes that issues relating to economic
regulation, content regulation and spectrum management are distinct—although
individual market participants are increasingly active in multiple
domains. OFCOM should be structured to explicitly reflect these
distinct domains of expertise where different arguments and tools
are relevant.
16. OFCOM should focus on its specific areas
of responsibility: economic, content and spectrum regulation,
not usurp the broader role of Government in other areas such as
the social and the environmental. Treatment of the communications
sector should reflect broad, national consensus in the levels
of economic, consumer and data protection, social and environmental
regulation. This can best be achieved by continued and/or convergent
horizontal approaches, not by vesting additional specific powers
in OFCOM.
17. The Department of Culture, Media and
Sport published its Consultation on Cross Media Ownership Rules
in November 2001. This builds on proposals outlined in the earlier
Communications While Paper. Vodafone will be commenting on this
Consultation later in January, however, it is worth stating our
position that concerns relating to the degree of concentration
in ownership of resources within the communications sector should
properly be managed within the framework of general Competition
Law. This would apply equally to concerns regarding media ownership
and to the use of spectrum.
(iii) Progress towards universal internet
access in the UK
18. OFTEL published its most recent Market
Information data on the telecommunications market (covering the
period 2000-01) in December 2001. In this Oftel states that: "During
2000-01 the UK Internet market continued to grow rapidly. Most
recent figures suggest that around 40 per cent of households and
60 per cent of all small businesses are now connected to the Internet...
Internet service provision is often bundled with other services
such as telephony and cable television".
19. Oftel states: "During 2000-01 the
total volume of Internet traffic originating on the PSTN grew
by over 200 per cent to 92 billion minutes... recent traffic growth
has broadly mirrored increases in household penetration of Internet
access. More recent figures suggest a slowing in the growth of
household Internet take-up which may feed through to traffic volumes
at least those attributable to PSTN dial-up, but the increased
take-up of always-on broadband services should see overall Internet
volumes rise for the foreseeable future".
20. Overall, Oftel's perspective on the
growth of internet access and traffic volumes appears to suggest
a relatively positive picture. The direction of future developments
in fixed internet access is unclear to Vodafone, however, Oftel's
figures for internet access and traffic volumes do not take into
account access or traffic using mobile terminals—which remains
at relatively low levels at the time of submission.
21. Vodafone and other mobile operators
plan to offer an increased range of mobile-based internet services
during 2002. These will be based on so called 2.5G services such
as the General Radio Packet Service (GPRS).
22. While such services will initially be
targeted at higher volume users Vodafone is confident that the
competitive process in the mobile industry will act to spread
the ownership of mobile internet-based terminals widely—as
it has already done for voice terminals. In fact the growth in
penetration of mobile phones is one of the major public policy
success stories in communications giving rise to great economic
and social benefit and promoting social inclusion. In the words
of one independent commentator:
"From the mid-1990s, with telephone ownership
stuck at around 93 per cent of households there was much talk
of the "unphoned", and regulatory programmes were put
in place to advance towards "universal service"—affordable
basic telephone services for all. Yet, within a couple of years
or so the issue had been swept aside by the staggering popularity
of mobile phones. Standard fixed line telephone services are now
installed in 96 per cent of homes and, with the exception of about
350,000 households who would like a phone but have not got one,
everyone else has a mobile phone. It is especially noteworthy
that this advent of virtually universal access to telephony has
been market led, not the outcome of a regulatory initiative."
23. While the transmission speeds available
to new data terminals will not match that of the fixed environment,
the ability to use always on personal mobile devices for internet
communications including e-mail and instant messaging will be
substantial. Vodafone believes that near universal internet access
will become available with the advent of personal mobile internet
devices as has been the case with voice.
(iv) Progress towards effective broadband
and higher bandwidth networks
24. Beyond 2.5 Generation services Vodafone
is now planning for the entry into service of third Generation
services which will offer higher bandwidth access for business
and consumers. This will dramatically improve mobile service choice
and functionality.
25. Progress towards effective mobile higher
bandwidth service delivery depends on a number of factors. These
include:
— the ability to identify and deploy
sites for third Generation infrastructure—Vodafone is working
with local communities to ensure that such infrastructure deployment
takes place in the context of the 10 Commitments on planning agreed
with Government;
— the ability to fund new infrastructure
deployment in the context of the substantial sums paid to the
Treasury for third Generation spectrum;
— the range of new services which can
be sold effectively in order to generate a return on investment
and to promote additional network beyond densely populated urban
areas.
26. To encourage this mobile broadband development
Vodafone advocates a regulatory environment which is supportive
of new, high-tech investment in the UK and, in particular, does
not intervene in the mandating of particular service approaches,
market structures and/or service prices unless there is evidence
of anti-competitive activity, for example, associated with the
abuse of dominance.
27. Vodafone's investment in third Generation
spectrum and associated infrastructure involves considerable risk.
Viewed positively there are considerable opportunities for high
levels of return on this investment, which will, in turn, further
encourage the development and delivery of higher bandwidth networks.
There are also opportunities for sector specific regulation to
increase the level of risk on mobile service investment and, because
of this, the costs for all market participants and for consumers.
Effective higher bandwidth deployment in mobile will be facilitated
by a minimalist level of regulatory intervention.
28. Vodafone is looking to the forthcoming
Communications Act to provide this minimalist framework. Legislation
which discourages investment or makes it harder to achieve a satisfactory
return on investment would adversely affect incentives on providers
and make the Government's goals for broadband service deployment
harder to achieve.
(iv) Impact of technological developments
on the protection of privacy
29. New mobile terminals and services give
rise to increased opportunities for business and consumers. Associated
with this there are concerns about privacy and the treatment of
intellectual property.
30. Key new privacy concerns arise with
powers taken by the Government, for example, in the recent anti-terrorist
legislation which is seen as potentially invasive of privacy by
both business and consumers. They also arise as technologies,
for example location-based services, are brought to market and
provide building blocks for new, commercial mobile services as
well as for social and governmental purposes.
31. Vodafone believes that issues of personal
privacy in the mobile communications space are fundamentally no
different to the issues which arise in other sectors of the economy.
The regulatory regime which covers data protection in the communications
sector should reflect core data protection principles and practices
in current data protection regulation in order to meet the requirements
of citizens and consumers.
32. Successful commercial delivery and take-up
of new technologies depends on creating consumer trust in, and
respect for, privacy practices and commitments of communications
suppliers.. Privacy will prove a commercial differentiator and
will give mobile operators a powerful incentive to ensure that
customers' data are treated in a manner consistent with their
interests and concerns. This will lead suppliers to develop privacy
enhancing technologies and solutions and to improve privacy practices.
Vodafone is committed to respecting the privacy of its customers
and to using information in accordance with relevant data protection
laws to promote customers' trust in us as a responsible supplier.
11 January 2002
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