Examination of Witnesses (Questions 1-19)
RT HON
MARGARET HODGE
MP, MR NIGEL
HICKSON AND
MS EVE
RACE
28 FEBRUARY 2007
Q1 Chairman: Can I formally welcome you,
Minister, to the European Scrutiny Committee, particularly on
this, hopefully, very positive topic for those of us who are pro
the European project. You may want to introduce your team and
then we will get going with the questions.
Margaret Hodge: Indeed. Nigel
Hickson, who is in our European Division and is leading on the
official side on the negotiations around this directive, and Eve
Race, who is Legal Director of the DTI Legal Service, because
I understand you have some questions around the basis for this
regulation.
Q2 Chairman: Thank you very much, Minister.
I know it is a difficult topic and often very technical, but the
idea of this Committee is to hopefully get answers and ask questions
in terms which the general public, who may take an interest in
our proceedings, will understand. Having said that, I will lead
off with the first question, to which hopefully we can get not
too technical an answer. Could you kindly outline the present
situation, because we obviously want to know where we are, for
example what is the basis upon which "roaming" charges
in Europe are currently devised, how are they presently regulated,
and what are the problems which the draft Council Regulation seeks
to address?
Margaret Hodge: Basically, at
present there is no regulation of "roaming" charges,
so they are set by the operators themselves. The answer to your
first question is that the basis is determined by the operators
and there is no regulation. The problems we are trying to address
are that for a number of years now consumers and policy-makers
have felt that they are excessive. They are probably about four
times the rate of the charges on domestic calls. This is felt
to be something which clearly needs to be dealt with at the European
level and despite much comment and much encouragement from various
European Commissioners, it was felt that the operators have not
voluntarily taken action to reduce charges to consumers. If I
go back, the first time I found somebody who made a big statement
about it was Mario Monti, who was the Commissioner for competition
policy back in 2001, and at that time the Commission undertook
an inquiry into "roaming" charges and in a speech he
made a big play on how high the prices were. More recently, Viviane
Reding has made a number of speeches, usually just before the
summer holidays as we all go off as domestic consumers and use
our telephones abroad in Europe. She made a number of exhortations
to the industry to reduce their charges and they did not. I just
have to say one thing, which is really interesting and may be
of interest to the Committee. The industry did not respond until
the Commission first put something on the table, which was last
July. If I take a couple of examples, and these are only examples,
on the wholesale costs, those are the costs to operators, before
that first proposal was put on the table by the Commission, Vodafone
was charging 46p a minute. Since that proposal has been made they
have reduced their charges to 30p. Orange was at 45p a minute,
this is the wholesale charges, and now in October 2006 they have
reduced it to 30p and they are proposing to reduce it to 24p in
2007. If I look at retail charges, I can just take one example,
O2, the "My Europe" tariff, which is one of their packages,
before a regulation was proposed was placed it was 85p a minute,
now it is 35p an minute, and the "My Europe Extra",
which is a different package of proposals, was 94p and is now
25p. So the mere fact of starting to really negotiate a regulation
has of itself led to price cuts, which are warmly welcome.
Q3 Chairman: I think, to put it succinctly,
people have always wondered why they were so high, and having
seen them tumble they probably now believe they were correct in
thinking it was a rip-off?
Margaret Hodge: I think there
is a good case for European regulation in this particular context
to ensure that consumers get a fair price. But I have to say—and
this is where we are in negotiation with both the Commission and
our colleagues in the Council—we must get that regulation
right.
Q4 Jim Dobbin: Good afternoon, Minister.
You have probably touched on part of my question, but you may
want to enlarge on it. Could you please explain the proposals
from the Commission, particularly the concepts of maximum and
average wholesale prices, and of wholesale and retail caps, particularly
with reference to making and receiving calls in this country and
making and receiving calls back home?
Margaret Hodge: There is a difference
between the Commission's proposals and the Presidency proposals.
The Commission's proposals we do have some problems with. The
Commission proposed originally two rates for wholesale, one for
outgoing and one for receiving, but we think now that we have
negotiated a change in that and that everybody is agreed that
it should be one rate, one tariff, and that it should be an average
tariff, not a ceiling tariff. That was the first thing. The Commission
did not propose either an average retail tariff or a consumer
protection tariff, it just again had a ceiling on what operators
could charge, and that is where we are still in discussion. I
am hopeful that when I go to the next ministerial meeting in a
couple of weeks' time we can at least reach consensus amongst
members of the Council, although I am not clear at this point
what the Commission's line is on this. They wanted just one ceiling,
which they said would be the maximum retail price, which I think
would be a minimum retail price, would be very inflexible, and
in my view would inhibit both innovation and competition. That
is our main reason why we are opposed to that. We, together with
the French, put forward a number of principles at the Council
meeting just before Christmas and those principles actually have
been the result of a number of conversations which we had, because
we hoped they reflected a relative consensus across Europe. We
had two propositions. One was the consumer protection tariff,
which would give us, for example, if we were travelling for holiday
purposes and therefore not frequent roamers, a price which we
would know we would have to pay as we roamed and it would be a
different price for outgoing and incoming, and then an average
retail tariff, which would allow a lot of the packages which many
of the operators currently had on the market to continue. So if
you are a frequent business traveller, for example, you might
take advantage of something like the Vodafone Passport package,
where you pay a sum for each call but if it is a long call you
just pay the domestic rate beyond that. That is what we want.
The Commission is not there. The Commission's proposal on the
table has neither a consumer protection tariff in it nor an average
retail tariff, and that is where I am in negotiation with my colleagues.
Of course, this is a decision which will also be taken by Parliament,
so it is being considered by two of the committees in Parliament.
Q5 Ms Clark: When you first wrote
to us about these draft regulations last September you said there
was a very significant difference between the Commission's and
the operators' estimates of the overall benefits of the proposals,
and I think the Commission says that its proposals could represent
a consumer surplus of up to £6 billion, whereas the operators
say that is too simplistic and their figures vary between about
£39 million and £187 million. What is your view, in
terms of what is the likely benefit to consumers which these proposals
are likely to have?
Margaret Hodge: I will turn to
Nigel in a minute, but I think it is very difficult to do these
estimates. Let me give you one example. I think if roaming prices
dropped more people will take their mobiles abroad and use them,
so probably there is a depressed market. So if the prices drop,
people will feel much more confident about using them. People
are frightened by the high prices at the moment, so we cannot
actually tell. Our view is that we could probably cut the prices—and
this was when we started on this—by 40/50%. I am not even
sure whether that is not overly conservative, but we do not really
know. There are loads of figures floating around as to how many
people roam and I do not think I have got a very good estimate
of it.
Mr Hickson: Just very briefly,
there have been many estimates, as the Minister has said. The
Commission estimate was challenged by a number of independent
analysts in that it did not take into account, in terms of welfare,
the possible effect that if you reduce prices for roaming to the
extent that the Commission was proposing the prices in other areas
of the mobile sector would go up.
Q6 Chairman: We will explore that
issue later on in our questions.
Margaret Hodge: But we have not
got a view on it.
Mr Hickson: No, there has been
no absolute analysis of what the exact figure is.
Q7 Mr Hoyle: One of my favourite
topics is to know whether, as we look at the Commission's proposals,
these will include or exclude Gibraltar, and if you are in Gibraltar
will Spanish roaming charge you extra?
Margaret Hodge: No, they will
not be able to. If we get our proposition through—in fact
the Spaniards do want the existing system to prevail because the
operators in Spain make quite a lot of money out of it, because
a lot of us go to Spain, so it is quite a nice earner for them,
but if this becomes a regulation their national regulator will
have to ensure that the roaming charges, the tariffs of people
in Spain, whether it is in the average or whether it is on the
consumer protection tariff, are meeting that set by the Commission,
and it will be reviewed each year by the Commission.
Mr Hoyle: But will it allow Gibtel
to be included?
Q8 Chairman: Gibraltar Telephones.
Margaret Hodge: Yes. I do not
think anybody is left out.
Q9 Richard Younger-Ross: Just following
on this spill-over, and just going the other way rather than coming
back into the domestic market, about the impact upon other foreign
markets and whether there is any likelihood that the EU has considered
how this legislation, once we may have it in place, might be developed
in those other countries we have trade agreements with and whether
we might have reciprocal arrangements. Can I just say, for example,
that on one trip—not a country we have reciprocal arrangements
with particularly, but for example on a foreign affairs trip to
China and Tibet my mobile phone bill for the month was £500.
I know that other people have equally exaggerated charges in other
countries which do have relationships with the UK. Can anything
be done about this?
Margaret Hodge: I hesitate to
answer that question because there has been such enormous difficulty
in finding consensus between the Commission and the 25 Member
States, and the various committees of Parliament. We are all in
a slightly different place at the moment and we have got to try
and get into the same place to build that consensus, but I am
tempted to say that if we get this one right, I have no doubt
that Viviane Reding will seek to extend what she can do elsewhere.
Chairman: Good.
Q10 Mr Heathcoat-Amory: From what
you say this regulatory package has now become a kind of bargaining
process between you and the Commission and other Member States.
Is this not an extraordinary way to try and regulate a very complex
and changing industry like telecommunications? Are there not going
to be a lot of unintended consequences about innovation and also
about other price changes as operators try and recoup their lower
revenues from increasing charges elsewhere? The politics may be
right, but regulation is quite a delicate matter and I am slightly
alarmed that you have these very big differences with the Commission
and it is all going to be sort of fought out in the political
arena. I do not really think this is a very clever way of regulating
something as important as this.
Margaret Hodge: As with us here
in the domestic arena, we have to build a consensus and that is
what we are in the process of doing. You are quite right to say
this is a really complex issue of regulation. It is very important
we do not get unintended consequences, which is why it has taken
longer than the Commissioner would have liked, but I think we
are closer to getting it right now. I think we are building a
consensus and you have got the Spanish interest, which is different,
and you have got the Commissioner's interest, which is different,
and you have just got to find a way through that which brings
all the stakeholders and the parties together. On your unintended
consequences point, it is a point well made and our great fear
with the initial proposition put forward by the Commissioner was
that there would be unintended consequences, that she was trying
to drive the price of roaming down so hard that it would have
just that impact on other tariffs, that it would hit our domestic
tariffs, and that if the operators were losing money on one they
would put up their charges and prices on the other. Of course,
changes to domestic tariffs will hit probably the least well-off
in our society, so it is precisely around those issues that we
have entered into negotiation. The other thing to say to you,
where you are also absolutely right, is that this is very technical,
which is why I am extremely well supported by my officials, but
it is very important that the actual calculations around the level
which we set all these different tariffs reflect fairly the consumers
interests but also ensure that it is reasonable to the operators,
precisely for the reason that we want to maintain competition
and innovation.
Q11 Mr Heathcoat-Amory: That is a
useful reply. Building on that, most of my constituents do not
go roaming around Europe. This may be an obsession for the European
Commission, thinking that we all should be, but most of the people
I know make domestic calls within the United Kingdom and we have
got to look after those. That must be your prime responsibility.
Can you give me any kind of assurance that the pre-paid tariffs,
and so on, will not suffer, will not go up as a consequence of
what is coming out of Brussels?
Margaret Hodge: First of all,
let me just say, I do not know about you but I do not let my children
take their phones abroad because I am scared about the bill they
will come back with. So if they do go on holiday to Spain, or
wherever, you try and ensure that they do not use their telephones
because they will not be able to pick up the bill. However, if
we are successful in reducing those roaming charges, actually
it might open up that market to consumers who currently feel that
they cannot enter into it, so I would just put that proviso. Are
we being careful, which is the real meat of your question, to
ensure that we protect domestic consumers, particularly those
who might go for the pre-paid type packages, who again tend to
be the less well-off? Yes, we are, which is why we are entering
into these very detailed technical negotiations about the absolute
levels and also why we think our package with average roaming
charges, the consumer protection tariff, transparency and rigorous
control over wholesale tariffs is the right approach. It was precisely
for those reasons that we were unhappy at the start.
Q12 Jim Dobbin: Minister, you appear
to be concerned about the possible negative effects of the proposed
level of various price caps. You are talking about the wholesale,
retail and party charges. In your Explanatory Memorandum last
September you said, and I quote, that although the "comparatively
small gap between the wholesale price of a call and the maximum
price that is currently proposed that mobile network operators
should charge consumers", suggesting that 30% could represent
a reasonable mark-up. The imposition of the retail cap as a "maximum"
rather than as an "average" would, do you not think,
potentially have negative effects for consumers and could potentially
deter innovation by operators? I would be interested to know if
you are able to expand on that?
Margaret Hodge: Yes, and again
I hope Nigel can help me on this one. The original mark-up was
too low and did not reflect, for example, the costs of operators
around advertising, marketing, those sorts of issues, which we
need to cover. We think in our negotiations, certainly under the
German presidency, that we have now got the mark-up about right.
We have got it at that 30% level. We still have to see whether
that commands the broad consensus in all the four that we have
got to get agreement through. You are absolutely right to suggest
that if we do not get it right and if we simply had a maximum
retail cap, which is what the Commission was very keen on, I think
that would inhibit competition and would prevent innovation taking
place in the market. This is one of those markets where innovation
is utterly key because it is changing so fast and the technology
is developing so quickly that really we benefit a heck of a lot
from the innovation that is around and we just do not want to
stifle that at all. I do not know if you want to add anything
about the 30%?
Mr Hickson: Yes, if I could briefly.
The Commission's proposal, as the Minister said, was an absolute
retail maximum, at 30% above the wholesale maximum. That, on our
analysis and on the analysis of Ofcom, the national regulatory
authority which we worked very closely with on this dossier, is
just too small a margin to take into account the operators' costs
in this area. So we have concluded that if we did have a 30% mark-up
on maximum terms then we would fall into the spill-over effect,
which various members here have mentioned, with the effect on
the domestic marketplace. The approach we are now taking, as the
Minister has outlined, is to support a consumer protection tariff
which would be available to everyone. It will be a tariff of,
approximately, 50 cents for outgoing calls and 25 cents for incoming
calls and that will be available to everyone to choose. If someone
did not choose that, then they might choose another package, but
overall the operators' aggregate charges must be under a retail
target, which at the moment in the Council negotiations is around
40 cents. So there is protection if you take the consumer protection
tariff and there is protection if you opt into another type of
package.
Q13 Richard Younger-Ross: You said
earlier that there were still some differences to be ironed out.
One of them appears to be the concept of a "sunrise"
clause. France was in favour of that, but now apparently it is
not. Could you say how the clause would work, what its benefits
would be and what the advantages of it would be?
Margaret Hodge: Let me be absolutely
honest. When we started on this negotiation we were completely
convinced of the need for regulation around wholesale tariffs.
We were less convinced for the need around retail tariffs and
we would have preferred to have had a period in which operators
could demonstrate that they were bringing down retail charges
without regulation, and if they failed to do so then regulation
would kick in. That was our initial position. That does not command
much support in the Council, and I think it is because people
want political certainty that prices will actually fall, and I
can understand that. We have conceded that point. Indeed, just
taking you back a little bit, the Commissioner, when we first
put our principles on the table, was not too pleased with us and
said that what we were doing was deliberately delaying the reduction
in prices, which of course is not where we want to be. Indeed,
the proposition we have now got on the table would reduce prices
to consumers more quickly than the Commissioner's proposition
because we would say that after the regulation is agreed in two
months we would get wholesale price regulation in and in three
months we would get retail price regulation in. The Commissioner
would have gone for six months for the retail price, so we are
bringing that forward. However, there is still a discourse to
be had in Europe around what is called a "sunset" clause,
which means that a regulation would only be in place for three
years and then would fall, and there would have to be agreement
in the Council with the Commission and with Parliament to put
that regulation back in place, and a study would be undertaken
18 months into the regulation to see whether or not there was
justification for renewing the regulation.
Q14 Chairman: Thank you. Just to
note, the European Consumers' Association, BEUC, has said in fact
there is no evidence that roaming charges have fallen in recent
years, disputing the operators' claims that prices have come down
without legislation. They have said that there has been a proliferation
of special offers—and I am sure everyone in this room knows
about these—but they are available only to a limited number
of users for a limited period. In other words, if you can find
them, you can use them, but they are not available to everyone.
In that same article I note that just in the last week France
has now withdrawn its position. You said in your correspondence
to us that there were supporting proposals with the UK and they
are now supporting caps on all types of calls and no longer support
the UK "sunrise" clause proposal. Is this your understanding
of the French position and that basically the UK now stands alone?
Margaret Hodge: Can I firstly
say that I think we would dispute the fact that charges have not
come down, and it might be helpful if I drop the Committee a note
before you complete this on our evidence of the reduction.
Q15 Chairman: You gave us some examples
at the beginning, but the point being made by the BEUC is that
it is only for certain customers and only if you can find them.
Margaret Hodge: We do not think
that is right, but can I write to you about that?[1]
Q16 Chairman: Most certainly. I am sure
the public would like to know about it as well, because they will
go and find these wonderful charges!
Margaret Hodge: There is a thing
about transparency, and we may return to that. The French and
the British are in the same place on everything except for that
issue of the "sunrise" clause, which I said we could
not find support for, and that is because I think there is the
issue about political certainty. So we agree with the French that
there should be a cap on an average wholesale price, and I think
technically we have agreed where that is. We agree with the French
that there should be a consumer protection tariff with a cap on
it, which consumers can opt into—and you may wish to return
to that because that is an issue of contention—and we agree
with the French that there should be an average retail tariff
as well which will be expressed as a cap in the regulations. So
there is no dispute with the French on anything except for the
issue that the regulation should be brought in immediately and
there should not be a six month wait. That is the only area where
really they have not stuck with the original principles.
Q17 Chairman: So the report that
the French in fact have indicated it will drop its opposition
is not correct?
Margaret Hodge: No.
Q18 Chairman: The press obviously
are found wanting on that. Can I just give you some other facts
which I think should be on the record? The BEUC position is that
there is no argument for roaming charges which should be higher
than 33 cents per minute for international calls, 25 cents for
local calls and 16 cents to receive calls from abroad, which is
considerably lower than the proposal put by the Commissioner and
almost half the proposal which would appear to be now accepted
by the French. So there is still some way between what the governments
are willing to give (and I presume that means what the companies
are willing to give) and what the Consumers' Association of Europe
thinks the charges should be. I think that shows the divergence
between what the public's representative organisation believes
the charges should be and what this deal may turn out with, which
is still worrying for me, certainly, as a regular roamer and a
high tariff payer. Can we move on from that? I think it is very
interesting to see what the consumers think of what is on offer.
Margaret Hodge: I would put an
"if" into that. If you look at roaming charges in isolation
without thinking about the impact they could then have—if
the operators lose money on that they will get it on something
else. We all have free mobiles here, for example, and our charges
on domestic tariffs are pretty low. That is our concern. The technical
argument, if I am honest with you, Chairman, I leave to the officials,
to make sure that in relation to the evidence we have got as to
what is a fair price to set that is correct. I do not know if
you want to comment on that, but it is just that we are not trying
to do in the consumer, far from it. We support this regulation
because we recognise that you need a regulation to drive prices,
but you do not want to knock out innovation, competition, and
you do not want unintended consequences.
Chairman: I think we will just
leave it at that. Obviously we have heard the Government's position
and it is worth putting the consumers' position on record as well.
Q19 Nia Griffith: If I could just
return to something you have already touched on really, which
is what is actually happening now in the European Parliament,
I understand that you have been doing some lobbying of the two
committees, the Industry, Research and Energy Committee and the
Internal Market and Consumer Protection Committee, and perhaps
you could just give us an update of exactly where we are up to?
Margaret Hodge: As Nigel Hickson
is leading on that, perhaps he can say where we are at, because
he was there yesterday.
Mr Hickson: Yes. Both committees
you have mentioned have come out with draft opinions on the regulation
and amendments are being tabled as of now, I think, before 9 March,
which is the deadline for both committees' amendments. The opinions
vary to an extent, but both opinions build on the Council's position
of having a wholesale cap, of having a consumer protection tariff,
as the Minister has explained, and on having an average retail
charge. There are differences within the committees on exactly
how those will be calculated and the exact numbers within them,
but by and large there is agreement on those building blocks,
as there is on the building block of transparency which both committees
and the European Parliament have also commented on. Discussions
are going on between the presidency, the German authorities, and
the European Parliament to try and reach a consensus so that we
might be able to agree a regulation before the summer.
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