Examination of Witnesses (Questions 40-46)
Mr Steve Jordan, Mr Nick Blades, Mr Christian Salbaing
and Mr William Pedder
5 FEBRUARY 2007
Q40 Baroness Eccles of Moulton: But
we are then getting rather far removed from real cost, are we
not, because this in a way is a transaction cost, which is not
related to the real cost of providing the service? This is where
the customer gets really confused because in their heads they
are thinking, "Why is it that this signal has to keep dashing
backwards and forwards between one country and another, and I
am having to pay for it twice?" Actually, it is because of
the wholesale relationship between the operators.
Mr Salbaing: You are correct, and since not
all operators charge at the same wholesale prices to other operators,
the customer ends up—unless he has the means to find out
the cost at the moment he makes the call, which is not always
easy—he is a bit hostage to whatever operator he is on when
he is roaming. You are entirely correct.
Q41 Baroness Eccles of Moulton: But
different operators could be having to pay different real costs
in the first instance, depending on whether they are Romania or
Czechoslovakia or Italy or wherever.
Mr Salbaing: For example, 3 UK pays more wholesale
in Spain than some of our competitors in Spain who also happen
to be our competitors in the UK charge retail to their own customers.
Mr Pedder: My Lord Chairman, we have a short
note on this that we can leave with the Committee, on the operation
of the market.
Q42 Lord St John of Bletso: What is your
view of the British and French proposals made at the December
Council?
Mr Jordan: Helpful in part! I think we support
attempts to simplify. We would support single caps rather than
multiple caps. We support averages in preference to fixed caps.
However, that does depend upon the level at which they are set
because our whole concern here is that there is sufficient headroom
in all of these arrangements that competition can work. Therefore,
there were some helpful parts in there. We strongly believe that
the consumer protection tariff is the main element that should
be pursued, and we do not think that that averages for retail
should be in place; it should be wholesale and a protection tariff
for customers so they know what they would pay at the retail level.
Always the issue is what exactly are the numbers that will be
dropped in to the caps that are applied.
Mr Salbaing: Without getting into the details,
I believe that that proposal indicates a reluctance to go too
far on retail regulation, to keep things as flexible as possible.
We would agree with that, simply because we are not in favour
of retail regulation per se, and we believe that there should
be enough flexibility in the market for operators to compete.
The interesting thing in that proposal is the way the UK is proposing
a wholesale cap of 25 cents per minute, which, again, we agree
with as a benchmark for wholesale costs. We are generally in favour
of that proposal.
Q43 Lord St John of Bletso: So what would
your views be on the proposal for a sunrise clause?
Mr Salbaing: I am not quite sure. The sunrise
clause is a bit of a nebulous proposal at this point; it is not
quite clear what the triggers would be. It seems to be a process
towards a result as opposed to a concrete proposal. I believe
that if we fix the fundamental problem of the wholesale cap, a
sunrise clause will be unnecessary because operators that wish
to compete in the market will immediately react and reduce retail
prices. From our perspective, I am not quite sure if the sunrise
clause achieves anything concrete. On the contrary, it can introduce
complexity to clauses.
Mr Jordan: The original concept of the sunrise
was something that was a test outside of the regulation which
would say whether the regulation was applied. Having it brought
into the regulation means it is not a sunrise; it is a two-stage
regulation, a test and then a subsequent test. So calling it a
sunrise is not accurate any more. You might say it is an incentive
regulatory target. Again, it depends what the level is. It is
complicated.
Q44 Lord Dykes: Obviously, I have
not seen your own documentation so I am probably way off the mark
here, but would your concept of the consumer protection tariff
be a transparent measurement of all the inputs and the costs and
so on and the final price to the consumer—or how would it
look?
Mr Jordan: It would be a tariff that would be
open for any customer for free to select. It would be set at something—at
the upper end of the retail regulation because it needs to have
headroom, and below it there will be competitive tariffs that
they can choose. It says, "you will not pay more than 60
to 65 cents maximum" and that is it.
Q45 Lord Dykes: Would the various
cost inputs in that be visible and measurable?
Mr Jordan: No. This is where you have to be
very careful. I think there is a slight error here—not error
but it is the terminology with costs and price and charges. At
the wholesale level there is a market, and operators negotiate
prices and they will depend not just on their costs, but costs
on which vary. Take the case of Spain: if somebody is willing
to commit traffic and through technology now they can do that,
and say "we will guarantee you X amount of traffic"—it
does not necessarily have to be volume—it is about commitment
of that volume—then you get a better price. It is like anything
else in the world. If you commit to something you can negotiate
a better price, because we then know more confidently what investment
we have to put into infrastructure. It is not just saying the
cost is X and therefore there is a market in operation there,
where the costs vary, depending on geography coverage. For example,
if you take UK to Spain, Vodafone and O2 both have networks in
those countries. Should Vodafone therefore pay the same to overflow
their traffic when they have not built their network out, on to
the Telefónica's network in Spain, or should they pay an
opportunity cost? There are different reasons. They have a network
so they should be using that network.
Q46 Lord Dykes: But then the temptation
would be obviously to have a CPT that was set somewhat too high
in comparison, and it might have been with real, full competition
and perfect information in the market.
Mr Jordan: We think the consumer protection
tariff is exactly what it is; a very clear guarantee to customers,
very clear and very simple: "You will pay no more than this;
sign up to that." It is not the only tariff; we have competing
tariffs now where you can choose to have alternative tariffs,
so it gives flexibility to protection to customers if they are
concerned about paying very high bills, or they want to consider
about paying very high bills.
Chairman: We are coming
up to a division, so this might be a convenient moment to ask
if colleagues have any other pertinent points to make. If not,
thank you very much. I think our knowledge has doubled in terms
of understanding a very complicated set of economic statistics
and facts. Do look at the record, and if there are points of clarification
perhaps the Clerk would be in touch with you and vice versa. The
hearing is closed.
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