Memorandum by Vodafone
SUMMARY
In 2003, Europe adopted a coherent framework
for the regulation of telecommunications prices under Article
95 of the Treaty. This framework requires independent telecoms
regulatory bodies to demonstrate market failure in accordance
with well-established EU competition law principles before they
can intervene in markets. All 10 of the specialist European telecoms
regulators who have examined roaming carefully under this framework
have found no market failure. Prices fell by 25 per cent last
year[2]
and the mobile industry is generally regarded as one of the most
dynamic and successful in Europe over the past two decades.
The Commission now proposes to adopt a new regulation
outside the ambit of the 2003 framework and to rely upon Article
95 of the Treaty to do so. Vodafone believes that this is both
unlawful and unnecessary. Further, Vodafone believes that if the
Commission's proposals were to be adopted in their current form
they would be positively damaging to the industry and its customers.
The Commission's proposals are unlawful for
the reasons provided by former Advocate General Sir Francis Jacobs
appended to this submission. Article 95 cannot be used to regulate
prices in the Community simply because the Commission believes
them to be "too high". A more robust legal base is required,
which the Commission does not have here.
The Commission's proposals are unnecessary because
the same competitive disciplines which have benefited many millions
of European mobile customers over the past two decades are already
evident in the international roaming market. Vodafone has led
the industry in providing lower, simpler to use, tariffs such
as Vodafone Passport. Over 12 million Vodafone customers have
chosen this tariff and have seen their costs fall by 50 per cent
as a result. Over 30 million Vodafone customers in Europe will
see their average cost of roaming fall by 40 per cent by April
this year. Price regulation is normally needed when dealing with
monopoly suppliers, but in this case it is clear that competition
is already delivering a better solution.
The Commission's proposals are not simply superfluous
but positively damaging. They would render existing tariffs such
as Vodafone Passport illegal and would force customers with different
needs across 27 different Member States to instead adopt a "one
size fits all" tariff. This is not what Vodafone's customers
want or expect. The proposals would also confiscate much of the
competitive advantage which Vodafone has built up in recent years
and which we have been able to apply to the benefit of our customers
and our shareholders. We consider this unjust and unfair.
If regulation is to be applied, albeit unlawfully,
then it must be applied in such as way as to facilitate competition
and choice rather than subverting them. The principles of good
regulatory design are well known and there is emerging consensus
around more workable solutions. These involve the use of average
caps to ensure that retail prices fall overall whilst operators
retain flexibility to offer different tariffs to different customers,
combined with a "safeguard" Consumer Protection Tariff
to ensure that no individual customer need pay more than regulated
levels if they cannot find a better competitive option.
INQUIRY QUESTIONS:
(i) Do you consider charges for making and
receiving calls on mobile phones when in a different EU Member
State to be appropriate or excessive, as some have argued? Do
you think there is currently sufficient competition in the market?
Vodafone has 30 million customers who roam in
Europe. Since the summer of 2005 these customers have seen their
cost of roaming fall by more than 20 per cent on average. Vodafone
has committed that prices will have fallen by 40 per cent by April
2007. This means that Vodafone's customers will pay an average
of less than €0.45, or 30 pence, per minute by April 2007.
This is not excessive and is in fact close to or lower than the
sorts of prices now being proposed by regulators.
We have also simplified our tariffs so that
customers can be more confident about how much roaming will cost.
12 million of our 30 million roaming customers have chosen to
take our "Passport" tariff which allows them to pay
a one-off additional fee but otherwise to pay their normal domestic
rates when roaming. Our competitors have responded with similar
tariffs.
Some individuals can and do pay high roaming
prices in Europe even if most do not. This is true in most markets.
Yet if we consider the market as a whole rather than anecdotes
then the evidence is that it is performing well. This is not surprising
since the European mobile sector has been vigorously competitive
for many years and roaming is an important part of that competitive
mix.
(ii) Is it appropriate for the Commission
to introduce legislation to cap the cost of roaming?
No. Vodafone believes that the Commission's
proposals are unlawful and unnecessary. Further, if the Commission's
proposals were to be adopted in their current form they would
be positively damaging to the industry and its customers.
The Commission's proposals are unlawful for
the reasons provided by former Advocate General Sir Francis Jacobs
appended to this submission. Article 95 cannot be used to regulate
prices in the Community simply because the Commission believes
them to be "too high". A more robust legal base is required,
which the Commission does not have.
The Commission's proposals are unnecessary because
competition is already achieving the lower prices that the Commission
intends to achieve through regulation. The Commission's proposals
are not simply superfluous but damaging. They would force us to
withdraw tariffs like Vodafone Passport which millions of customers
have chosen and force them instead to accept the same "one
size fits all" tariff across Europe. This is not what customers
want or expect. Vodafone would also be forced to forego strategic
advantages built up and paid for by private shareholders over
many years. We consider this unjust and wrong.
(iii) Do you think that the mobile telecoms
industry has done enough in the last two years to address, through
self-regulation, concerns expressed by the Commission? Are National
Regulatory Authorities in a co-regulated environment able to address
these concerns on their own?
The mobile industry has taken some important
initiatives to improve transparency in the roaming market in 2006,
notably through the launch of a website to allow customers to
compare the roaming tariffs available from individual operators.
However, Vodafone believes that competition, not self-regulation,
will address the Commission's fundamental concerns. Our answer
to question i above explains how and why it is doing so.
The industry does need to communicate more effectively.
That is why in May 2006 Vodafone took the unusual step of saying
publicly that we expected our prices to be 40 per cent lower by
April 2007. We also announced wholesale prices which would allow
both us and our competitors to offer lower retail prices in future.
(iv) Does the proposed Regulation risk narrowing
down the space for competition and thereby harming innovation
and investment in the sector?
Yes, for the reasons described in our answer
to question ii. Vodafone would be forced to write off major investments
in precisely the kind of innovative tariffs which the Commission
says it wishes to see (but which the Commission's proposed regulation
would force us to withdraw). Good regulation should encourage
innovation not punish it.
(v) Do you think that the pressure for lower
roaming charges could potentially spill-over into higher prices
for other mobile telephony services? Would you anticipate any
other unintended consequences that may affect consumers?
Regulation is not without consequences, particularly
in markets which are vigorously competitive. Most experts accept
that "rebalancing" (ie adjustments in other tariffs)
or service limitations (ie limitations on the availability of
roaming services) are likely if prices are regulated to levels
which did not allow operators to recover their costs. Previous
attempts to regulate other mobile tariffs—so called mobile
termination rates— resulted in similar "rebalancing"
which is well documented by national regulators.
(vi) Do you think the proposed regulation
will allow non-EU operators to take advantage of lower wholesale
roaming prices in the EU through international trade agreements
and arbitrage opportunities?
Yes. Vodafone believes that competition in the
European market and the availability of technologies would allow
non-EU operators to access lower wholesale rates without needing
to rely upon international trade agreements or to offer lower
prices to EU operators in return. This would mean non-EU operators
have lower roaming costs than EU operators with whom they then
compete in the global market for multi-national customers.
(vii) Is the Commission's estimate that 147
million citizens are affected by excessively high international
mobile roaming charges accurate? Do you have any other figures
to offer?
The Commission's estimate in its Regulatory
Impact Assessment that 147 million citizens roam is one of the
few plausible figures in that Assessment. However, Vodafone does
not accept that all, or even many, of these citizens pay charges
which are "excessive"—see our answer to question
I above.
The same Regulatory Impact Assessment assumes
that in the absence of regulation roaming prices will fall by
up to 18 per cent, notwithstanding the fact that Vodafone had
already publicly committed to reducing its prices for 30 million
customers by at least 40 per cent. We do not believe that the
Commission should be entitled to ignore evidence of this kind
when undertaking an RIA.
(viii) Do you think that the UK and French
proposal for a sunrise clause during the intial period after the
Regulation comes into force can better achieve the desired effect?
Should legislation apply solely to wholesale fees rather than
retail tariffs?
Vodafone believes that regulation of both wholesale
or retail fees is unnecessary. However, regulation of retail fees
is more likely to damage competition (because most of the innovation
occurs in retail rather than wholesale prices and the ability
to differentiate between different types of customers is more
important for retail than wholesale customers).
Vodafone sees considerable difficulties with
the "sunrise clause" approach since this still requires
the imposition of a regulatory target to trigger the "sunrise"
and is, therefore, retail regulation in a different guise.
(ix) Do you believe that separate sub caps
for making and receiving calls should be applied or a single average
cap? Should the linkage between Mobile Termination Rates and wholesale
prices, and percentage mark-ups for determining retail prices,
be retained or should target prices simply be included in the
regulation?
Vodafone has proposed extensive amendments to
the Commission proposals. Our view is that the retail cap should
be simplified into a single average cap to deliver lower roaming
prices to customers in general whilst allowing operators flexibility
to offer different tariffs to meet different individual customer
needs. The concern that some individual customers might still
end up paying very high prices can be addressed by the addition
of a simple "safeguard" Consumer Protection Tariff which
customers can choose if they wish.
The use of Mobile Termination Rates to establish
reasonable benchmarks for the cost of providing wholesale roaming
services is sensible, but Vodafone believes that, if it is to
be applied, the regulation should include straightforward target
prices rather than formulae. This avoids legal ambiguity and allows
easier communication of the consequences of regulation to consumers
by both policymakers and mobile operators.
Attachment 1:
Sir Francis Jacobs QC, Opinion, Proposal of
the European Commission to Regulate International Roaming Charges
under Article 95 of the EC Treaty*.
* Please refer to http://www.parliament.uk/parliamentary_committees/lords_s_comm_b/eubwrevid.cfm
2 GSMA Response to the House of Lords Select Committee's
Inquiry into the European Commission's Proposed Caps on Mobile
Telephone Roaming Charges, February 2007. Back
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