Supplementary letter from Vodafone
I am very grateful to the Committee for providing
an opportunity to present oral evidence on 19 February. We discussed
most of the important issues in relation to the European Commission's
proposals for a regulation on international roaming, but I thought
it might assist the Committee if I were to provide this short
supplementary note summarizing the main points of my evidence.
I emphasised that retail price regulation, in
whatever form, is normally associated with regulation to protect
consumers from the exercise of monopoly power, often in utility
industries. There is, I think, general agreement that the European
mobile industry cannot be characterized as such and that there
is ample evidence of vigorous and robust competition in our industry.
The question then arises as to why the Commission
nonetheless wishes to apply such prescriptive proposals to such
a competitive industry? Our response is that the Commission misunderstands
the nature of competition and the way in which competition sets
prices. We discussed the fact that the mobile industry is characterized
by a complex set of cross subsidies between different services
(including subsidies which mean that handsets are often sold below
cost). These services earn different levels of return and contribute
to an overall return for the mobile operators which, as we heard
during OFCOMs evidence, cannot be regarded as excessive. It is
true that prices for international roaming services can be relatively
"high", but this is so because the "low" price
of other services is of greater importance for customers.
I believe this is a critical point for the Committee
because it goes to both the implications and legal basis of the
Commission's position. As I explained in my oral evidence, the
European Union has already adopted and implemented a legislative
framework for the regulation of telecommunications markets including
roaming. This framework requires that "significant market
power" (which equates to the conventional EU competition
law test of "dominance") be found before sanctions of
the kind now being proposed by the Commission can be applied to
firms. For the reasons described above, no such significant market
power has been found in any wholesale or retail market for roaming
(despite a seven year enquiry on the part of the EU competition
authorities and recent reviews of the markets by at least ten
national telecoms regulators). The prices that we observe in this
market are the consequence of the overall competitive process.
In the absence of any demonstrated "market
failure", the Commission must seek an alternative legal rationale
for imposing regulation. It seeks to appeal to "consumer
protection" and internal market considerations, but in a
manner which is wholly unconvincing in the view of Vodafone and
our adviser, Sir Francis Jacobs, the former Advocate General at
the European Court of Justice.
The Committee might wish to consider whether,
even if such a legal basis could be established (which we submit
it cannot), it is desirable that the European authorities can
intervene directly to set prices in markets which are competitive,
but for which the outcome of the competitive process is nonetheless
deemed to be politically undesirable. If so, it is possible to
conceive of a wide range of goods for which such arguments might
apply in the broader European economy.
One issue which the Committee might also consider
in this context is the question of legal and regulatory certainty,
and its implications for investment in Europe. Firms invest in
competitive markets in the belief that they will then be free
to set prices for their services in a way which, they hope, will
maximize their prospects of commercial success. It is widely understood
and a core principle of European law that if a firm enjoys a dominant
market position and the ability to price independently of its
competitors or customers then this freedom will be constrained—but
only in these circumstances. Yet the Commission proposes to challenge
this assumption with its proposals to regulate international roaming.
Investors in mobile operators might reasonably wonder which services
will next be regulated. Investors in other European firms might
also wonder which high profile sector is to be next.
21 February 2007
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