Examination of Witnesses (Questions 100-106)
Mr Alex Blowers, Mr Jim Niblett and Dr Yih-Choung
Teh
19 FEBRUARY 2007
Q100 Lord Dykes: Do you feel the
need for a mechanism, in all of this process, which the Commission
needs to develop, therefore, to prevent the companies now seeing
their super-normal prices and super-normal profits receding in
the wholesale and retail areas, as already established in the
major markets, transferring to the smaller markets of the more
recent Member States, the ten, and then the two, from Bulgaria
and Romania? Although they are very small in comparison with the
existing 15 markets, nonetheless there might be an attempt by
the companies to move in there to get some super-normal profits?
Mr Blowers: I think that is why it is important
that this regime is sufficiently consistent and sufficiently rigorous
in its application that it applies in all countries. One way of
thinking about the question that you have raised would be if there
was a much laxer regime inside the countries then an obvious way
for operators to ameliorate the impact would be to move into those
countries and benefit from a laxer regime. Clearly, this regime
will apply and will apply on the same terms throughout the EU
27.
Q101 Lord Dykes: That can be constructed
satisfactorily, do you think?
Mr Blowers: I am absolutely sure that the proposal
which we have been helping to construct, which has the features
we have been describing today, offers the best likelihood of all
regulators, in all countries, some of which certainly do not have
the resources of Ofcom and the expertise of my colleagues, creating
a regime which it is possible for everybody to operate relatively
simply. Although some elements of it sound a bit complicated,
actually the calculations on which we are relying are pretty straightforward;
at least, that is what Yih-Choung tells me.
Q102 Chairman: I think it would be
helpful, subsequent to this hearing, Mr Blowers, if someone on
your staff could produce just a short note on averaging?
Mr Blowers: Absolutely.
Chairman: We are now getting
down to the detail and it is very important in contrasting the
Commission's proposal, which is a specific cap based on averages,
and the averaging of the operators' tariffs producing a cap or
a maximum rate which can be charged.
Q103 Baroness Eccles of Moulton:
Would the averaging be applying only to retail? It applies to
both, does it?
Dr Teh: What we believe is appropriate is, firstly
at wholesale, the key area, as my colleague has been saying, that
would be an average cap in the way I described. At retail, as
we have said, we think a Consumer Protection Tariff, one particular
tariff, would be appropriate. It may be necessary to have an average
control as well at retail. I think what we believe is probably
the worst thing is to have a maximum control at retail which is
too low, which then would prohibit a number of the tariffs that
we see already in the market-place which are rather useful.
Q104 Lord Fyfe of Fairfield: We have
talked about above-cost pricing, and so on and so forth. In this
document here, produced by GSMA, it talks about mobile `phone
operators' average return on capital being now round about 8.1
per cent, compared with 9.2 per cent in the same period in 2005.
On the face of it, at least, that does not seem an excessive return
on capital?
Mr Blowers: I think what we would find is that
the returns specifically in this area are much higher than that,
for this particular product.
Q105 Lord Fyfe of Fairfield: This
is the puzzling point, you see, because this document refers to
roaming but it does not specify roaming in this little paragraph.
Have you any idea then, on roaming, what would be the return on
capital?
Dr Teh: I think that is a very difficult calculation
to perform, not only for us but for the operators, because obviously
you need very specific and detailed accounting information or
other information to get at that disaggregated level. As we have
said, we think some of the prices are an awfully long way above
what would be a reasonable cost and return on that, which makes
us concerned about the roaming prices, whereas those figures would
seem appropriate in aggregate.
Q106 Lord Geddes: If that is so,
if 8.1, just to use that as the illustration, is fair but roaming
is too expensive, the implication is that the cost of roaming
must reduce, and therefore the cost of something else has got
to go up. There is no such thing as a free lunch. What is going
to go up if roaming comes down?
Mr Blowers: There is a dreaded expression used
in the industry, called the water-bed effect, which describes
exactly this putative phenomenon, that if you push down on one
side it goes up on the other side. All we can say is, on that,
the analysis suggests, because the rest of the market, what we
said at the beginning, a mobile market in aggregate actually is
very competitive but the scope for raising prices in other areas
to compensate for reductions in prices in roaming is quite restricted.
I think there is a wider industrial policy debate about this,
which is if you drive down roaming prices and then the next time
some other price that you do not like the look of, you are driving
down everything to cost, is that an effective regulatory regime
in aggregate? Does it drive profit out of the system in a way
which, long term, discourages investment and innovation? I think
that is a reasonable concern and it is why it is very, very important
to set these prices into regulation in a way which is realistic,
not too low. It goes back to what we said at the beginning, that
in this case we see a particular group of consumers who have encountered
consumer detriment over a number of years and it is not unreasonable
to be intervening to correct that, provided that intervention
is proportionate, but we do have in mind that wider concern about
not regulating innovation and investment out of the system.
Chairman: That was a very
appropriate question for Lord Fyfe to end on. Thank you very much
indeed for your evidence; very clear. We look forward to that
extra note. Indeed, when you read the evidence, if there is anything
you want to correct or supplement please do so.
19 FEBRUARY 2007
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