Supplementary memorandum by Ofcom
Q. What does an
average cap on roaming charges mean?
An average cap is a ceiling or target level
which must not be exceeded by the prices charged on average over
a specified time period.
For example, suppose a train operator runs services
at different times of day, but is subject to an average cap of
£10 per passenger for a journey, in every month. The operator
may choose to charge higher ticket prices than £10 at peak
times, but less than £10 in the middle of the day when it
is quieter, or indeed charge frequent travellers a discounted
season ticket for the month. The average cap would allow the operator
to set any price for each individual ticket, provided that at
the end of the month the average price charged per journey (for,example,
the total monthly revenue divided by the number of passenger journeys)
is below the average cap level of £10.
Q. Why cap the average charge, rather than
the maximum charge?
Setting an average charge cap allows greater
flexibility and encourages operators to be more efficient and
innovative, since it does not specify a limit on the price that
must be set for every individual charge. At the wholesale level
operators are able to vary their charges to reflect cost differences,
setting higher prices at peak times and lower prices when their
networks are less congested, therefore enabling them to encourage
use of their networks when they are less busy.
At the retail level, allowing operators flexibility
to set different rates promotes innovation by allowing operators
to design and set tariffs according to differing consumer requirements—for
example, allowing some consumers the choice to, pay in advance
for a bundle of roaming minutes so that they do not have to worry
about further charges while on holiday, while allowing others
to pay according to a simple per minute tariff.
Setting a maximum cap, while apparently simpler,
removes this flexibility with the possible result that operators
are motivated to set all their rates at or very close to the regulated
level. Furthermore, under the Commission's proposal for a maximum
cap, several tariffs that are available to the consumer at present,
such as Vodafone's Passport and Orange and T-Mobile's bundles
would be prohibited.
Q. How should this average cap be calculated?
Average charge caps are used in many types of
regulation, and there are different ways in which these can be
calculated. In respect of the roaming Regulation, we have suggested
that an average cap is applied to both wholesale and retail services,
and is calculated on a very simple basis.
Wholesale level
The wholesale average roaming charge for each
operator would be calculated by dividing wholesale roaming revenues
received (from providing wholesale roaming to other mobile operators)
by the number of wholesale minutes sold. The UK has proposed setting
the wholesale average cap at €0.25 per-minute, to be measured
over a period of 12 months. We believe this will allow operators
to recover efficiency incurred costs together with a reasonable
level of profit. By way of comparison, typical wholesale charges
have until fairly recently been at levels around €0.70 per
minute.
| Total roaming revenue in period |
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< |
€0.25
|
Total roaming minutes in period |
|
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Retail level
The average retail roaming charge for each operator would
be calculated in the same way, taking account of revenues and
minutes from both making and receiving calls. Therefore, the average
retail charge would be calculated by dividing the total retail
roaming revenues received by an operator from its subscribers
(for calls made and received whilst roaming) by the total number
of retail roaming minutes used (for making and receiving calls)
by subscribers, over the period specified. This average retail
charge would need to be below the target average cap level. As
for wholesale, the UK has proposed a 12 month period over which
to measure the average, recognising the seasonality of roaming
services.
23 February 2007
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