Examination of Witnesses (Questions 120-139)
Rt Hon Margaret Hodge MBE and Mr Nigel Hickson
26 FEBRUARY 2007
Q120 Chairman: We have had evidence from
some of the operators that they would favour an opt-in rather
than an opt-out.
Margaret Hodge: Opt-in is what we want; you
meant opt-in.
Mr Hickson: Yes; sorry.
Q121 Chairman: So opt-in is the proposal?
Margaret Hodge: Yes.
Q122 Baroness Eccles of Moulton: Presumably,
when the operators have to produce the evidence at the end of
the year that they have hit the target or remained below it, it
is on wholesale and retail? It is going to affect both, is it
not? Does that mean that that information will be in the public
domain so that anybody who wants to will then have a much clearer
idea of how the operators have arrived at the pricing conclusions
that they have asked their customers to pay. At the moment, reading
through all the stuff we have had, it is completely impossible
to understand how on earth they differentiate between costs, charges
and prices. Is this going to help?
Mr Hickson: Yes, it will help. I do not know
whether you asked Ofcom the same question and I am not exactly
sure what information Ofcom will publish but, for instance, you
are quite right, to be able to calculate the wholesale average
and the retail average, the national regulatory authorities, Ofcom
in our case, will have to demand information from the operators.
If the information suggests that that average tariff has been
breached in any one year, then that would be information that
would have to be brought into the public domain.
Q123 Baroness Eccles of Moulton: Only
if they had broken the rule would we be able to know how they
arrived at their various calculations.
Mr Hickson: Ofcom would be very willing to tell
you the methodology for arriving at the figure. It is not simple
because there are lots of tariffs, but essentially, if there are
just two people on a tariff, you know the revenue you are getting
in from the number of people and as the operator you know how
many minutes those subscribers have been roaming, so that is the
ratio you need to feed back to the regulator.
Margaret Hodge: The regulator will have the
responsibility for monitoring to ensure compliance, so the regulator
will need all the complicated calculations both in relation to
wholesale and retail. We, the consumers, will only be interested
really in how much we pay for a call from Brussels to London or
whatever it is and that information will be easily accessible.
What I am anxious that we should do, is that you do not just get
it from the operator that is fielded to you when you arrive somewhere
in Europe, but you do get that choice. So the push-pull system,
as it is called, for getting transparent information to consumers
is important and that will be plain. How it is calculated at the
end of the day, we do not necessarily need to know.
Q124 Baroness Eccles of Moulton: But
that is information that the regulator does not have at the moment.
Margaret Hodge: I do not know.
Q125 Baroness Eccles of Moulton: There
seems to be a lot of cross-subsidisation, like the issue of nearly
free mobiles and maybe cross-subsidy is working within an operator
that we simply do not know about.
Margaret Hodge: Do we need to know? From the
consumers' point of view, whether you are a domestic consumer
or a business consumer, you just want to know your price. How
they arrive at the price is down to them.
Q126 Baroness Eccles of Moulton: I suppose
one thing which has made consumers feel a bit unhappy is that
the exorbitant roaming costs, charges, prices have contributed
considerably to what appear to be very large profits.
Margaret Hodge: Yes, but I am not sure it would
be appropriate, which is why we are now regulated. Once the prices
start coming down, I am not sure it is appropriate for us as consumers
to have the information as to how we end up at the price. You
do not know when you go into Marks and Spencer's or John Lewis
why they have reached the price they have.
Q127 Lord Fyfe of Fairfield: There is
a remarkable difference, if I may say so. One can quite easily
compare the retail price in one shop just by walking along the
street and seeing it in another; it is not transparent at all
as far as roaming is concerned, certainly not in the present framework.
Margaret Hodge: I agree that we need transparency
about the tariffs that we are charged as consumers. We do not
have that now and that is part of the regulatory framework. I
am with you on that, you can go into Marks and Spencer's, you
can tell the price, you can go into John Lewis and you can tell
the price. You ought to be able to tell the price if you go onto
O2, Vodafone or whatever and we need to do that, but how O2 and
Vodafone arrive at their tariff is not really an issue for us.
As a consumer, you will compare the tariffs depending on whether
you are a frequent user making long calls or an occasional user
making short calls for example.
Q128 Lord St John of Bletso: Do you think
that the pressure for lowering roaming charges could potentially
lead operators to charge higher prices for other mobile telephony
services?
Margaret Hodge: Yes, if we get it wrong. This
is why the way in which we calculate the wholesale average price
and the way in which we calculate both the consumer protection
tariff and the average retail tariff matter. That has always been
one of our great concerns from the start that if we get that wrong,
the people who would suffer most are those who do not actually
roam, do not travel and they are probably the least able to pay
more.
Q129 Lord Mitchell: This is really an
observation. I am a sort of business-type capitalist to the core
and when we have been taking evidence, the thing that has really
struck me in this whole industry is that where there is competition,
which is on the domestic tariffs, it is dog eat dog; it is really
amazing and very, very competitive. On this particular area of
roaming we have had everybody here and it just strikes me it is
a nice little earner for these people and actually they profit
from the fact that nobody really understands it and I am still
not sure that any of these changes is going to make a difference.
May I just give you one example that I have mentioned before to
this Committee but it is just something that really gets me? I
am on Vodafone and they have Passport, which you mentioned. Under
Passport you pay 75p a call if you are abroad and thereafter it
is just the domestic rate. What they never tell you is that actually
it is only if you are on their network, it is only if you use
their network that it happens. I was never told that and I spend
a lot of my time in Italy where you can jump two feet this direction
and two feet the other direction and the network provider changes;
it is one or the other. So you never know which one you are going
to be on, it is never certain what you are going to have and actually
to set your mobile phone so that it automatically selects Vodafone
IT is not something that most people know. The whole essence of
what I have got out of this investigation is that the complexity
of it just makes more and more for them, making huge profit in
this area, and it still does not seem to me that it is ever going
to become very competitive.
Margaret Hodge: I agree with you, that is the
current regime. This is why the transparency provisions are going
to be crucially important and I hope that our own regulator, Ofcom,
will make absolutely certain that there is far, far better information
to consumers so that we can make informed choices. At the moment
that is not in place, it needs to be in place and it needs to
be simple in a way that we can understand. The second thing I
should like to say is that actually the alternative to what we
are proposing—which is not the simplest because we have
sacrificed simplicity to other principles; we have gone for competition,
innovation, flexibility, those sorts of things at the price of
simplicity—the negatives of simplicity, which would be to
let us have one charge, which is probably where Viviane Reding
will tell you she would like to be at, something that is clear
and nobody can muck around with and is absolutely clear to all
of us, is that you can get the figure wrong and then you start
getting all the unintended consequences you have about other people
having to pay for that simplicity. If we get this right, and it
is on the margins, I hope that we will start introducing that
dog-eat-dog competition into the roaming market which is not there
at present. If we get it right, there is a big prize for both
consumers and operators whereas just sticking to the simple one
would stifle that competition and that innovation. If we get the
price wrong—and governments, whether national governments
or the European Commission, are never brilliantly good at setting
the right prices around these sorts of areas—the danger
of doing what looks superficially attractive at this point because
we are all feeling so frustrated, outweighs the difficulties that
we might enter into in this rather more complicated negotiation
and instrument that we are trying to develop.
Q130 Lord Mitchell: A general background
probing question. In the lobbying that presumably the industry
has been undertaking in dialogue with the Government, has the
industry been talking in broad terms with one voice to you or
have they all been adopting their own individual positions?
Margaret Hodge: Probably one voice. There has
not been much difference of view. On the whole it has been one
voice to my recall. It is now a few months since I saw them all,
because I really spent a lot of time with them in the early months.
Can you think of any difference?
Mr Hickson: Some of the operators have different
characteristics and you have heard evidence from some of the operators.
Some of the operators are larger than others and have more cross-European
networks, so they will have slightly different interests in terms
of the level of wholesale and retail charges. On the whole, as
the Minister says, we have been talking to the operators on the
building blocks that we have been outlining and they are broadly
content with those building blocks.
Q131 Lord Mitchell: And is that as true
of wholesale as it is of retail?
Mr Hickson: Yes. As you no doubt heard, initially
the operators would have obviously preferred not to have any regulation
and then, if they had to have a regulation, they would have preferred
to have had it just on the wholesale level rather than on the
retail level. The building blocks we have in front of us now are
broadly acceptable.
Margaret Hodge: There has been an argument over
ensuring there is a level playing field between large and small
operators and we have achieved that by the average wholesale price
tariff.
Q132 Lord Fyfe of Fairfield: We talked
to Ofcom last week and I felt slightly uneasy when we talked to
Ofcom. I wonder whether the Minister would like to comment on
how she sees the relationship between Ofcom and the operators.
Margaret Hodge: I have seen a summary of the
evidence last week; I have not seen a transcript. I have a huge
regard for Ofcom. I have to say to you that in my nine years as
a minister I have dealt with a whole range of regulators and it
is among the very best that we have got. They are extremely professional,
their analytical processes and policies are always very, very
sound and they are jolly fair. I do really rate them so I do not
know quite how they gave that impression. I do not think they
do sit on the side of industry more than the consumer. I find
them a really high calibre regulator.
Q133 Lord Mitchell: It is not a cosy
relationship by any means.
Margaret Hodge: No. I can tell you on other
issues like, for example, spectrum allocation that the operators
come to see me a lot of the time to talk about the mobile operators
who are desperate to get hold of some of the spectrum which is
likely to become available through digital switchover. They are
pretty vocal about how unfair Ofcom is being to them.
Q134 Lord Dykes: Further to that, we
have seen in the press commentaries, both the leading articles
and the factual information and so on, quite an amount of cynicism
amongst the more brutal of our journalistic friends and colleagues,
likening some of the wholesale pricing and nexus arrangement,
which are very, very complicated anyway, to a kind of cartel;
there are many differences so we must be careful where we make
comparisons but a bit like the bank card and credit card cartel
system which the Cruickshank report referred to many years ago
as a splendid piece of cooperative, capitalist working together.
Ofcom have themselves admitted that some of the internal data
and information are very complex to get hold of, to grasp and
really understand. Do you feel that you have confidence that Ofcom
can get the industry to support a more rigorous and democratic
regime for consumers that will be transparent with our European
colleagues?
Margaret Hodge: I do actually feel confident.
One of the reasons, if you look at what has happened in mobiles
since Ofcom has been in place, is that what has happened around
costs and choice for consumers and charges has been pretty impressive
in the UK actually, it has been pretty good. I know that this
inquiry is not looking at that, but Ofcom has responsibility for
regulation across the whole of the telecommunication sector and
I look, for example, at access to broadband. We are about the
only place in Europe that now has nearly 100 per cent access to
broadband. They have managed to create a competitive environment
and yet meet what could have become a digital divide in that particular
instance, very, very effectively. I do have huge confidence in
them. There are issues where we have vigorous conversations and
discourse and we do not always agree, but I have a great deal
of respect for them.
Q135 Lord Dykes: I was thinking mainly
of wholesale.
Margaret Hodge: Nigel may be able to add to
that, but they have done their own research. The operators do
their own research and the operators have been a very effective
lobby, a coherent lobby on this issue around Europe. When I started
on this seven or eight months ago, we were in a very different
place to where we are today. We felt much more isolated then than
we do now, partly because we like to think we have put forward
a pretty rational argument, but I am sure also they have had a
pretty effective lobby across all the 25 European countries to
build with that much better consensus than we thought. I do not
know whether you want to add to the calculation of wholesale.
Mr Hickson: Just two very brief points. One
of the whole problems of this issue, as you rightly say, is the
transparency of the wholesale market and the competition in the
wholesale market and Ofcom as a national regulator did put their
hands up some years ago now and said it was a very difficult market
to regulate. The wholesale roaming market is one of the 18 markets
within the European framework but it is the only one that regulators
have not been able to regulate effectively. So you are right,
Ofcom recognised the problem. Having a wholesale cap, a wholesale
levy in the wholesale market, which it looks like this regulation
will introduce, will give Ofcom the lever to be able to get the
data we were talking about earlier and make sure that every operator
does indeed abide by that cap. I am sure they will, because they
have done it effectively in other areas.
Q136 Baroness Eccles of Moulton: May
we return for a minute to sunrise and sunset because it looks
as though sunrise is probably not going to happen? From what you
tell us, there is enough pressure in the system for the regulation,
however it is calculated, to be put into place as soon as possible.
The thing about sunset is that presumably the confidence, with
which a sunset clause can first of all be put into the regulation
and secondly be used, will depend very much obviously on how the
industry responds to the regulation. Is there any flexibility
in whether or not the sunset clause is actually triggered, or
is it an inevitability once it is written into the regulation
that this will cease to be a regulation on such and such a date,
or will it only cease to be a regulation on such and such a date
if the regulators inform the Commission that all the operators
have been existing within the targets?
Margaret Hodge: It does depend on the behaviour
of the operators and their compliance. I think I am right in saying
that what will happen is that after 18 months we, the Council,
can take a decision, together with the Parliament, because it
is a shared decision, to re-implement it, to keep the regulation
going, to go beyond the three years. So it will not fall away
after three years. We can determine, but we would have to do so
positively, that there is a need for the regulation to continue
to operate. I want to draw something to your attention which is
quite interesting. I shall pick out two sets of figures. Even
from the time before any regulation became a reality—people
in the Commission were making noises about regulation but had
not actually done anything—post Viviane Reding placing her
words before us, there had been quite a substantial cut in tariffs.
If you look at Vodafone on wholesale costs, before regulation
it was 46p per minute; it is now 30p. Orange was 45p and they
went down to 30p in 2006 and are going to go down to 24p in 2007.
On retail, if you take the O2 My Europe tariff just as an example,
before we actually started discussing the nuts and bolts of regulation
it was at 85p and now it is at 35p a minute. On My Europe Extra
it was 94p and it has come down to 25p. So there has already been
pretty substantial movement and my own view is that the operators
will be very, very anxious to get rid of this bit of regulatory
intervention and will comply and more than comply. My hope is
really that it will encourage competition in an area where we
have not had it.
Q137 Chairman: I am sure it would be
sensible if your officials could just check the record for those
figures, because we should like to quote them in our report.
Margaret Hodge: Yes.
Q138 Chairman: May I ask a question now,
a crucial question, because ultimately there will have to be negotiations
to set the wholesale rate, the retail rate and the consumer protection
tariff rate? We understand that on the table from the Presidency
it is 30 cents per minute for wholesale, 40 cents for the average
retail per minute and 50 cents per minute is the absolute cap
that individuals can opt into to protect themselves against excessive
charges. That is what we understand. We shall discover more tomorrow.
We have heard evidence from a number of operators quoting figures
lower than that, which is very healthy. However, my question is
this. We learned from advice given to the Committee before the
session started that the consultation period was relatively short,
so in the absence of comprehensive cost data, as the amount of
data coming forward to the Commission was perhaps not as comprehensive
as in other fields, I just wonder how you are going to agree to
set rates, other than by haggling, without any rational basis
on which to set them.
Margaret Hodge: I am going to leave Nigel to
answer that. There is technical data around, but it is a technical
negotiation.
Mr Hickson: You have quoted the latest rates
in the Presidency paper. The consumer protection tariff had 50
cents for calls made back home and 25 cents for calls being received
when you are roaming. That is what is in the Presidency paper
at the moment and, as you might be aware, one of the European
Parliament committees have commissioned some independent research
from a consultancy organisation and on the basis of that they
are proposing slightly different figures. The Commission also
came out with a regulatory impact assessment and on the basis
of that have produced some figures and just last week the European
Consumers' Organisation produced some other figures on a study
they have taken forward. So several economic assessments have
been made in this area. Ofcom, as I think they would have told
you last week, have also obviously done their research and have
come to a view of what they believe are the costs involved in
this. I appreciate that there is always a difficulty when we talk
about costs and prices and all the rest but Ofcom, on the basis
of their analysis, have said that the operators should be able
to live with a charge of around 25 cents as a basis. Then, as
we discussed earlier, you build the retail tariffs onto that and
Ofcom believe that the retail tariff should be slightly higher
than 40 cents, which is in the Presidency text. The average would
be 40 cents but the consumer protection tariff would be 60 cents
for outgoing and 25 cents for incoming.
Q139 Chairman: I am grateful for that,
because that has cleared it up.
Margaret Hodge: It just shows the difficulty
in Government trying to set tariffs.
| 
