Examination of Witness (Questions 280-295)
Dr Paul Rübig
27 FEBRUARY 2007
Q280 Lord Mitchell: Could we take
another look at some of the basic arguments behind the proposal
for wholesale regulation based on MTR, multiplied by the factor
X, leading to a single European cap? Could we have a little more
of the rationale behind it?
Dr Rübig: On the wholesale market you have
to find a base for the price cap. So the question is what could
be the right base. If we do not take the right base, they are
ready to ask the European Court to make a decision on this. We
therefore thought that it should be a well-known principle. The
telecoms and the regulators have had this MTR rate for many years
and it is calculated on the bigger groups, the groups who formerly
owned the market. The cost basis is therefore very nice; no one
wants it to be squeezed. I think that the MTR basis is non-negotiable.
It is there; it is legislation; it is transparent; you can rely
on it. It is a very good base for a fair cost-base calculation,
which the smaller companies can also live with. My personal opinion,
therefore, is that the Commission was very generous in setting
the targets.
Q281 Chairman: Can we be quite clear
as to this regulated European tariff which customers could opt
to? Is that regulation at both wholesale and retail, or just at
the retail level?
Dr Rübig: No, on both sides.
Q282 Chairman: Similar to what has been
proposed?
Dr Rübig: Yes.
Q283 Baroness Eccles of Moulton:
The next question follows on quite neatly from the MTR plus factor
X. This is very much at variance with the Commission's proposals,
which are for very rigid caps for wholesale and retail. It would
therefore be very interesting if you would tell us what you think
the main weaknesses of the Commission's proposals are, seeing
as they are so different to yours.
Dr Rübig: The main problem is that I do
not like regulated prices. I think that politicians should do
their business, and business should do its business itself. First
of all, it is not a real price model; it is a price cap model.
You give the top price which could be asked. Beneath that level,
of course, competition can work. The lower we go at wholesale
level, the more competition we will get at retail level. So the
question is in which area we could regulate this tariff. We have
therefore had a study from a Danish think-tank, which wants to
go down from a multiplier of three to two because they think that
it will create much better competition. If we go down to two,
however, we have to have a much higher possibility at the retail
level. That is what is negotiated. I did not like to fix it, because
I wanted to speak with national parliamentarians all over Europe,
with the press, with people who are involved, and with a lot of
universities who now have produced studies and ideas. At least
it will be a compromise, which is necessary to get the regulation.
Q284 Baroness Eccles of Moulton:
Say these regulations come into effect; it all works very well,
and the consumer is much more satisfied with not being charged
€9,000, et cetera. When the sunset clause therefore operates
after three years, there is a possibility that the industry would
then adopt your stock exchange method of dealing internally within
the industry. Would that have some sort of affinity with commodity
broking, where they would be buying futures and generally getting
into that whole commodity trading mode, to the same extent as
operating against a stock exchange model? In a way, thinking about
it, it seems to me that maybe commodity broking is closer to the
sorts of negotiations they might be entering into than a stock
exchange model—but maybe I have got it wrong.
Dr Rübig: No, I am grateful for this advice
because that is exactly what we want to have. We want to involve
industry with a model which fits the needs of their market. That
is the reason why we did not come up with a certain model and
say, "Okay, you have to do so-and-so". I think a sunset
clause is very important, but why do we have the regulation? Because
up until now the market has not worked as it should. It is therefore
necessary to do something. The Commission came with a very simple
model of price caps, which everyone understands but, in the long
term, it does not work—because if the politicians are setting
the price, you know what it means. It could be good, but it may
not be. Therefore I think that showing that we are willing to
do something, but giving them the opportunity to do better than
we are doing, it does not blame us in supporting the Commission;
it is a short-term impact that they see and they say, "Okay,
it's serious. We have to do something". If they do, they
are free to do so. If not, the regulatory authority has to consider
what to do, and of course a flexible multiplier could be further
reduced or increased. It could also be the other way round. If
we see that they are going into the red, are having losses, and
cannot invest in infrastructure or have new innovations, then
the regulatory authority has to come and say, "We're sorry.
We have to increase. We have to give them more space. Otherwise
we are no longer competitive". We do not know what the future
will be, but the European market is the most attractive market
in the world. We have the highest buying power. It is not only
European telecoms that look closely at our market; it is worldwide
business. We have to see that our industry survives, and that
the Lisbon Agenda is in place here also.
Q285 Lord Geddes: Dr Rübig,
in reply to Lady Eccles just now you referred to the Danish think-tank.
I assume that is the same as the Copenhagen Economics?
Dr Rübig: Yes.
Q286 Lord Geddes: As we understand
it, that study was commissioned by the European Parliament.
Dr Rübig: Yes.
Q287 Lord Geddes: You have mentioned
that they came up with a factor of two, in broad figures. What
else did that study come up with? What other figures that could
be important to us did the study show?
Dr Rübig: I think the study has shown us
the different calculations of the termination rates. There is
a lot of debate about the average, if it should be an average
MTR, and there is a certain study that only 75 per cent, with
a certain formula, should be the base of MTR. What we learned
from this study was that the calculation of the MTR is no problem
at all. However you calculate—on an average, on a peak,
or whatever size—it is a minimum of the base which is changed.
From these studies we learnt that the multiplier, which is a political
decision, is the most important decision, and however we fix the
multiplier the market will react. That is the debate we have had
in the Parliament, because some of our friends say, "We don't
need a regulation at the retail level"; others say, "We
don't need a regulation at the wholesale level, because wholesale
is working pretty well". I think that the Commission did
it in the right way: that they concentrated on voice telephony;
that it is only for cross-border phone calls; that we have a clear
system, where the industry—if we decide in early summer—knows
exactly what the issue will be next time.
Q288 Lord Geddes: Did that study
give any clear indicators of peak and off-peak MTRs?
Dr Rübig: Yes, the studies went through
all possibilities of calculation of the MTR.
Q289 Lord Geddes: What was the differential
between peak and off-peak, or the factor?
Dr Rübig: It was very close. It was a one
per cent margin, not a one-digit per cent margin, where the MTR
figure goes up or down. It is not the real question, therefore.
The original basis, if you take 2 x MRT, is 23¢; going from
peak or off-peak is 1.30. So you can forget it, because it is
not a real issue.
Q290 Lord Geddes: Since I have asked
that question, perhaps I can go slightly at a tangent to my original
one. In the regulations which are now in discussion—the
Commission has proposed, the Council and Parliament are looking
at it—do you favour a form of average cap which could be
lower in off-peak and therefore higher in peak times, so you strike
an average, or are you looking at just one figure?
Dr Rübig: My personal opinion is that I
want to have one figure. It is the only way to lead the industry
into the stock exchange. If you start with a stock exchange, you
need one price at which to start trading. If you have different
pricing, there is not a smooth bridge to the new situation.
Q291 Lord Geddes: We have heard tell
that perhaps the Council is moving towards a two-tariff one for
off-peak and peak.
Dr Rübig: Yes, we are still in this debate.
The conclusions have not yet been reached. Also, in the Parliament
we are having a big debate on this. I personally think that the
calculation of the MTR is not a real problem. So whatever formula
we find, we can agree. The real political decision is the multiplier.
I think that is the decision which has to be made at the top level
in the Council. That will be the crucial question, on where we
start and where we end. We know the spread. We know that it is
between two and three. The Commission has said 2.9; Parliament
is at two. Let us see where the real figure will be, therefore—but
we are all politicians enough to know where it will be.
Q292 Lord Geddes: Within the European
Parliament, are you absolutely satisfied of the legality of these
proposals? In particular, we have all been looking at Article
95 and whether that does or does not allow this sort of proposal,
whatever its detail may be. Has Parliament taken a legal opinion
on this?
Dr Rübig: Yes. We had a long debate with
our legal service, which is very specialised on this. We have
clearly said that we do not regulate national roaming tariffs.
So whatever we do in Austria or whatever you do in Great Britain,
it is your choice and your decision; but everything which is cross-border
is clearly a European issue. This roaming is a cross-border issue,
and therefore the legal basis is very clear. I do not think that
we will have a problem with the legal basis. On the other hand,
if the decision is made between Parliament and Council, it is
very clear that there is an existing problem. When both sides
agree that this should be legislation which could solve the problem,
I think it is okay.
Q293 Lord Geddes: You do not think
that there will be a challenge from the operators? A legal challenge?
Dr Rübig: If I had a legal firm, I would
come up with a dossier and say, "We should try it".
Why not? It is a billion-pound decision. If you get the case,
it is a very nice case and there is always a chance before the
court. The questions are how long will it take, how much will
it cost, and where is the market in the meantime? If you are a
responsible telecom CEO—yes, it is their decision.
Q294 Lord Geddes: You are quite comfortable
with the legal base?
Dr Rübig: Yes, of course. It is no problem
at all.
Q295 Chairman: It would be helpful if
you could give us a flavour of the other different opinions within
the Parliament. For example, how has the Information Technology
Research and Enterprise Committee reacted? The other committees
of Parliament. Are you a lone voice or do you represent a significant
majority in the Parliament?
Dr Rübig: Within the Parliament, like in
any parliament, it is a very complex procedure. It is between
political groups; it is between different national Member States;
between large and small; between north and south, east and west.
Of course not everybody is at the same information level. First
of all, you have to explain what the Commission proposal is, what
the change is, what is the chance, where do we see the different
possibilities; but the rapporteurs and the shadow rapporteurs
in the committees—and altogether there are four committees—meet
regularly in Strasbourg for two hours every month. We have a lot
of other meetings at different levels. We have a lot of hearings
and so we get a lot of experts in. I am together, day and night,
with the lobbyists from the different areas. It is a customer
protection area. There are smaller telecoms and bigger ones; there
are international groups. So it is a lot of information. I always
say that the European Parliament provides the best postgraduate
study, because at university I never had a professor who checked
me in such detail as do the lobbyists here! On the other hand,
we learn a lot from them. If you listen and obtain the knowledge
they have, it makes you more certain to make the right decision.
The more you hear, the more clearly you see the picture. It also
helps the different committees to see where the train is travelling
to. I am very optimistic that we will get a good solution.
Chairman: We are all extremely grateful to you for
giving up your time, Dr Rübig. We will send you a copy of
our report. We hope it is a contribution to your deliberations.
We have no say in this; you do. However, we have learnt a great
deal. We have more work to do, and we shall return to our parliamentary
colleagues in the House of Lords now. Thank you very much indeed.
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