Examination of Witnesses (Questions 300-319)
Mr William McCoubrey, Dr Volker Stapper and Mr Richard
Rumbelow
5 MARCH 2007
Q300 Chairman: Yes.
Mr McCoubrey: As low as the market can sustain
in a competitive sort of way. From our perspective, we are aware
of the various proposals that range from, say, 25 cents to 36-ish
cents. All those figures are arrived at using different methods
of analysis. There is no finite science to calculating what the
costs are but, from our own experience and from what we are willing
to offer on our network, they are all in the right ballpark. It
is not really for Meteor to say what the final figure should be.
There are a number of experts out there in the Commission, Copenhagen
Economics, the individual operators etc that we all have seen.
I think it is fair to say that the rates being discussed should
not disadvantage any particular operator.
Chairman: I think that Lord St. John
is next and he will probably be following my line of questioning,
so that Dr Stapper will have a chance to reply.
Q301 Lord St John of Bletso: In fact,
I am concentrating on the previous question and I want to know
from Mr McCoubrey's point of view how transparent you find the
wholesale rates across the European Union.
Mr McCoubrey: We have roaming arrangements with
the majority of GSM operators in Europe and, as a result of that,
we know what each of the visited networks will be charging. We
ourselves as purchasers have transparency of what is available
in the marketplace. What we are not aware of are the various discount
agreements that are in place, particularly on an inter-group basis.
So, as a purchaser, there is a degree of transparency but not
enough for us to really appreciate and get access to appropriate
rates.
Q302 Lord St John of Bletso: Dr Stapper,
perhaps I could ask you for your view of transparency.
Dr Stapper: There is no transparency in the
wholesale market and I think there should not be transparency
in the wholesale market because transparency and the concept of
secret competition is the basis upon which competition in this
market occurs. If prices were transparent, there would be no competition.
Therefore, the fact that we have discount agreements with other
operators makes these prices completely non-transparent.
Q303 Lord St John of Bletso: That leads
on to my next question. Clearly, you do not consider the Commission's
proposals proportionate. What do you think their effect will be
on the market and do you feel that the pressure on lowering roaming
charges could potentially spill over into higher prices for other
mobile telephony services?
Dr Stapper: It is true that we do not consider
the Commission's proposals to be proportionate because it is based
on the concept of absolute price caps which, in my view, is the
most intrusive regulation and that is why the current discussion
has tried to find a more flexible approach which is based on average
price caps. The other problem we have with this proposal and why
we consider it to be disproportionate is because it tries to introduce
a system which applies across Europe, meaning that the same price
caps will be valid for operators across the entire European Union
despite the fact that the regulatory and the commercial cost situation
is quite different in these countries. Therefore, if regulation
is adopted that is based on absolute price caps that are close
to cost, there will be no margin for us and therefore we conclude
that this will have an effect on the services.
Q304 Lord St John of Bletso: I have been
reading the submission you gave to us in which you mentioned that
harmonising the maximum price cap on retail charges levied to
consumers would apply a rigid and inflexible centralised solution
affecting the international competitiveness and investment strategies
of the sector. My question following on from that is, how do you
think this will affect the bundle services, the cost-all type
services, the innovation which wholesale operators can offer for
the consumers?
Dr Stapper: By introducing price caps, we would
have to abandon all of these price models and would only be allowed
to introduce a regulated retail tariff which we normally would
not introduce as such, therefore reducing competition.
Mr McCoubrey: The question was, do we think
there will be raising costs for customers? The argument is that
there is certainly that potential arising from the regulation
as it currently stands, the reason being that international roaming
traditionally has not necessarily been of significant interest
to the vast majority of customers, but things are now changing.
If you look at the Irish example, over the last few years there
has been a great deal of immigration into the country, also combined
with cheap low-budget airlines there is a great deal of travel.
International roaming is becoming an increasingly important part
of the retail proposition and we sell that to the Irish customers
in the Irish market. It is part of the overall national product
that we deliver. If the Vodafones of this world are able to offer
rock bottom retail international roaming deals that we are not
able to replicate because we do not have access to the appropriate
costs on a wholesale basis, then our position on the national
market will start to suffer and it is the Meteors of this world
and the Hutchisons in the UK and the Bouygues in France, the smaller
challenger operators that are driving the competitive force in
the national markets which results in cost reductions to consumers.
If the actions of the larger groups such as Vodafone are allowed
to disadvantage us to compete on a national basis, then the costs
to customers will rise in the long run.
Q305 Baroness Eccles of Moulton: I am
going to jump back a little. Dr Stapper, you mentioned that you
had entered into agreements in order to try and contain the wholesale
charges between the various companies at a certain level which
would perhaps prevent the EU thinking it was going to be necessary
to do something about roaming costs to the consumer. How broadly
were those agreements entered into across the operators throughout
the EU? Was it just between two or three or was it actually quite
broad?
Dr Stapper: It was actually quite broad. This
agreement was signed by 35 operators coming from almost all of
the 25 EU countries and covering, if you look at their customer
base, approximately 200 million customers which represents certainly
more than half of the customer base in Europe.
Q306 Baroness Eccles of Moulton: It must
be quite disappointing to the operators that it has not actually
worked sufficiently at the final price that the customer is finding
that they are paying. Presumably you all hoped that it was going
to do the trick. Why is it that it has not produced the retail
result that would have meant that everybody would have heaved
a sigh of relief and said, "That's fine, the market has sorted
itself out"?
Dr Stapper: I guess that this whole process
has a political dimension. There has been significant pressure
from different stakeholders to introduce regulation. We have spoken
to a number of people in Parliament who have complained quite
a bit about the level of roaming prices. We believe that the industry
has moved and there are prices out there which are much more attractive
than the Commission publishes on its website. This indicates that
some of the demand (including from Members of the European Parliament)
is inelastic. The industry has moved and therefore we see a lot
of support for a solution which tries to focus itself on wholesale
regulation.
Q307 Baroness Eccles of Moulton: We are
going to move on to the question of a sunset clause and maybe
we are talking about something fairly temporary, but I think it
would obviously be very helpful to know how things might look
in four or five years' time. I wonder whether one of the problems
is that the offer to the consumer was actually broadly enough
known, that the consumer was not well enough aware of the various
offers that they could take up and that there was much too much
emphasis on the individual consumer finding out what the offers
were rather than the industry making it absolutely clear that
actually they were going to be charged a great deal less for roaming.
Do you think that there could be something in that?
Dr Stapper: Certainly, and that is why the industry
has come up with another website that tries to give the consumer
an overview of what the most attractive prices are in each country
and what we have found is that this website is used quite heavily
by consumers because it shows that, for example, you can today
make a roaming call for 33 cents a minute.
Q308 Baroness Eccles of Moulton: No matter
whom you are automatically linked into when you are roaming because
your roaming operator can change every ten minutes?
Dr Stapper: And that is why I tried to explain
that what we have done is introduce a single price independent
of the network they are using. So, the price I have just described,
33 cents, applies independently of whether you are using Orange
France or Vodafone Greece. The customer is not worried about suddenly
being switched to a different network.
Q309 Baroness Eccles of Moulton: How
successful EU wide has that been?
Dr Stapper: This tariff applies in all 25 EU
Member States in each of those networks. So, it does not get any
more transparent than that.
Q310 Baroness Eccles of Moulton: If it
is that high, certainly charges that some of us have recently
experienced are still very high.
Mr Rumbelow: I would like to add that the one
thing T-Mobile has done in comparison with the others. As a T-Mobile
customer, you get an SMS message when you arrive in your country
of destination and that message will tell you the price per minute
that phone calls will be charged at when you are roaming in that
country. As Dr Stapper has said, that is irrespective of the network
you may be roaming on in that country at any particular moment
in time because we know that there can be coverage variances in
the countries to which you are a visitor. The other point to mention
on that is that that is the retail price that you are charged.
The wholesale charge, in other words the cost that the operator
will charge us for that call, may well vary in that country depending
on the operator you are with and of course we take that charge
ourselves but the consumer will only ever see one charge and that
is that particular charge they will get SMS'd on when they arrive
in that country.
Q311 Lord Haskel: Dr Stapper mentioned
a code of conduct. Does this code of conduct that you mentioned
cover this sort of thing? For instance, does it cover the problems
that the virtual operators have, the kind of problem that Mr McCoubrey
mentioned?
Dr Stapper: This is open to any operator who
wants to join in. There is no limitation and any operator who
is willing to cap its wholesale charges to 45 cents and then individually
negotiate discount agreements below this cap is obviously welcome.
Q312 Lord Haskel: Is that a voluntary
code?
Dr Stapper: Of course.
Q313 Lord Haskel: How many operators
have subscribed to that?
Dr Stapper: Thirty-five.
Q314 Lord Haskel: So, quite a lot has
happened.
Dr Stapper: Indeed.
Q315 Chairman: Perhaps I may add a supplementary
to the mobile network virtual operators. Do you think that the
regulation will alter the playing field for them considering that
they operate under different business models?
Dr Stapper: This allows me to also reply to
what my colleague, Mr McCoubrey, mentioned earlier. First of all,
the regulation is looking at trying to lower roaming prices. I
think that its goal should not be to alter the dynamics of the
market. As I can assure you, this market is competitive and I
think that we are concluding competitive discount agreements.
If you look at the position of smaller operators, we believe that
a wholesale cap which would be regulated close to cost would not
allow other operators to undercut this price level. Whereas a
wholesale cap, which leaves room for competition, would allow
smaller operators, like in the case of Meteor, to offer us a price
which is significantly below the price that O2 or Vodafone are
offering in this market. If you look at our operator alliance
which comprises of a number of operators in Europe which has also
established preferential roaming agreements, what you see there
is that these roaming agreements are not exclusive, meaning that
if one of the partners in these operator lines is not willing
to reduce its wholesale charges to a level which we find appropriate,
a smaller operator can and has come in and offered prices below
our own alliance partner, which means that despite us having an
alliance with another operator, we have to give all our traffic
to this competing smaller operator in order to take advantage
of the lower wholesale charges.
Q316 Lord Geddes: What do your partners
think of that?
Dr Stapper: They do not like it all but it has
happened to them.
Q317 Lord Geddes: And that does not break
any agreement you have in your alliance?
Dr Stapper: No because it is not exclusive and
our agreement says that we are benchmarking our price levels against
the offers from third non alliance operators, so they also have
a chance to jump in and undercut the price level within the alliance.
Mr McCoubrey: I commend T-Mobile's positive
approach to all this and indeed it is reflected in what we have
managed to agree on an UK-Ireland basis. Our own experience has
been, not dealing with T-Mobile but dealing with some of the other
larger operators, that, when we do offer what they tell us are
the cheapest rates that could be offered for roaming in Ireland,
but we still do not get the business because they have deals going
on at a group level between the large players with which we cannot
compete from a group perspective. We can only offer you cheap
termination in Ireland and hence cheaper roaming rates for your
customers while in Ireland. So, it is not a rosy place for the
small operators in the marketplace at the moment. My colleague
referred to whether we could regulate down closer to cost. We
would not be averse to that because at least it would then help
to diminish the margin for discriminatory pricing. It is the discriminatory
pricing at the wholesale level that causes us the great concern
as to the impact that could have on the retail market. From our
perspective, we believe that the Commission needs to be harder
on the wholesale market than it currently is, but, when it has
done that, it can also rely on the fact that there are smaller
challenger operators at play in the marketplace and therefore
it does not need to be quite so prescriptive in what it does at
the retail level.
Q318 Baroness Eccles of Moulton: The
issue that is of some concern is that you talk about wholesale
cost and I hear what you say about wholesale transparency wrecking
any form of proper market competition but, even so, it has been
really quite difficult for us to get any sort of idea as to how
the operators calculate the actual cost of giving the other operators
access on to their networks when roaming is taking place. There
obviously is a cost but it seems to be a really, really difficult
idea to get any sort of grip on.
Dr Stapper: That is correct. I think that assessing
cost, especially in a market or for a service which is sold as
a bundle together with domestic services, is very hard and many
other authorities have tried to look at this and have failed and
may I add that, under the US legal system, you would not even
pursue a case of alleged excessive prices because they are aware
of how difficult it is to determine what the price is. The other
issue is that cost can vary quite a bit in Europe and this may
depend on the topography of the country. For instance, in Austria
it is certainly more difficult to build a network than in Belgium
but it is also difficult due to different regulatory licence conditions.
For instance, some countries pay quite a significant price for
what we call their 3G licences, whereas in other countries those
licences were almost given away for free. That obviously has an
impact on the cost structure of these operators.
Q319 Baroness Eccles of Moulton: So,
the reason why we have large national variation which is caused
both by the topography—for example, if you have mountains,
it is more difficult than if you are completely flat—and
also the national regulator or government or whoever it is who
actually sets the licence fee for access to the network.
Dr Stapper: That is correct and that is why
we think that trying to create a single market for international
roaming in a situation where the mobile markets are not one single
market due to these differences and also due to the regulatory
differences is not possible.
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