What is wholesale regulation and
how could it work?
28. As identified above, we believe that:
- There is evidence that roaming
prices charged to end customers are excessive and have remained
so over time (QQ 2, 147);
- The primary driver of high retail
rates is the level of wholesale rates that the operators charge
each other and which appear significantly above cost (Q 297);
and
- The lack of transparency of such
prices, particularly across national borders, means that such
excessive prices are likely to continue into the future without
some form of regulatory intervention at the European level.
29. Wholesale regulation has been successfully
applied to national telecommunications markets since the liberalisation
of the telecommunications sector. We believe that wholesale
regulation at the European level is an appropriate response to
the regulation of roaming within the EU. There are several
possible approaches to such regulation. It is important that the
approach taken delivers immediate benefits to consumers; encourages
market competition; and sends appropriate signals to the market
to encourage competition and innovation.
30. The various proposals made have suggested
several approaches to wholesale regulation. These can be simplified
to two main regulatory techniques, absolute and average price
caps.
31. The Commission proposed the use of absolute
price caps, imposing the same wholesale charge for a call from
any network in the EU to any other network within the EU (p 47).
Proponents of the absolute price cap method of regulation have
suggested that the cap be calculated based on reference to domestic
Mobile Termination Rates (MTRs), collated across the EU by NRAs.
There are several variants to this approach (see table 1 above)
relating to the calculation of any absolute cap and each lead
to slightly different caps on wholesale tariffs being applied.
32. The advantage of the absolute price cap approach
is that it is simple to calculate and transparent. It may also
be that this approach best lends itself to an absolute price cap
for retail regulation (see Chapter 5 below), providing the basis
for subsequent regulation of retail tariffs on a simple per minute
price.
33. We believe that the absolute price cap
approach suffers from a number of defects that question its application
to this issue. We note that the absolute price cap model:
- May remove the incentive for
operators to be efficient and innovative, as the market settles
on a single pricing point for all wholesale services and there
are limited incentives to move away from this point (Q 64);
- Does not provide the flexibility
for operators to vary their charges to reflect cost differences.
Evidence from the operators suggests that they need the ability
to set higher prices at peak times and lower prices when their
networks are less congested, thereby sending the appropriate signals
to the consumers to maximise efficient use of networks (Q 61);
and
- Does not fully reflect the
cost structure of the industry. We accept that costs vary across
networks and that an absolute cap should not be set so as to lead
to wholesale call charges that are below cost. Whilst this places
some limitations on the level of an absolute price cap it does
not rule out the absolute cap approach, based on the limited evidence
available to us on cost differentials for networks across the
EU.
34. The main alternative approach is the use
of average price caps. Using this approach, recommended by both
the German Presidency (Q 219) and Ofcom (p 26), the
wholesale average roaming charge for each operator would be calculated
by dividing total wholesale roaming revenues received (from providing
wholesale roaming to other mobile operators) by the total number
of wholesale minutes sold. The advantage of this approach is that
in not setting a specific limit on the price for every individual
charge, operators are allowed greater flexibility which encourages
efficiency in costing (peak and off peak) and innovation.
35. This approach has been criticised by the
Commission for being too complicated and requiring the collection
of considerable data (Q 147). However, we are satisfied
that the NRAs across the EU are capable of collating data in a
consistent manner set out by the Commission.
36. A final issue worthy of discussion is the
level of any price cap that is put in place. The various suggestions
provided to the Committee for wholesale tariffs range between
25 and 35 eurocents per minute. We would support an average
wholesale cap of approximately 30 eurocents per minute. We believe
that wholesale regulation should reflect costs, and therefore
that the cap should be on the 'tougher' end of this spectrum.
This is particularly the case if the focus of the regulatory
intervention is to be at the wholesale level (see Chapter 5 below)
not the retail level. The German Presidency has also suggested
that the cap should be reduced annually by 5%. Such RPI-X schemes
have been shown to drive efficiency but rely on costs being accurately
estimated at the initial point and plausible efficiency reductions
being achieved.
37. We are concerned that the current data
supporting the level of wholesale price caps is limited; and that
the true cost of wholesale roaming cannot be identified with sufficient
accuracy at present.
