Memorandum by BT
INTRODUCTION
BT Group plc is one of the world's leading providers
of communications solutions and services operating in 170 countries.
BT consists principally of four lines of business: BT Global Services,
Openreach, BT Retail, and BT Wholesale. Openreach, BT Retail,
and BT Wholesale operate almost entirely within the UK supplying
a wide range of communications products and services and offering
a comprehensive range of managed and packaged communications solutions.
BT Global Services addresses the networked IT services needs of
multi-site organisations both in the UK and internationally.
BT no longer owns any GSM or 3G network infrastructure,
following the de-merger of mmO2 in 2001. BT now offers a range
of "convergence" mobile services using a range of technologies
including WiFi, Bluetooth, digital broadcasting, and resale of
capacity on an existing mobile network. The final activity in
this list is generally known as a Mobile Virtual Network Operator
(MVNO). Host networks are referred to as MNOs (Mobile Network
Operators).
As an MVNO BT is only active in the retail market
and makes no wholesale profit. BT's retail charges are based on
the wholesale rates it has to pay the host MNO—which are
commercially negotiated and are higher than the inter-operator
wholesale charges to allow for the additional billing and transaction
costs in the relationship.
The proposed Regulation imposes a retail margin
deemed (by the Commission) adequate for MNOs but which will be
less than adequate for MVNOs and then greatly increases retail
costs through the requirement to provide information free of charge
to roaming customers over the mobile network while they are roaming.
This latter cost is unlimited if customers make a large number
of information requests and may be insupportable for many MVNOs.
If there is to be an EU Regulation, BT would
prefer it to focus exclusively on wholesale charges—as a
general rule BT believes that retail regulation should only be
used if wholesale regulation is unable to correct a problem. If
retail pricing is to be covered, the EU Regulation should ensure
that any retail margin limits (a) allow sufficient margin "headroom"
for MVNOs, (b) take adequate account of the potentially very costly
transparency requirements, and (c) allow retail prices for receiving
calls to reflect the actual termination rate paid (rather than
the average).
QUESTIONS
Q1—Do you consider charges for making and
receiving calls on mobile phones when in a different EU Member
State to be appropriate or excessive as some have argued? Do you
think there is currently sufficient competition in the market?
BT supports the Commission's aim of delivering
good retail deals for roaming consumers and believes this is best
achieved through wholesale regulation.
Since consumers are generally sold packages
which may include domestic calls, roaming calls, minute "buckets"
or unlimited minutes, data, and text messages it is very difficult
to isolate a single element and categorise it as appropriate or
excessive without taking account of the whole picture. Nevertheless
BT welcomes the Commission's action on wholesale roaming prices
in order to bring them more closely into alignment with costs.
BT is not convinced that the market is as competitive
as it might be and has argued that the Commission should retain
the market for mobile access and call origination within the list
of markets susceptible to ex-ante regulation—as National
Regulatory Authorities may need to intervene with remedies if
single or collective dominance is found.
The European Commission has recognised that
MVNOs have a role to play in intensifying competition. In a recent
press release[1]
the Commission said "Experience from other Member States
has shown that the entry of MVNOs can boost competition with tangible
benefits for consumers in terms of lower prices". Furthermore,
commenting[2]
on a decision of the French regulator, Commissioner Reding said
"It is particularly important for regulators to take into
account the impact of virtual mobile operators entering these
markets. "
The impact of MVNOs is not confined to lower
prices but may also extend to more innovative products, particularly
through the combination of different technologies, and to greater
penetration where a familiar consumer brand may attract additional
customers. The innovation factor could be particularly important
in future as MVNOs may be more willing to consider innovative
mixtures of technologies and spectrum than MNOs with a substantial
sunk investment in a particular technology.
MVNOs are collectively a powerful force acting
on the side of the consumer. Yet their continuing commercial viability
is weakened by the detailed way in which the Commission is proposing
to implement its Regulation. Not only is there to be a very slender
retail margin imposed, but retail costs will be dramatically increased
because of the detailed and expensive transparency requirements.
The European Parliament has recently released a briefing note[3]
which casts significant doubt on the proportionality of the transparency
measures proposed by the Commission.
Q2—Is it appropriate for the Commission
to introduce legislation to cap the cost of roaming?
BT welcomes the Commission's move to cap the
wholesale rates charged between operators but has serious concerns
about the proposed regulation of retail prices and the detailed,
mandatory, transparency requirements. BT believes that if wholesale
rates are reduced, market dynamics will ensure that retail prices
drop significantly.
If retail and wholesale prices are to be capped
the fixed maximum retail margin needs to be sufficient to allow
a retail-only operator to function. Any prescribed maximum retail
margin should recognise the mark-up above wholesale inter-operator
tariffs that such undertakings must accommodate, as well as any
increased transparency costs imposed by the Regulation.
Q3—Do you think that the mobile telecoms
industry has done enough in the last two years to address, through
self-regulation, concerns expressed by the Commission? Are National
Regulatory Authorities in a co-regulated environment able to address
these concerns on their own?
It is noteworthy that mobile roaming prices
have started to come down and it is quite possible that NRAs,
particularly collaborating through the European Regulators Group,
would be able to address these concerns if given more time.
Q4—Does the proposed Regulation risk narrowing
down the space for competition and thereby harming innovation
and investment in the sector?
Yes. The Regulation will reduce the ability
of MVNOs to compete in the market by imposing a reduced retail
margin and higher retail costs for transparency. This risks seriously
damaging innovation in the sector; which in turn may lead to reduced
investment. By attempting to fix retail and wholesale roaming
prices at an extremely low level the Regulation will reduce the
scope for innovative tariffing for different customer groups.
Q5—Do you think that the pressure for lower
roaming charges could potentially spill-over into higher prices
for other mobile telephony services? Would you anticipate any
other unintended consequences that may affect consumers?
To the extent that MNOs are able to exploit
price elasticity of demand effects in related markets for data,
text, and other new services it is possible that these prices
will rise. There are clearly issues on how to recover the common
costs of the network from the various services carried and telecommunications
is one of many industries which has historically distributed these
costs unevenly across different customer groups—for example
by Ramsey pricing.
Q6—Do you think that the proposed regulation
will allow non-EU operators to take advantage of lower wholesale
roaming prices in the EU through international trade agreements
and arbitrage opportunities?
It seems likely that those operators with a
higher than average domestic termination rate will continue to
promote themselves to roamers. This will be a serious problem
for the host MNO or MVNO if the relevant domestic termination
rate is above or even close to the allowed retail tariff for receiving
roaming calls. Such calls could represent an uncontrollable loss.
Q7—Is the Commission's estimate that 147
million EU citizens are affected by excessively high international
mobile roaming charges accurate? Do you have any other figures
to offer?
BT has no independent figures. Whether the Commission
number is correct would depend on their definition of the term
"affected".
Q8—Do you think that the UK and French proposal
for a sunrise clause during the initial period after the Regulation
comes into force can better achieve the desired effect? Should
legislation apply solely to wholesale fees rather than retail
tariffs?
BT believes that the Regulation should be focussed
solely on wholesale prices. As already described, an imposed retail
margin (even if big enough for the MNOs) will translate to a smaller
retail margin for MVNOs. Transparency should be encouraged via
Internet publication, via the customer's bill where there is a
monthly contract, and via notification at the time of purchase.
Subsequent enquiries about tariffs should be chargeable—otherwise
MVNOs face the potential of funding unlimited total end-to-end
call or SMS charges from an already reduced retail profit margin.
If there is to be retail regulation then it
would be better imposed on a sunrise basis where price reduction
targets are not met. But such targets must be realistic and must
take account of any added transparency costs.
Q9—Do you believe that separate sub caps
for making and receiving calls should be applied or a single average
cap? Should the linkage between Mobile Termination Rates and wholesale
prices, and percentage mark-ups for determining retail prices,
be retained or should target prices simply be included in the
regulation?
While wholesale prices for making and receiving
calls remain significantly different, it is appropriate for there
to be separate caps. A target price would allow the possibility,
subject to competitive conditions, for the undertaking to retain
a proportion of any cost savings made. The proposed Regulation
is flawed insofar as it attempts to prescribe a capped retail
price for receiving calls but does not prescribe a matching capped
wholesale price for the national termination element of the call.
Thus an undertaking could have a minimal or negative profit on
calls delivered via an operator with a high termination rate.
23 February 2007
1 http://europa.eu/rapid/pressReleasesAction.do?reference=IP/06/97&format=HTML&aged=0&language=EN&guiLanguage=en Back
2
http://europa.eu/rapid/pressReleasesAction.do?reference=IP/05/632&format=HTML&aged=0&language=EN&guiLanguage=en Back
3
IP/A/ITRE/NT/NT/2006-17 PE 382.177 Back
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