17TH REPORT: MOBILE PHONE CHARGES IN THE
EU: CURBING THE EXCESS
Letter from Rt Hon Margaret Hodge MP,
Minister of State for Industry and The Regions, Department of
Trade and Industry to the Chairman
Thank you for your report. I am pleased to enclose
our response to your recommendations in advance of the debate
in the House of Lords on 24 May.
22 May 2007
GOVERNMENT RESPONSE
The Goverment welcomes the Committee's report.
In view of the importance of the Regulation and the issues it
raises, the report is a useful contribution to the debate about
the regulation of prices on international mobile roaming.
Our responses to the specific conclusions and
recommendations of the Committee are set out below. We particularly
welcome the Committee's support for the line that the Government
has taken for this Regulation; we also welcome the Committee's
stance on the importance of better regulation and our emphasis
upon evidence-based policy making, which is proportionate, pragmatic
and robust.
We stand ready to provide such further information
as the Committee and the House require to clear their scrutiny
of the proposal.
THE CONCLUSIONS
AND RECOMMENDATIONS
OF THE
COMMITTEE
Is there a need for regulation?
In our view the data used by the Commission
to calculate the cost of roaming is incomplete. Nevertheless,
from the majority of the evidence we have received there is a
circumstantially compelling case for agreeing with the Commission
that operators' profit margins, as far as roaming services are
concerned, are excessively high,compared to the wholesale cost
of roaming for operators. (para 17)
The Government agrees that the Commission
has demonstrated that the differential between the wholesale cost
of roaming and the retail prices charged to consumers by operators
were too high.
Is EU action appropriate?
We agree that there is a clear case for regulation
at a Community level. (para 21)
The Government agrees that given the international
nature of the telecommunication sector, and the difficulty this
entails for effective action by NRAs on cross-border issues, any
attempt to control roaming mobile prices needs to be undertaken
at a Community level.
We consider that high roaming prices have an
impact on the efficiency of Small and Medium-sized Enterprises
(SMEs) and their ability to conduct business when having to operate
from abroad. Furthermore the lack of transparency in prices has
reduced the consumer's ability to compare costs of roaming across
the Single Market and between operators. (para 22)
The Government agrees that high roaming
prices might have impacted unfairly upon SMEs. particularly those
who used such services infrequently and therefore could not benefit
from the special packages that operators conclude with larger
organisations. The Government also agrees that in the past information
on international mobile tariffs has not been transparent.
We are aware of the differences of opinion on
the use of Article 95 as the legal base for the Regulation. We
expect the Government to give this issue close attention. (para
24)
The Government has considered this issue
carefully and has had further discussions about it with the Commission
and in the relevant Council Working Groups. As a result of these
discussions, a modification to a recital (in the Regulation) has
been added in order to further strengthen the justification for
using Article 95 as a legal base.
In addition, the Committee will be aware
that in the last couple of years there have been two unsuccessful
challenges by the UK to the use of Article 95 and in both cases
the European Court of Justice took a very wide view of the meaning
of Article 95 and the measures which can be adopted on the basis
of that Article. Having regard to these judgments and taking into
account the particular circumstances of the mobile roaming market,
which we consider to be a distinct market with its own characteristics
not replicated in other markets; the Government has reached the
view that Article 95 is an acceptable legal base for this Regulation.
However, the Government agrees with the
Committee that Article 95 should only be used as a legal base
where clearly justified, and will continue to consider its suitability
on a case by case basis.
We feel that the evidence we received on the
need for action at the EU level to reduce the cost of roaming
is convincing. But we do not want to see excessive regulation
that will harm the operation of an otherwise healthy and innovative
industry. (para 25).
The Government concurs with the Committee's
view and has attempted throughout the negotiations for the Regulation
to achieve a balanced solution, which would achieve its primary
objective of ensuring lower roaming prices for consumers, whilst
providing the telecoms industry with sufficient "breathing
space" to allow and encourage the development of innovative
offerings, which might result in consumers receiving a still more
favourable deal.
Wholesale regulation
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. (para 29).
The Government agrees with the Committee's
view that wholesale regulation will play an important part in
the regulation of roaming prices for consumers within the EU.
Our objective throughout discussions has been to reach an agreement
with our fellow Member States that will be implemented within
a reasonable timeframe (two months), long enough to allow the
industry to put in place the appropriate arrangements, but not
so long as to disadvantage consumers.
We believe that the absolute price cap approach
suffers from a number of defects that question its applicability
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 an 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 (Q61);
and
— Does not fully reflect the cost
structure of the industry. We accept that costs vary across networks
and that an aboslute cap should not be set so as to lead to wholesale
call charge 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. (Para
33)
The Government concurs with the views of
the Committee on this issue. Throughout the negotiations we have
been adamant that we should be specifying average rather than
maximum wholesale caps. I am pleased to confirm that after much
debate this now also seems to be the view of the European Parliament
and the Council.
We are satisfied that national regulators are
capable of carrying out the necessary cost studies for this approach
to be effectively targeted. (para 35)
The Government agrees with this assertion.
The UK's own regulator Ofcom, has provided invaluable technical
assistance throughout the negotiations for the Regulation and
has demonstrated that it has all the requisite in-house technical
expertise to carry out any cost studies required for the successful
implementation of this regulation.
We would support an average wholesale cap of
approximately 30 eurocents per minute. We believe that wholesale
regulation should reflect costs, and as therefore that the cap
should be on the "tougher" end of this spectrum. (para
36)
The Government agrees that the wholesale
price should reflect closely the related costs. We believe that
an initial average wholesale price cap of 30c will be agreed,
with the charges decreasing to 28 and 26 cents after 12 and 24
months respectively.
We are however 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. (para 37)
The Government believes that the data used
to derive the wholesale price cap levels is fit for purpose. This
data is primarily based on detailed cost calculations and analysis
undertaken by national regulatory authorities, who after consultations
with mobile operators set mobile termination rates (MTRs). While
there are components of the wholesale roaming costs (for example
roaming specific costs) for which data is less readily available,
these costs are much smaller than the relevant costs captured
by the Mobile Termination Rate analysis. In the context of setting
the same wholesale price cap level across all EU Member States,
more detailed data would not add materially to the accuracy of
the final result.
Retail regulation
On balance, we believe that the consumer protection
tariff provides the best form for any retail intervention, as
it allows operators to innovate and compete through the differentiation
of their own tariffs and offers, as well as from those of their
competitors. However, we also stress the importance of base information
upon which to set the appropriate cap. (para 46)
The Government agrees; we have sought the
introduction of a consumer protection tariff (Eurotariff), which
is based on an economic analysis of the gap required between wholesale
and retail roaming costs to sustain competition and innovation
in the market.
We believe that a CPT is a logical regulatory
instrument in the absence of full retail regulation, ie, setting
a "safety net", tariff which would protect the most
vulnerable consumers. It therefore follows that any CPT should
be set at a level that provides this safety net, but allows retail
competition below this level. (para 47)
The Government agrees and we have been
working hard with Member States to ensure that the price levels
for the Eurotariff adequately reflect the costs of operators,
whilst allowing them an appropriate rate of retum. It now looks
likely that the regulated rates, for the first year, will be 49
cents for outgoing and 24 cents for incoming calls.
We agree with the German Presidency proposal
for the CPT to operate under an "opt in" model for existing
customers and an "optout" model for new customers. This
approach appears to have received support from many parties, and
we endorse it. (para 48)
The Government agrees with the Committee's
view and we have advocated the same approach, however, it now
looks likely that a compromise solution, acceptable to all parties,
will be passed. The curient proposal relates to "standard"
and "non-standard" tariffs; customers already on the
former will be automatically placed on the Eurotariff, while the
latter group—including; for example, businesses whose current
tariff is better than the Eurotariff—will not be automatically
migrated. (The definition of non-standard tariffs relates to special
packages such as Vodafone's Passport.)
Data regulation
We believe that the underlying market failure
that exists in roaming for voice services is every bit as evident
for data services, which have even less price transparency than
their voice counterparts. It is thus important that this regulatory
initiative should also consider these services. However, there
is even less evidence as to whether roaming charges for SMS, MMS
and data services are more excessive than for voice services.
(para 52)
The Government accepts the Committee's
views that the price levels for SMS and data services are becoming
increasingly important for business and consumers. However, the
initial Commission proposal did not seek to control prices for
such services and thus the current draft agreement only seeks
to impose monitoring and transparency obligations in respect of
such services.
We agree with the German Presidency that a separate
study of SMS, MMS and data roaming should be conducted. As with
our previous recommendation to collect more data to support the
regulation of voice roaming, this study must be conducted on a
consistent pan-European basis. We would again suggest that the
Commission co-ordinates this study supported by the NRAs. (para
54)
The Government agrees with the Committee
and are pleased to report that the draft agreement does include
requirements for the Commission to monitor such prices and to
include such an analysis in the report on the effectiveness of
the Regulation.
We do not believe that voice regulation should
be delayed whilst this study is conducted. We would, however,
suggest that if regulation is considered appropriate a similar
approach as outlined for the regulation of voice (see above) should
be considered. (para 55)
Until we are able, following the Commission
report, to determine whether there is a problem, it is difficult
for the Government to speculate upon the instruments which might
effectively be used to address it.
A Sunset clause?
We agree with the suggestions of the German
Presidency on the introduction and timing of a review and sunset
clause for this regulatory intervention. This must be in tandem
with better data collection; as such data will be critical in
reviewing the success, or failure of the Regulation. (para 58)
The Government agrees with the Committee's
views on a review and sunset clause and with the stress laid upon
the collection of data to inform the debate upon whether the lifetime
of the Regulation should be extended or not. The current agreement
does include sunset agreements; namely that the Regulation will
expire after three years unless the Council and Parliament vote
to extend it.
We make this report to the House for debate.
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