Memorandum by Vodafone
1. Vodafone is grateful to have the opportunity
to submit evidence to the Committee's inquiry into the working
of the Single Market in general and to its application in the
telecommunications sector in particular. Vodafone is the worlds
leading mobile telecommunications company, with significant interests
in Europe, Asia, Africa, the Middle East and the United States.
Within Europe Vodafone owns subsidiaries in 13 of the 27 Member
States, and holds significant interests in affiliates in France
and Poland.
2. Although based in Newbury in the UK since
1985, Vodafone has grown over the past 20 years to become one
of a few truly pan-European businesses to operate in the telecommunications
sector of Europe. Few other firms own and run major physical infrastructures
in over half the Member States. Vodafone has built its business
through a combination of organic growth and cross-border acquisition,
most notably the heavily publicised acquisition in 2000 of the
Mannesmann group of companies in one of the largest cross-border
acquisitions ever undertaken in Europe.
3. Vodafone owes its success over twenty
years to a European policy of market liberalization. Vodafone
first gained a licence to compete with the mobile subsidiary of
the incumbent fixed operator, BT, in the United Kingdom. The UK
was one of the first Governments outside of the United States
to pursue the liberalization of telecommunications markets which
had previously been served by state-owned monopolists. Twenty
years later the UK market remains one of the most competitive
and successful in Europe. It is also one of the most international,
with Vodafone today being the only British mobile operator.
4. Vodafone has also been able to use the
skills and experience acquired in competing in the UK market to
expand rapidly across the European Union and beyond. The pro-competitive
merger regime operated by the European Commission Competition
Directorate (which we consider one of the foundations of the Single
Market) enabled Vodafone to acquire mobile assets in many other
Member States. We note that cross-border acquisitions in the fixed
telecommunications sector (eg Deutsche Telecom/Telecom Italia,
Telia/Sonera) have often been fraught with political difficulties
not present in mobile.
5. Acquiring scale in Europe has been a
prerequisite for Vodafone to compete on the global stage. In the
mobile industry there are significant benefits to be derived from
scale. American and Chinese competitors can acquire scale within
their national borders. China Mobile (in which Vodafone holds
a small shareholding) added 65 million customers in 2005, more
than the entire mobile industry in Western Europe in the same
year. The Indian operators added 64 million customers in the same
year.
6. Vodafone continues to pursue the benefits
of scale and efficiencies across Europe—management reporting
and financial systems are currently being consolidated in Hungary,
networks are increasingly integrated throughout Europe and many
services are now developed in one Member State but implemented
across all.
7. Aside from the liberalization of markets
in order to allow entry and competition, European policymakers
have also assisted the development of a pan-European mobile industry
through the development of a co-ordinated policy on the licensing
and management of the radio spectrum on which the industry relies.
Both operators and the supply side of the European industry—where
firms such as Nokia and Ericsson remain world leaders—benefited
from the early identification and release of radio spectrum on
a harmonized basis across all Member States. This allowed for
the collaborative development of technologies by the entire European
supply chain (with some non-European participation), culminating
in the launch of the GSM technology which has been the foundation
of Europe's mobile success.
THE CURRENT
STATE OF
THE SINGLE
MARKET AND
TELECOMMUNICATIONS REGULATION
Role of the Competition Directorate
1. It will be clear to the Committee from
the above that Vodafone finds that the Single Market is already
operating effectively in the mobile telecommunications sector.
Our first concern is therefore to ensure that Europe's pro-competitive
legal framework—and the role of the Competition Directorate
of the Commission in tackling "economic nationalism"
and protectionism—remains at least as robust as we find
it today.
The EU Telecoms Regulatory Framework
2. The second pillar of the Single Market
is the current EU Regulatory Framework for the telecommunications
sector, currently overseen by the Information Society Directorate
and the Competition Directorates of the European Commission. This
Framework was adopted in 2003 and is widely and rightly admired
throughout the world. Although it is currently the subject of
a wide ranging review which is expected to result in proposals
from the Commission in October of this year, Vodafone does not
believe that fundamental change is required.
3. The requirement of the framework to apply
consistent and rigorous economic and legal principles to regulation
and the alignment with competition law has been important and
useful for Vodafone. Regulatory competence and resourcing has
increased significantly in Europe since 2003 but it nonetheless
remains very varied. The framework allows us to take regulatory
"best practice" in some markets (with the UK's Ofcom
often providing an example of this) and to argue that other regulators
should come to the same conclusions on the same facts, notwithstanding
different political or other pressures. This is particularly important
when regulators pursue policies which attempt to benefit particular
competitors in a national market rather than competition (and
thereby consumers) as a whole.
4. Considerable efforts have been made to
improve the consistency in application of the regulatory framework,
most notably through the establishment of the European Regulators
Group of national telecoms regulators (of which Ofcom was the
chair last year). The output of this Group has been disappointing
to date, but we recognize that significant efforts are now underway
to increase the influence and scope of the Group's work. This
may in part be prompted by recent suggestions from Commissioner
Reding that a "Euro-regulator" may be required to ensure
more consistent implementation of the framework. We note with
interest that this appears in some contradiction to the Commission's
vision of a single market for the 21st century which is "more
decentralized and network based"[29].
5. In the case of telecoms regulation, we
believe that most Single Market objectives can be successfully
pursued through existing (decentralized) institutional arrangements,
provided the national institutions are adequately resourced
with competent staff and with institutional independence. The
UK should not underestimate the relative immaturity of the regulatory
institutions in many of the recently liberalized markets (as well
as some in the EU15). The UK might provide more assistance in
this regard, and the Commission can also assist more. But this
remains first and foremost a responsibility for national Governments
and their commitment to good regulatory practice and competition.
6. Second, and equally if not more important,
we see liberalisation and competition as being more important
for Europe than the unqualified pursuit of harmonization. Harmonisation
is important insofar as it aids competition and growth within
the Single Market, but we believe that other measures which are
pursued on the name of the Single Market cannot be justified on
this basis. It is important that the Single Market is not devalued
by such activities and that harmonization is pursued for a clear
purpose and with clear justification.
7. A topical example of this is the recently
adopted EU Roaming regulation, which has been pursued by the European
Commission and adopted by Council under Article 95 of the Treaty.
Irrespective of the legal merits of this measure—which Vodafone
strongly disputes—the resulting attempt to set a single
price for the same service across 27 Member States (in this case
by capping roaming charges at 49 cents for making calls and 24
cents for receiving them) appears to make little economic sense.
The Single Market does not mean that every consumer in Europe
pays the same price for the same goods or services. We know of
no other measure in any sector which disregards differences in
the costs of provision or the conditions of supply that prevail
in different Member States.
8. We do propose one change to the current
telecoms framework. The rights of firms and the outcomes of the
regulatory process depend upon the availability of a robust appeal
process which allows the challenge of regulatory decisions. Despite
the requirements of the existing framework, the competence of
these bodies varies very significantly between Member States.
Very few have a body with the expertise and authority of the UK's
Competition Appeals tribunal or Competition Commission. Some constraints
are provided by the Commission's right to review the proposals
of national regulators—but the Commission claims that it
is not itself reviewable in this capacity. If the Commission and
national regulators agree, Vodafone may have no effective right
of appeal.
9. Vodafone proposes that the solution here
is to ensure that all decisions by the Commission must in future
be capable of review by the European Courts. In this way, Vodafone
could pursue its rights on important matters with pan-European
implications directly in the European courts, rather than seeking
redress at national level.
Spectrum management
1. We noted above that spectrum remains
an essential input for the mobile industry and that the Single
Market for GSM services (including the ability to roam across
borders using compatible technology) owed much to the pan-European
co-ordination of spectrum management. This is, however, an important
aspect of the Single Market which Vodafone believes would now
benefit from reform.
2. The EU telecoms regulatory framework
has effectively deferred consideration of spectrum matters until
the current review. As a result, spectrum remains the responsibility
of national Governments and a formidable institutional apparatus
exists to ensure co-ordination within Europe (and between Europe
and other regions). The original rationale for much of this activity
was that radiowaves have no regard for national boundaries and
that the co-existence of users in different countries requires
pan-European co-ordination if we are to avoid interference between
them.
3. Spectrum has, however, remained inefficiently
managed in Europe. The conditions of supply have been inflexible,
with the result that users cannot easily migrate between technologies,
or trade spectrum amongst themselves. Later this year the European
Commission will propose measures allowing mobile operators to
use their existing GSM spectrum for the later "3G" technology.
No such measures were required in the United States with the result
that operators there have been reusing their spectrum for many
years. Since supply has been constrained, the prices paid to Governments
have also sometimes been highly inflated, as with the 3G auctions
in 2000. Overall, whilst Europe's spectrum policy served it well
for the second generation of GSM technologies of the 1990s, there
is growing realization that we have been less well served in recent
years.
4. The challenge for Europe is how to move
to a more efficient and more flexible spectrum management regime
without losing the ability to co-ordinate in a manner which allows
us to capture the scale and other benefits of the Single Market.
This is a live debate amongst policymakers and the industry, the
results of which could have a profound influence upon Europe's
relative competitive position in wireless services over the next
20 years or more. An example of the difficulties is provided by
the so called "digital dividend", perhaps the most valuable
spectrum to become available in the next 50 years. At present
some Member States propose to reserve this spectrum for broadcasting,
whilst others (such as the UK) propose to make some available
for mobile applications. Yet others have no clear view. As a result,
Europe proposes to defer substantive decisions on this issue until
2011. In the meantime, the United States will be auctioning the
same spectrum on a national basis later this year.
5. We trust the foregoing is of assistance
to the Committee in its deliberations.
July 2007
29 See EC IP/07/214 "A vision for the single
market of the 21st century" Back
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