the users’ view
|
Licensing 3G in Europe:
the users’ view |
by Ewan Sutherland, Executive Director of the International
Telecommunications Users Group speaking on behalf of INTUG Europe.
The dearth of genuinely new entrants, of start-ups and the like, makes this a much less important issue. It is very hard to feel much sympathy for the likes of Deutsche Telekom AG, France Telecom Group or Vodafone plc, let alone oblige others to offer them special terms.
Instead, the concern is reversed. It is that 2G operators will use their market positions as leverage into 3G markets. That they will try through predatory pricing, subsidised hand-sets and the like to push customers to adopt 3G services much sooner than they would otherwise do so.
This means that NRAs and competition authorities need to be alert to
the dangers of operators infringing competition law on two fronts. One
is that they use their “special and exclusive rights” under Article 86
of the Treaty. The other is conventional competition law which prohibits
leverage from one market to another, whether 2G to 3G, fixed to mobile,
mobile telecommunications into services.
The call termination market is one where mobile operators charge high prices in order to subsidise their retail prices and so appear competitive. Some fixed operators have refiled domestic traffic as international traffic in order to get round this. The result is argument about regulatory differences and attempts to block this tromboning. One consequence is to make retail tariffs even more complicated but without increasing competition. In the absence of competition we can only look to regulatory intervention to drive down the prices.
The arrangements for GSM roaming are a classic case of a non-competitive market where there is no incentive on any player to reduce the prices. Eventually, the super-profits being made in this sector will be wiped out by competition.
The proposals for GPRS roaming suggest that the mobile operators intend
to continue their present practices. They are creating technical and market
structures which make it impossible for entrants and will allow them to
continue in GRPS and UMTS roaming to extract as much money as they possibly
can from their customers.
The introduction of carrier selection and carrier pre-selection would go a considerable way to providing on mobile networks some of the competition we have in fixed networks.
In particular, with many GSM networks the costs of international calls
remains very high. Competition for call origination of international calls
would be a major step forward.
The resistance of the licensed operators to MVNOs has been nothing
if not sustained and bitter. It has also been disappointingly successful.
However, they are being ground down by a combination of factors, not the
least the enthusiasm of those wishing to enter the market.
OFTEL. in an apparent display of complacency, gave an early judgement that it should sit on the fence concerning the introduction of MVNOs. This encouraged other regulators to wait and see. Although there are now in the UK what are called MVOs, these are, in fact, joint ventures.
The story of Sense in Norway is a testimony to the value of an independent regulator, free from competitive interference.
The mobile telecommunications market presently is lacking in multi-country brands which customers trust. This is one area where MVOs could bring value to the licensed operators. For example, customers might be more willing to trust their bank with knowledge of their transactions and their location then they would a mobile telecommunications operator. There is a massive need for trust given the sensitivity of the data that will be held.
A good brand might help to suppress the present levels of churn.
Not surprisingly. with so much at stake, it has resulted in massively increased litigation concerning the procedures and the outcomes of both beauty contests and auctions.
There are allegation so of collusion between operators. There are claims that low prices for spectrum amount to illegal state subsidies. It is also claimed that high prices are so ruinous that they leave European firms open to predation by Americans.
Politicians have found a way to raise enormous sums of money without the appearance of taxation.
We need to remember that the original plan was to develop access
at low prices for all the population. To use 3G to boost the European economy,
European businesses and to create new jobs and economic growth. In the
rush to give money to finance ministers this seems to have been forgotten.
INTUG Europe has a long established position of preferring beauty
contests over auctions. Our belief is that they are more flexible in the
selection of operators and that they result in
The legal actions following the beauty contest for the third licence
in the Republic of Ireland resulted in a delay of some eighteen months
in the appearance of a third operator. The cost to users was enormous.
In the interim the two operators, Eircell and ESAT Digifone, maintained
their high prices. The position in South Africa looks to be just as bad
and rather more complicated.
There is good reason to see collusion as commonplace in auctions, requiring stringent design to eliminate this.
However, the willingness of the operators to pay GDP-like sums of money is very worrying in terms of industry policy and in the prices users must eventually pay. The existing operators were obliged to obtaining a licence, or be seen by the stock market as having no future. To date all incumbent 2G operators have won 3G licences.
Economic theorists maintain that the money paid in auctions is "water under the bridge", that it is taken from the profits which would otherwise go to the shareholders. They argues that the prices of 3G services will be determined by the marginal cost of production. Practitioners, possibly in ignorance of theory, are not behaving in this manner.
The winners have suffered reduced credit ratings and increased cost
of capital. Banks have been questioned by their regulator on to the extent
of their commitment to the purchase of air. Consequently, the cost of capital
for the winners has risen significantly.
The operators give the impression of having bought their spectrum. They will not concede that there are any limits their “ownership”. However, they have merely rented it from the state for a limited period and are under many obligations.
There are issues concerning the essential facility concept or the bottleneck in competition law. More generally, there is the question of non-discrimination.
Operators cannot, whether under the pretext of property rights or of
recovering the licence fees, be allowed to block access to the 3G networks.
Access includes the provision of basic services, data services and location-based
services. Without that, they will have an oligopoly and be free to levy
whatever tariffs they like.
It is hard to much sympathy for the GSM operators who have made
billions for 3G licences. It is based on games theory to ensure that they
win and an assessment of their stock market valuation. There does not seem
to have been much consideration of an underlying business model or of the
regulatory framework. Much of that framework is still before the Parliament
and Council.
Presented with enormous sums of money it would be asking a lot of politicians not to accept windfall taxes which they can use to help reduce the national debt or the shortfall in pension schemes. Nonetheless, it is a major change from an environment of support for mobile telecommunications through industry policy.
The licence allocation process is coming to an end. We need to learn the lessons and never repeat anything like it. We need also to consider the new networks, the new market structures and how these will work. The licensed mobile operators are clearly planning to keep as tight a control as they can. They will use both their lobbying power and their market power to secure that.
It is important to recall that the public interest is for the rapid development of mass markets for mobile services at reasonable prices.