Competition, competitiveness and the regulation of mobile telecommunications Ewan Sutherland 28 - 30 January 2002

• to identify the public interest
• to analyse the 2G, 2.5G and 3G market structures in terms of competition law
• to identify and evaluate alternatve remedies

Introduction - Monday 27th January 2003

To look at economic gains from mobile telecommunications:

• job creation
• productivity gains
  

To identify the the major regulatory issues concerning mobile telecommunications:

• two long-running market failures:
• fixed to mobile interconnection
• international mobile roaming
  
• one forward looking challenge:
• licensing 3G
  

1. Fixed to mobile call termination - Tuesday 28th January 2003

One of the most contentious issues in mobile telecommunications is fixed-to-mobile (F2M) call termination. The mobile operators claim that their customers buy a single all-encompassing service and that the market for this is competitive. Others claim that mobile telecommunications must be broken into component parts and that one of those parts is call termination on mobile networks. When calling a mobile telephone from a fixed network the price is generally very much higher than when calling from a mobile phone, certainly when calling from one on the same network. One reason is that termination on the fixed networks has been heavily regulated. The amounts of money flowing from incoming calls to mobile network operators can amount to one quarter of their total revenues.

Initially, this issue passed unnoticed. After some time the new entrants to the fixed telephone market complained that they could not get competitive prices for F2M and tha this was a large and growing part of the call termination business. Larger companies diverted traffic directly from their PBXs and VPNs to mobile networks in order to reduce the cost of termination.

Judgements are expected from DG Competition on a case against KPN, from the UK Competition Commission which is considering an appeal against a determination by OFTEL and from all fifiteen National Regulatory Authorities (NRAs) in the European Uion as part of the new telecommunications legislative package. The coming months could see a sharp reduction in the income of mobile operators. However, they are lobbying at the very highest political levels to minimise the damage.

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2. international mobile roaming - Wednesday 29th January 2003

One of the features of the Nordic Mobile Telephone (NMT) service was the ability to use the same phone in different countries, i.e., to roam internationally. This feature was made more widely available with the development of the Groupe Speciale Mobile (GSM) standard. Initially, it was seen as something special and seemed to justify paying a premium. Gradually, it became more commonplace and people began to notice that the prices were very high and often varied considerably and in ways that were difficult or impossible to explain.

Following a complaint from users in early 1999, the Competition Directorate-General of the European Commission launched an inquiry into international mobile roaming. During 2000, the operators were required to provide information on prices and practices. A working document withinterim findings was produced by the Commission that December. In July 2001, the Commission raised the offices of nine mobile operators. The case continues to be investigated.

At the instigation of the European Parliament, the new telecommunications legislation requires NRAs to assess the national markets for international roaming. This should take place during 2003.

It is estimated that mobile network opertors earn about 15% of their total revenues from international mobile roaming. Again they are actively resisting regulatory efforts to reduce their prices.

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3. 3G licensing - Thursday 30th January 2003

In the 1990s, the view of manufacturers and operators was that Europe had a global "lead" in mobile telecommunications and that to sustain this, it would be necessary to ensure the early availability of Third Generation (3G) frequencies, networks, services and hardware. This required a series of auctions and beauty contests which coincided with the final phase of the dot.com bubble. Operators in Europe committed themselves to massive payments for licences and to very rapid and expensive roll-outs of network infrastructure.

It quickly became clear that recovering the money necessary to pay for 3G was at best going to be a slow process and might possibly never happen. The financial market had brought to an end the bubble in telecommunication stocks and the ability of the operators to raise money was by then reduced virtually to zero. Many operators had considerable debts.

Further complications come from the successful deployment of IEEE 802.11b (Wi-Fi) and the threat of other technologies such as Ultra-Wide Band (UWB) and Fourth Generation (4G).

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