United Kingdom: Mobile Termination Charge Regulation

Editor’s Note: This practice note is based on Ofcom’s Statement on Wholesale Mobile Voice Call Termination, issued on 1 June 2004.

The European Union (EU) Communications Directives require the National Regulatory Authorities of Member States to review competition in their communications markets to ensure that regulation remains appropriate, given rapidly changing market conditions.

In keeping with the EU Directives Oftel, the United Kingdom’s telecommunications regulator, began a review of competition in the mobile wholesale call termination market in May 2003. Ofcom took over the review following its creation in December 2003 [1].

Findings

Following consultation Ofcom identified the following markets:

• Wholesales voice call termination provided by ‘3’,
• Wholesale voice call termination provided by Inquam,
• Wholesale voice call termination provided by O2,
• Wholesale voice call termination provide by Orange,
• Wholesale voice call termination provided by T-Mobile, and
• Wholesale voice call termination provided by Vodafone.

Ofcom concluded that each mobile network operator had significant market power (SMP) in the market for wholesale call termination on its network. Specifically it found that Vodafone, Orange and O2 each had SMP in the market for mobile termination on their 2G and, where offered, their 3G networks. This market power resulted from the combination of:

• The Calling Party Pays (CPP) regime, and
• The inability of current technology to allow other companies to offer termination services on a specific network, which creates an absolute barrier of entry and gives each mobile network operator a monopoly on wholesale termination of calls on its network.

In addition, the lack of countervailing buyer power in the market place makes it easier for mobile network operators to act independently of their customers and set excessive termination charges.

Ofcom’s analysis of the 2G voice call termination charges substantiated the finding of SMP. Ofcom found that charges appeared to be much higher than a reasonable estimate of each mobile network operator’s costs.

Ofcom also examined the possibility for competition to develop in the future in the provision of termination services. It concluded that this depended on how mobile technology and consumer behaviour developed. However, Ofcom noted that the likelihood of competition developing before 2006 was slim.

Remedies

Ofcom did not impose any form of ex-ante regulation of 3G voice call termination services at the time. This was because “3” was the only operator offering voice call termination service over a 3G network.

Ofcom imposed the following regulatory conditions on 2G mobile termination services.

2G Call Termination Services Provided by Vodafone, O2, T-Mobile and Orange

These network operators are required to:

• Provide network access upon a reasonable request,
• Do not unduly discriminate in the provision of network access,
• Provide Ofcom with copies of any new or amended access contracts,
• Give advance notice of price changes, and
• Reduce termination charges in line with charge controls

Call Termination Services Provided by Inquam and “3”

Inquam and “3” are required to give advance notice of any change in prices. In addition “3” must also provide Ofcom with the details of call volumes.

Termination charge controls

Ofcom introduced price controls on Vodafone, O2, Orange and T-Mobile, with respect to their 2G voice termination services. Under these price controls, each operator must meet specific target average charges. Ofcom set separate target average charges for:

• Fixed-to-mobile and off-net mobile-to-mobile call termination, and
• 900/1800 MHz and 1800MHz operators (reflecting different efficient charge levels for different technologies).

The price controls were for two periods:

• 1 September 2004 to 31 March 2005, and
• 1 April 2005 to 31 March 2006.

The target average charges were weighted based on the volumes of minutes of the relevant traffic carried by each mobile network operator in the previous year. Call minutes to ported-in mobile numbers were excluded from the weights.

Table 1 summarizes target average charges for fixed-to-mobile 2G voice termination for each period. Table 2 provides the same information for off-net mobile-to-mobile 2G termination.

Table 1: Target Average Charge for 2G Fixed-to-Mobile Voice Termination

*Subject to changes in time of day weights

Table 2: Target Average Charge for 2G Off-Net Mobile-to-Mobile Voice Termination

*Subject to changes in time of day weights

 (http://www.ofcom.org.uk/consult/condocs/mobile_call_termination/wmvct/wmvct.pdf)

Endnotes:

[1] Ofcom was formed by a merger of five regulators: the Broadcasting Standards Commission, the Office of Telecommunications, the Radio Authority, the Independent Television Commission, and the Radiocommunications Agency.