S.1 The purpose of Oftel’s market reviews is to assess the state of competition in a particular sector. In the light of that assessment, Oftel determines the level of regulation appropriate to the level of competition. This document presents the initial findings of Oftel’s review of competition in the mobile sector.
S.2 Oftel’s objective in carrying out this review is to ensure that the mobile sector is providing the consumer with the best possible deal in terms of price, choice and quality.
S.3 Oftel considers that the UK consumer is, in many respects, currently getting a good deal:
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prices are falling;
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there is evidence of competition on quality;
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overall customer satisfaction seems to be stable at a relatively high level; and
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the UK generally measures well against European benchmarks (although more data is needed before Oftel can conclude that the UK is maintaining its position).
S.4 However, it is also the case that:
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competition is not evident across all services. For example, Oftel’s view is that the UK consumer does not appear to get a good deal on international roaming and off net mobile to mobile calls;
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the structure of the mobile sector, with high barriers to entry, is consistent with a finding that prices remain above the competitive level, despite some competition;
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initial analysis of the mobile operators’ profitability suggests that the level of prices may still be above levels that would be found in an effectively competitive market; and
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for competition to be effective, consumers must be well informed, and Oftel is concerned that many consumers find information on mobile telephony products confusing.
S.5 The purpose of this consultation is for Oftel to reach final conclusions on whether effective competition exists and, if not, what regulation of the mobile sector is necessary, in the light of the outcome of this consultation. Oftel believes that the crucial questions to be resolved are:
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do the levels of profitability and the relative pricing of some operators mean that consumers are paying too much for mobile telephony services, or can at least some of the apparent high profitability be explained by the fact that these operators are efficient ?
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even if the mobile sector is not effectively competitive now, how far away is effective competition? Is it within the 2 year timescale considered by this review?
S.6 If as a result of this consultation and the consultancy work which Oftel will commission, Oftel concludes that effective competition exists, Oftel will remove any triggered mobile specific regulation designed to promote competition, including the obligations to supply service providers, not to unduly discriminate, and to supply Indirect Access operators. If, on the other hand, Oftel concludes that effective competition does not exist, Oftel will decide which operators should be designated as having market power and thus be subject to regulation designed to promote competition and prevent the abuse of market power.
S.7 In Chapter 1 of this document, Oftel sets out its updated market definitions for the mobile sector, which consists of distinct retail and wholesale markets, possibly with distinct retail markets for different services. Chapter 1 also gives an overview of the present regulatory framework.
S.8 Chapter 2 presents Oftel’s analysis of effective competition against the four groups of indicators Consumer Outcomes, Consumer Behaviour, Market Structure and Supplier Behaviour. Chapter 2 also presents the profitability analysis and sets out Oftel’s initial view that the mobile sector is not effectively competitive. Although persistent excessive profits may reflect prices above the competitive level or super-efficiency or a mixture of the two, the supporting analysis of relative prices in Chapter 3 argues that super efficiency alone is unlikely to explain the observed high profitability, although the possibility cannot be totally discounted at this stage. Chapter 3 also describes the evidence that Oftel needs in order to decide which operators, if any, have market power.
S.9 Chapter 4 sets out the regulatory impact of finding either that the mobile sector is effectively competitive or that it is not. It also explains why Oftel considers the present triggered regulatory framework to be broadly appropriate if the conclusion of the review is that effective competition does not exist. Chapter 4 also sets out how Oftel intends to approach the matter of Indirect Access obligations.
S.10 Chapter 5 contains details of the consultation process and describes the steps that Oftel intends to take to address particular areas of concern that have been raised by this review.
S.11 The annexes to the main consultation document contain Oftel’s consumer research, further details of the updated market definitions, details of the legal regulatory framework, further analysis of the competitive conditions for individual services, and detailed analysis of the profitability and calculations of the cost of capital of the mobile operators.
Full details http://www.oftel.gov.uk
