Credibility and analysis of Ofcom’s concerns
It is also noted by Ofcom that in future operators may seek further consolidation, by merger or by co-operative joint venture, and any such consolidation would be considered by relevant competition authorities at the proper time. Ofcom’s intention is to avoid the effects of consolidation as a result of the Auction outcome.
Credibility
By credible, Ofcom meant that a competitor exerts an effective constraint on its rivals with respect to factors like the provision of high quality services, competitive prices, choice and innovation and as such contributes to the overall competitiveness of the market.
Taking into consideration of the complex and multi-faceted nature of mobile services, technology, consumer demand and the characteristics of different spectrum holdings, Ofcom believes that no set of unique capabilities or spectrum portfolio would allow a national wholesaler to become a credible competitor.
Even if a national wholesaler is not in a strong position in some dimensions of service, or in delivering a particular service or to particular customers, it could become a credible competitor. A national wholesaler could be credible if it were able to provide good quality of service, like high data rates and latency, in most indoor locations even if it is not in a position to strongly compete for customers in the most difficult to serve locations.
Such differentiation between rivals is a feature of many competitive markets and it is not a cause for concern. It will add to the benefits of consumers because rivals will try to seek to exploit their advantages compared to competitors and resort to various ways to mitigate their disadvantages which may be creative or open up new possibilities for consumers.
While differentiation has some benefits, Ofcom considers that currently consumers are benefited from competition across a wide range of services and customers. The primary concern of the regulator is that the Auction may result in fewer than four national wholesalers who can be regarded as credible. . Over and above that there is a lesser anxiety that even though there are four credible national wholesalers, competition could be weaker due to the fact that one or more national wholesalers may hold lesser spectrum which would place them at a disadvantage in competing for some services and customers. For instance, a national wholesaler without sub-1 GHz spectrum may be at a disadvantage in serving customers who have a strong demand for deep indoor coverage.
The regulator considers that there are two types of advantage or disadvantage to individual national wholesalers arising from spectrum holdings that would affect the overall competitiveness of the market and interests of consumers.
- Whether a national wholesaler has the capacity to become a credible competitor
- Whether the national wholesaler (despite being credible) is disadvantaged in competing across some services/customers.
Although these two types of competition concern originate from a similar source, there is a difference in the degree of importance of each to competition and to consumers. In its analysis, Ofcom first considered the larger competition concern arising from the number of national wholesalers with sufficient spectrum to be considered as credible. Secondly Ofcom considered the lesser competition concern about competition for certain segments of services or customers.
With regard to the larger competition concern, Ofcom has developed a broad analytical framework, to assess the spectrum that would be required by a national wholesaler to be capable of becoming a credible national wholesaler in order to promote competition for mobile services in the market. Ofcom considers that a national wholesaler may need to achieve at least a minimum level of capability on certain service dimensions in order to be credible. Even if a national wholesaler is able to meet the minimum level of capability on a particular dimension, it may be at a relative disadvantage to other national wholesalers on that dimension. The regulator is also concerned that a national wholesaler which has disadvantages in respect of too many dimensions of service, and too few or insufficiently important strengths in other dimensions, would not be a credible competitor. Ofcom has considered all relevant factors in determining whether or not a particular national wholesaler is likely to become a credible competito
r.
Government’s policy towards future competition in mobile market
As required by the Direction and in the light of Ofcom’s primary duty, the main aim in this award is to promote competition in future mobile market for the benefit of consumers. This could be done by promoting competition at the national wholesale level. This supports the promotion of opposition at the retail level as successful retail competition depends on retailers either being national wholesalers or relying on access provided by national wholesalers.
In markets where there is no competition at the wholesale level, then regulation has to be used to mimic this competitive pressure. The outcome may not be substantial but it would be better than no regulation at all. Hence Ofcom believe that promoting competition at the national wholesale level is the best way to achieve its aim. There won’t be any need for regulatory interference as there would be competition at the retail level.
In Ofcom’s view the UK citizens and consumers are well served by the mobile markets in the UK and according to Ofcom competition between the national wholesalers is the reason for this best service. During the last decade, there were five national wholesalers to compete in the UK’s mobile market but currently there are only four national wholesalers as two companies, T- Mobile and Orange merged together to form Everything Everywhere. Each of these four national wholesalers today exerts a strong competitive force on the others.
A key input to the provision of mobile services is access to spectrum. As laid out in Section 3, spectrum is an exhaustible or limited resource especially at frequencies most suited to the efficient provision of mobile services. As such access to suitable spectrum will have significant impact on the nature of competition in the market and the services that it can offer.
A large amount of spectrum available for the provision of mobile services would be made available by this Auction. The scarcity of this type of spectrum would have significance over future competition in mobile markets and the extent to which individual national wholesalers are able to compete credibly with one another.
According to standard classifications, the present market is already concentrated and the consolidation of four national wholesalers to three would further concentrate the market. Not only that there are high barriers to entry to national wholesale mobile services apart from heavy infrastructure costs and scarcity of spectrum.
The regulator recognizes that the intensity of competition will depend on a range of factors like the strength of national wholesaler competitors, barriers to entry, the number of competitors etc. However, Ofcom considers that in such a concentrated market with high barriers to entry, the presence of more competitors would be better for the promotion of competition.
When consumers are having greater choice between providers of a service, providers would be forced to work hard and offer better services to win and retain customers. This process of rivalry will prevent the providers from increasing prices or lowering service quality. It would force them to invest and innovate and make it more difficult to coordinate their prices and services so as to avoid competition.
Ofcom considers that the reason for delivering a wide range of benefits for consumers by the four existing national wholesalers is the competition between them. Ofcom thinks that if as a result of this Auction only fewer operators happen to have access to sufficient spectrum, then it will lead to a reduction in competition which would be detrimental to the interest of consumers.
Ofcom has considered the effects of a reduction in competitive intensity on consumers. A reduction in competition in a market would prompt the national wholesalers to increase prices, to reduce investments in new services and to reduce investment in innovations compared to a more competitive market. In this case, the remaining national wholesalers would be benefited in this situation. However, such a change would adversely affect consumers in terms of higher prices, reduced choice and delayed access to improved or new services. That would be inconsistent with the duties assigned to Ofcom under Section 3(5) of the Communications Act 2003 in furthering the interests of consumers especially to their interests with regard to price, choice and service quality.
The market for mobile services is so large that in 2010 in mobile market was worth 15.1 billion Pounds. It is estimated that per head mobile connection in the UK is 1.3 active connections and great majority of UK adults and children use these services. For every two people in the UK there is a 3G connection. The value of a service to a consumer minus the price paid for that particular service is defined as consumer surplus. It is estimated that the consumer surplus generated in the UK during 2010 is 24 billion Pounds. This suggests that even small reductions in the intensity of competition could have a significant economic impact.
Basing on Ofcom’s competitions assessment and in accordance with the Direction, Ofcom has considered whether it should implement proportionate and appropriate measures through rules that govern the Award with the aim of promoting competition in such markets after the completion of that award. Ofcom has specifically considered whether it is to introduce measures to ensure that there are at least four operators to have access to spectrum to enable them to become credible national wholesalers at the wholesale level after the Auction.
Competition assessment of future mobile markets
During the last couple of years there has been a substantial increase in the use of mobile data services and that increase is expected to continue. The importance of data services including mobile broadband has been recognized by the Government. The Government has issued Direction to Ofcom to guarantee the release of additional spectrum for the use of next generation wireless mobile broadband providers, its early deployment, to maximize coverage of those services and to create greater investment assurance for operators.
According to Section 3 of the Communications Act and Article 8 of the Framework Directive, Ofcom’s primary duty is to promote the interests of people in respect of communications matters, and the interests of customers in pertinent markets where suitable by upholding competition.
Ofcom is required by the Direction to assess the probable competition in markets in future for electronic mobile communications services. This assessment must be in respect of the competitiveness of those markets in future once the Auction process is over, taking into consideration the likely effects of the Award. The assessment should also take into consideration the possibility for new entry into the markets.
The Direction requires that basing on the assessment; Ofcom should implement proportionate and appropriate measures which it thinks fit, including rules that govern the award, with the aim of promoting competition in those markets after the close of the award.
Competition assessment: future national wholesale competition.
As laid out in previous Consultations, March 2011 and January 2012, Ofcom distinguish between three types of competitors who provide mobile services and the regulator use the following terminology or jargon to describe those types: National wholesaler, Sub-National Radio access Network (RAN) operator, and Other Retailers.
Ofcom foresee that all the three types of competitor would continue to operate in the retail market in the future also.
Here Ofcom use the terminology “National Wholesaler” to denote the companies that control wholesale access to national RANs. Ofcom uses this term ‘National Wholesaler’ rather than the more widely used term “Mobile Network Operator” (MNO) because owners of sub-national RANs are also network operators although on much smaller scale. Not only that National Wholesalers could share or contract for access to national RANs and still be in a position of controlling wholesale but not operating the network.
National wholesalers supply access to their RANs to their own downstream retail operations and a variety of other downstream retail operations, including “mobile virtual network operators” (MVNOs), and operators of smaller sub-national RANs. In this context, parties who are already supplying third parties in a wholesale market and those who have the capacity to do so but do not and supply only to their own retail operation are included in ‘National Wholesalers’. Operators who engage in RAN sharing but maintain independence as a wholesaler on a national basis are also included in ‘National Wholesaler’ terminology. As per the above characterization there are four national wholesalers in the UK at present and they are Everything Everywhere, Telefonica, Vodofone and H3G.
The term ‘Fourth National Wholesaler’ is used in the competition assessment by Ofcom is to denote an existing or potential new national wholesaler other than the three current largest wholesalers namely Telefonica, Vodafone and Everything Everywhere.
The term ‘sub-national RAN operators’ is used by Ofcom to refer the operators who own RANs but who are not national wholesalers. They operate only in a limited part of the UK. In this section Ofcom identifies potential competitors of this type who have access to certain sites (typically indoors) and operate some low-power radio access equipment.
Likewise, any competitor who provides mobile services to consumers but is not a national wholesaler or a sub-national RAN operator is termed as ‘Other retailer” by Ofcom. MVNOs (Mobile Virtual National Operator) are the main category of these competitors. By buying network services from a National Wholesaler, these retailers compete. National Wholesalers agree to supply the mobile services used by the retailer’s customers. All other functions like signing up customers, billing etc would be managed by the retailer.
Competition assessment of future mobile markets
During the last couple of years there has been a substantial increase in the use of mobile data services and that increase is expected to continue. The importance of data services including mobile broadband has been recognized by the Government. The Government has issued Direction to Ofcom to guarantee the release of additional spectrum for the use of next generation wireless mobile broadband providers, its early deployment, to maximize coverage of those services and to create greater investment assurance for operators.
According to Section 3 of the Communications Act and Article 8 of the Framework Directive, Ofcom’s primary duty is to promote the interests of people in respect of communications matters, and the interests of customers in pertinent markets where suitable by upholding competition.
Ofcom is required by the Direction to assess the probable competition in markets in future for electronic mobile communications services. This assessment must be in respect of the competitiveness of those markets in future once the Auction process is over, taking into consideration the likely effects of the Award. The assessment should also take into consideration the possibility for new entry into the markets.
The Direction requires that basing on the assessment; Ofcom should implement proportionate and appropriate measures which it thinks fit, including rules that govern the award, with the aim of promoting competition in those markets after the close of the award.
Competition assessment: future national wholesale competition.
As laid out in previous Consultations, March 2011 and January 2012, Ofcom distinguish between three types of competitors who provide mobile services and the regulator use the following terminology or jargon to describe those types: National wholesaler, Sub-National Radio access Network (RAN) operator, and Other Retailers.
Ofcom foresee that all the three types of competitor would continue to operate in the retail market in the future also.
Here Ofcom use the terminology “National Wholesaler” to denote the companies that control wholesale access to national RANs. Ofcom uses this term ‘National Wholesaler’ rather than the more widely used term “Mobile Network Operator” (MNO) because owners of sub-national RANs are also network operators although on much smaller scale. Not only that National Wholesalers could share or contract for access to national RANs and still be in a position of controlling wholesale but not operating the network.
National wholesalers supply access to their RANs to their own downstream retail operations and a variety of other downstream retail operations, including “mobile virtual network operators” (MVNOs), and operators of smaller sub-national RANs. In this context, parties who are already supplying third parties in a wholesale market and those who have the capacity to do so but do not and supply only to their own retail operation are included in ‘National Wholesalers’. Operators who engage in RAN sharing but maintain independence as a wholesaler on a national basis are also included in ‘National Wholesaler’ terminology. As per the above characterization there are four national wholesalers in the UK at present and they are Everything Everywhere, Telefonica, Vodofone and H3G.
The term ‘Fourth National Wholesaler’ is used in the competition assessment by Ofcom is to denote an existing or potential new national wholesaler other than the three current largest wholesalers namely Telefonica, Vodafone and Everything Everywhere.
The term ‘sub-national RAN operators’ is used by Ofcom to refer the operators who own RANs but who are not national wholesalers. They operate only in a limited part of the UK. In this section Ofcom identifies potential competitors of this type who have access to certain sites (typically indoors) and operate some low-power radio access equipment.
Likewise, any competitor who provides mobile services to consumers but is not a national wholesaler or a sub-national RAN operator is termed as ‘Other retailer” by Ofcom. MVNOs (Mobile Virtual National Operator) are the main category of these competitors. By buying network services from a National Wholesaler, these retailers compete. National Wholesalers agree to supply the mobile services used by the retailer’s customers. All other functions like signing up customers, billing etc would be managed by the retailer.
Competition assessment of future mobile markets
During the last couple of years there has been a substantial increase in the use of mobile data services and that increase is expected to continue. The importance of data services including mobile broadband has been recognized by the Government. The Government has issued Direction to Ofcom to guarantee the release of additional spectrum for the use of next generation wireless mobile broadband providers, its early deployment, to maximize coverage of those services and to create greater investment assurance for operators.
According to Section 3 of the Communications Act and Article 8 of the Framework Directive, Ofcom’s primary duty is to promote the interests of people in respect of communications matters, and the interests of customers in pertinent markets where suitable by upholding competition.
Ofcom is required by the Direction to assess the probable competition in markets in future for electronic mobile communications services. This assessment must be in respect of the competitiveness of those markets in future once the Auction process is over, taking into consideration the likely effects of the Award. The assessment should also take into consideration the possibility for new entry into the markets.
The Direction requires that basing on the assessment; Ofcom should implement proportionate and appropriate measures which it thinks fit, including rules that govern the award, with the aim of promoting competition in those markets after the close of the award.
Competition assessment: future national wholesale competition.
As laid out in previous Consultations, March 2011 and January 2012, Ofcom distinguish between three types of competitors who provide mobile services and the regulator use the following terminology or jargon to describe those types: National wholesaler, Sub-National Radio access Network (RAN) operator, and Other Retailers.
Ofcom foresee that all the three types of competitor would continue to operate in the retail market in the future also.
Here Ofcom use the terminology “National Wholesaler” to denote the companies that control wholesale access to national RANs. Ofcom uses this term ‘National Wholesaler’ rather than the more widely used term “Mobile Network Operator” (MNO) because owners of sub-national RANs are also network operators although on much smaller scale. Not only that National Wholesalers could share or contract for access to national RANs and still be in a position of controlling wholesale but not operating the network.
National wholesalers supply access to their RANs to their own downstream retail operations and a variety of other downstream retail operations, including “mobile virtual network operators” (MVNOs), and operators of smaller sub-national RANs. In this context, parties who are already supplying third parties in a wholesale market and those who have the capacity to do so but do not and supply only to their own retail operation are included in ‘National Wholesalers’. Operators who engage in RAN sharing but maintain independence as a wholesaler on a national basis are also included in ‘National Wholesaler’ terminology. As per the above characterization there are four national wholesalers in the UK at present and they are Everything Everywhere, Telefonica, Vodofone and H3G.
The term ‘Fourth National Wholesaler’ is used in the competition assessment by Ofcom is to denote an existing or potential new national wholesaler other than the three current largest wholesalers namely Telefonica, Vodafone and Everything Everywhere.
The term ‘sub-national RAN operators’ is used by Ofcom to refer the operators who own RANs but who are not national wholesalers. They operate only in a limited part of the UK. In this section Ofcom identifies potential competitors of this type who have access to certain sites (typically indoors) and operate some low-power radio access equipment.
Likewise, any competitor who provides mobile services to consumers but is not a national wholesaler or a sub-national RAN operator is termed as ‘Other retailer” by Ofcom. MVNOs (Mobile Virtual National Operator) are the main category of these competitors. By buying network services from a National Wholesaler, these retailers compete. National Wholesalers agree to supply the mobile services used by the retailer’s customers. All other functions like signing up customers, billing etc would be managed by the retailer.
« Previous Page — Next Page »
