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Revised transcript of evidence taken before

The Select Committee on European Union

Internal Market, Energy and Transport (Sub-Committee B)

Inquiry on

ROAMING REGULATION

Evidence Session No. 1. Heard in Public. Questions 1 - 36

MONDAY 5 MARCH 2012

3.45 pm

Witnesses: Robyn Durie, Erzsébet Fitori, Julie Minns and Bob Warner

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MEMBERS PRESENT

Baroness O’Cathain (Chairman) Lord Bradshaw Lord Brooke of Alverthorpe Lord Fearn Lord Haskel Lord James of Blackheath Lord Plumb Lord Rowe-Beddoe Lord Ryder of Wensum Lord Walpole ________________

Examination of Witnesses

Robyn Durie, Director of Regulatory Affairs, Everything Everywhere, Erzsébet Fitori,

Director of Regulatory Affairs, European Competitive Telecommunications Association,

Julie Minns, Head of Public Policy and Corporate Responsibility, Three UK, and Bob

Warner, Chair, Communications Consumer Panel.

Q1 The Chairman: Good afternoon. Thank you very much indeed for coming here. I

have to remind Members of the Committee that they have got to declare interests before

they speak, if they have any that are relevant. This session is on the record and is being

webcast live, and will be subsequently accessible via the Parliamentary website. The

witnesses will receive a transcript of the session to check and correct, and this will be put

on the public record in printed form and on the Parliamentary website. I would like to ask

the witnesses individually if they could begin by stating for the record their name and official

title, and whether they would like to make an opening statement. We will start with you,

from the right-hand side.

Erzsébet Fitori: My name is Erzsébet Fitori and I am director of regulatory affairs at ECTA,

the European Competitive Telecommunications Association. I have not prepared an opening

statement.

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Bob Warner: I am Bob Warner, chairman of the Communications Consumer Panel. I have

not prepared an opening statement either.

Q2 The Chairman: That is all right. Is that the panel that has been set up by Ofcom?

Bob Warner: It is semi-independent of Ofcom. It was set up to advise Ofcom and other

agencies on communications matters for consumers. We are a sort of consumer advocacy

body, funded by Ofcom but statutorily separate.

Julie Minns: I am Julie Minns. I am head of public policy at the mobile network Three. Just by

way of background, Three was the new entrant to the mobile market created in the 2000

3G auction so, unlike our competitor UK networks, we operate a purely 3G network, with

no legacy 2G services.

Robyn Durie: I am Robyn Durie and I am the regulatory director of Everything Everywhere,

which was formed last year with the merger of T-Mobile and Orange. We are now the

largest mobile operator.

Q3 The Chairman: Thank you. You have a list of the questions that we are going to ask. I

would like to ask the first one. Why are the roaming charges currently so high, particularly

in the case of mobile data, and how can these charges be justified? Who would like to

answer that?

Robyn Durie: I will start off, because I suspect that everyone to my left will probably say

something different. As far as we are concerned, we do not think that roaming charges are

high. Roaming charges have come down: they started coming down prior to the first

roaming regulation and they have steadily come down. As far as mobile data is concerned,

mobile data is a relatively new market and prices have come down quite dramatically. For

example, on our Orange network we provide 30 megabytes of data for £3, and on our T-

Mobile network we provide 50 megabytes of data for £10, so given the value of these

services I do not think that the charges are particularly high. All customers who are

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interested in either voice and SMS or data roaming can buy add-ons, which enable them to

have very competitive roaming prices.

Q4 The Chairman: Thank you very much, but can I just ask why there is a big

discrepancy between the two that are owned as part of the same organisation?

Robyn Durie: Our two brands are directed at slightly different markets, so our T-Mobile

brand is centred on the best value for customers, whereas our Orange brand is about giving

innovative solutions and, again, good value but perhaps with a few more extras than the T-

Mobile brand.

Q5 The Chairman: Is the customer aware of the difference?

Robyn Durie: Most customers have never heard of Everything Everywhere.

Lord Brooke of Alverthorpe: That is true. I declare an interest, as I am one of them.

The Chairman: That is my interest too, and I had not heard of it either—well, until we

started looking at this.

Robyn Durie: Most customers associate themselves either with T-Mobile or Orange,

although we are a single company and have been since July last year.

Q6 The Chairman: Is it partly because the perception of the ordinary man or woman in

the street is that Orange seems to do an awful lot of advertising, sponsorship and all the rest

of it, whereas you hardly ever see reference to T-Mobile? Is that a strange comment by me?

Robyn Durie: I think it is, because T-Mobile last year had a very successful viral advertising

campaign. It did a royal wedding spoof that I think was one of the most popular viral

advertisements, certainly in this country, where it was the second most watched.

The Chairman: After John Lewis?

Robyn Durie: Probably after John Lewis. So yes, it certainly seems very much a value-for-

money brand, so it is not large in sponsorship but it does advertise. Currently we have a

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very successful “Full Monty” promotion, which you might have seen advertised on television

or on billboards.

The Chairman: I am sorry but I have not seen that, actually. It might have been

interesting. The only time I hear of T-Mobile is because it is the service provider for our

BlackBerrys here in the Houses of Parliament. I never see any reference to it outside so I

just think, “Well, who is T-Mobile?” I know that I see T-Mobile every time I turn my

Blackberry off, but that is the only time I see it. However, it just shows how unperceptive I

am as a customer. Ms Minns?

Julie Minns: I would agree with Robyn Durie insofar as I am about to disagree with her. We

do not believe that these charges can be justified and it is absolutely correct that the EU has

focused on this as a key issue in terms of consumer protection, both with roaming I and

roaming II, and now with this third set of roaming regulations. As to why roaming charges

are as high as they are, the key from Three’s perspective is to do with the wholesale charge.

For us as a network who want to facilitate our customers’ roaming on to other networks

when they travel outside the UK, we obviously need to negotiate a wholesale agreement

with the roaming partner. Now, while we might be able to negotiate a reasonable wholesale

rate from one network in, say, Spain, that is not going to be the case for all of the networks

in Spain. What that does to our retail rate is set it at a level where we are not making a loss

on any of the networks that we are roaming on to. Clearly, the new regulations in front of

the European Parliament and the Council at the moment include a cap for data. I think it is

fair to say that voice and SMS, which have been the subject of quite detailed regulation in the

first two sets of roaming regulations, are broadly where they should be—I think that what

the European Parliament proposed last week would bring them down a little bit further, but

they are now at a reasonable wholesale level. That is not the case for data or internet. For

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us, that means that the retail price we are able to offer to our consumers is too high, and we

need some certainty there on the wholesale rate.

Q7 The Chairman: The point you make about Spain is very interesting. Is there actually a

reason why there should be a single roaming charge throughout the 27 member states?

Julie Minns: Bob Warner may want to speak a little more about what it means for

consumers, but our consumers would prefer not to have to have individual country rates. It

is much simpler for the consumer if they know that, when they travel to Europe, they are

going to pay a specific rate regardless of the country. The greater the degree of complexity, I

think the more you heighten the risk of the customer not really understanding what those

charges are. We would prefer it to be simple, and having a single wholesale rate for the

whole of Europe therefore helps us achieve that level of clarity for our customers.

The Chairman: But the operators are not prepared to accept that argument.

Julie Minns: Well, from a Three perspective we accept that argument on the wholesale rate

and we are very welcoming of the proposals. That is certainly not the case, as you have

heard Robyn Durie say, for Everything Everywhere and for the other two UK networks.

The Chairman: Thank you very much. Mr Warner?

Bob Warner: I will come back to the single wholesale rate point later on. In answer to the

question, it is very clear that rates have been too high for too long and really have only

started coming down since Europe took an interest in this. That may have been slightly

before they actually made any legislation on it, but certainly after the stage where Europe

gave publicity to it and started to make noises there have been some significant changes. I

would agree with Julie Minns and Robyn Durie that the voice and text prices are now getting

down to reasonable levels and, with the proposals that are now available for wholesale rates,

that should take them down to levels which are okay for consumers.

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I think the most important aspect of all this is the wholesale rates, because we believe that

the best thing for consumers is to have a properly working competitive market. If you

intervene on retail rates then in a sense you are always going to distort that market; it has

been necessary to intervene on retail rates—because nothing would have happened if they

did not—and it is still necessary to have some intervention, but we would like to see those

worked out of the system. If you look at the innovation that the operators have done in

their charging over the last 18 months or so, there are now some quite sensible packages

targeted at particular types of users when they are working in Europe, both in voice and to a

lesser extent in data, so there is a market developing. That is a good thing and as long as we

can get the wholesale rates down low enough to provide some decent competition between

the operators, I think we can see something that works for consumers.

However, on data the prices are still much too high. The dilemma for the operators is that

they probably undercharge for data in the UK and overcharge abroad, so that consumers get

used to having data at very low if not zero marginal rates at home and develop a usage

pattern. Then they go abroad and suddenly they get hit really hard.

The Chairman: With ‘bill shock’?

Bob Warner: ‘Bill shock’, exactly, and that is mostly concerned with data these days. To

some extent that is in Europe, but actually outside Europe it is even worse. Data is the area

that concerns us most. We would like to see the data wholesale rates coming down as

quickly as possible to sustainable levels. Julie Minns and I probably differ about what the

sustainable level is. I think if you take it down too low, there is a risk that you are going to

stifle competition and investment. There is a long way to go before you get to that level, but

lower does not always mean better. There comes a point where it is probably not in the

consumer’s interest to go any lower, but as I say we are quite a long way from there at the

moment.

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If I could just deal with wholesale, from a consumer's point of view if you are travelling “to

Europe”, you would like to know what your operator is going to charge you and you

probably would not want to have a different rate for Germany, Holland or Spain, or

wherever. It certainly is helpful for the consumer to know what their operator is going to

charge in Europe. It does not mean—and I do not think it should mean—that if I am a

Vodafone consumer I will be charged the same as if I was an O2 consumer, or necessarily

that the charge would be the same depending what package I was on. At the consumer level,

it is desirable for the consumer to be charged the same charge in each of the European

countries, but that charge may well differ from operator to operator or package to package.

The underlying thing to make that work is that there should be one wholesale rate across

Europe. I think that makes sense.

The Chairman: Right. And Ms Fitori?

Erzsébet Fitori: First, allow me very briefly to explain who we are. ECTA is the pan-

European trade association that represents more than 150 pro-competitive operators across

Europe, and because this is a large member base—I will explain how we have different types

of members—my response will be slightly more nuanced than the responses of the other

speakers. We represent fixed alternative operators, which are typically the second and third

entrants in any given European fixed market. They typically do not have a mobile operation

but would like to enter the mobile market in one way or another. Another membership

category is the challenger mobile operators, which would typically be the third or fourth

entrants into the European mobile markets who may not have as good a spectrum allocation

as the first or second entrants. Their interest is certainly in expanding further, and perhaps

in building either a physical or a virtual presence in the European Union—a pan-European

presence. The third category I would like to mention is pan-European business service

providers, which are mostly fixed operators such as BT Global Services, who are seeking to

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serve multinational corporations with a seamless service that could potentially include

mobile services. Because we have such divergent members, they have slightly different views

but one thing all of them accept is that it is probably justified and necessary, for a temporary

period, to continue with the price cap mechanism proposed by the Commission in the

roaming regulation.

As to how in the long-term you could achieve a more sustainable situation where roaming

prices actually come down, our members have different views. Our mobile network

operator members would like to see an option in the roaming regulation whereby they

would not have to implement the quite costly structural measures that have been proposed

by the European Commission—not the price cap system, which they accept, but the

structural measures where you would have to decouple roaming services from your

domestic services. They want to have an option whereby they could voluntarily include

roaming services in the domestic packages for a minor surcharge, which would be what we

defined in our position as something that is significantly close to domestic charges. That

would be best defined by the national regulators group BEREC.1

On why roaming charges are so high, our fixed-only members and business service providers

who do not have a mobile arm have a different view. They think that it is actually a structural

problem with the mobile market, because of the lack of competition. There are basically two

important comments from these types of operators. One is that the structure of the

wholesale roaming market should be addressed because, currently, wholesale traffic is

exchanged basically on a volume basis as barter deals. They are not real deals but barter

deals among the large groups. In particular, very late entrants to the mobile market would be

interested in breaking these barter deals. In particular, fixed-only members and business

service providers would like to see wholesale access provision in the roaming regulation to

1 Body of European Regulators for Electronic Communications

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enter the mobile market, which is partly covered by the proposal of the European

Commission.

Q8 Lord Brooke of Alverthorpe: I think my question may have been answered in part,

particularly by Mr Warner’s contribution, although I am quite sure that there will be two

views expressed. Is European regulation needed in this area? Could we have totally free

markets, or do we need the regulation? From listening to what we heard so far, it seems that

it is the regulation at European level which has pushed the price down.

Bob Warner: In the long term you need wholesale price regulation, just as we have in the

UK—and, I think, in most other countries—for internal mobile termination rates, as they are

called. In the long term, you have to have regulation at that level, but it would be better if

you could avoid having it at the retail level, because that tends to distort competition. I

would therefore like to think that there was sufficient competition for us to be able to move

to that, but the point is that we are not there yet. We certainly need to keep those retail

caps as a safeguard for people for a while, but we need to keep an eye on the market. It has

changed a lot over the last 18 months to two years. If it continues to evolve and, within

Europe, we continue to see prices coming down and packages tailored to individuals’ needs

being produced, then that is the time to back off the retail regulation. But I think you will

always need wholesale regulation, because otherwise you will not get a competitive market

in provision between the operators.

Julie Minns: I would expand a little on what Bob Warner has just said and touch on the

point that Ms Fitori mentioned about the bargaining advantage that you have if you are a

larger network with a significant footprint, as we call it—that is, operations in a large

number of the member states. The advantage you get from being a big operator with

companies in the majority of member states is that you are then able to bring to the table a

sizeable reciprocal arrangement. For a network such as Three—we operate in only six

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member states—we hit exactly that problem which has been explained here. It becomes

difficult for us to negotiate favourable wholesale rates so, to answer your question, at the

wholesale level we believe this cap is absolutely necessary. What is happening at the moment

in the data or mobile internet market is that those high charges are impacting very directly

on consumer behaviour. Typically, on our network our customers in the UK are using about

1 gigabyte of data each month. When they travel abroad they are using nothing like that

amount, just because it is prohibitively expensive. What is happening at the moment is the

pricing is very directly impacting on consumer behaviour when you travel abroad. It strikes

me that when I travel abroad, I would quite like to be able to use, say, the maps on my

phone to navigate my way round rather than carry around a travel guide. There is a huge

advantage to consumers in getting this regulation right for internet data this time round.

Q9 Lord Brooke of Alverthorpe: Ms Durie, would you like to cover the case for the

defence? What are you doing to reduce prices proactively, and why do they all seem to

coalesce around the caps?

Robyn Durie: To some extent, others have picked that up. One of the problems is that we

have both wholesale and retail regulation. I think the last time that this Committee—with

slightly different Members—looked at the issue, it was in favour of wholesale regulation and

not retail regulation, because the problem with retail regulation is that prices tend to hover

around that area. A particular problem in the UK is that the regulation is set in euros and,

because the pound has gone down faster than the euro, this has definitely meant that to get

a reasonable return operators have tended to put their overall prices at close to the

regulated rate. As I said, that is a problem with retail regulation.

Having said that, we are as keen as other operators to see our customers using their phones

when abroad, so there are large numbers of offers that are made available to anyone who is

roaming. On the Orange network, we provide 25% off people’s voice and SMS traffic—

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different amounts, depending on the amount of roaming which they want to do—as well as

data offers, so there is competition.

One other thing that I would like to say, which I think has been slightly picked up before, is

that the proposed roaming regulation III does try to introduce competition. We would like

to see more competition in this market rather than price caps, because the natural effect of

price caps is that the vast majority are priced near the cap. This draft has introduced the

idea of both wholesale access and unbundling of services, which we would welcome because

we think that competition is far more effective than price caps in bringing down prices and

providing the services that customers want.

Q10 Lord Brooke of Alverthorpe: So do you see more competitors in five years’ time?

Robyn Durie: I do, but one of the problems, particularly with the vote in the European

Parliament last week, is that there is not much difference between the retail and wholesale

caps, except perhaps on data. If you do not have a sufficient margin, that is going to deter a

large number of competitors, other than those that perhaps cater for the high-end business

travellers who are travelling frequently across Europe.

Q11 Lord Brooke of Alverthorpe: Ms Fitori, would you like to come in?

Erzsébet Fitori: I think we would all recognise on this panel that retail caps and retail

regulation is probably one of the most intrusive types of regulation. However, as I said,

ECTA’s members also recognise that, in light of the price developments, it is probably

justified to continue with it for a temporary period. From our members’ perspective, the

most important thing is that there is sufficient space—I would not call it a margin but more

an economic space—between the wholesale and the retail caps. Let us not forget that the

retail caps are there in order not to go beyond them, but operators are at liberty to go

below the caps. The important thing, if we want to improve competition, is to leave a big

enough economic space in which operators can move their prices. That is not to say that

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they should keep it at the cap level at all or that retail caps should be increased. All I am

saying is that the economic space should be there in-between wherever you put the

wholesale and the retail level.

Q12 Lord James of Blackheath: Given that the European Commission's original

proposals for price caps on roaming charges were well established and that the Committee

on Industry, Research and Energy has now come in with a series of amendments which

appear to lower these caps, how do you—

The Chairman: Oh dear, excuse me. I am very sorry. I should have warned the witnesses

that we were likely to have a Division. I am sorry, but we are going to be away for probably

eight to 10 minutes.

[Meeting suspended for a Division in the House.]

Q13 Lord James of Blackheath: Following the European Commission’s original

proposals for price caps, what is your opinion of the amended proposals of the Committee

on Industry, Research and Energy, which would reduce those caps? How practical is that as

an overall approach?

Erzsébet Fitori: Given our diverse range of members, we do not have a unanimous view on

price caps.

Q14 Lord James of Blackheath: Given your lack of a unanimous view, what is your

view on the practicality of the implementation of those proposals?

Erzsébet Fitori: On the price cap proposals, regardless of the level proposed—whether by

the Commission or by the ITRE Committee—I think that it is highly likely that

implementation would be quite smooth. The track record on the two preceding roaming

regulations shows that the level of compliance with the price caps has been extremely high,

with hardly any deviations by any operators being reported by BEREC.

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Q15 Lord James of Blackheath: That seems to be quite an encouraging view about how

the price caps would work. What is the view of the operators?

Julie Minns: Let me deal with the issue in two parts. On the ITRE Committee’s vote to

bring down slightly the price caps for voice and text, I would share Mr Warner’s concern

about voice and text retail caps being reduced any further because I think that there would

be a genuine danger that the caps would act as a deterrent to competition, as there would

not be sufficient margin to incentivise operators to come into the voice and text market.

On data and internet, however, I think that the Commission’s starting point was overly

cautious. It might aid this Committee if I just put some figures on the Commission’s original

proposals. Originally, the Commission recommended a wholesale cap of €0.10 per

megabyte—I apologised for all these references to bytes, gigabytes and cents. As I have

already mentioned, a typical customer on our Three network in the UK already uses at least

1 gigabyte of data—that is, 1,000 megabytes—a month, so you will readily understand the

scale of what happens when that €0.10 is multiplied by 1,000. The Commission’s proposal

was for €100 per gigabyte just for the wholesale rate. To get from that wholesale rate to

what the customer would actually pay, the Commission offered a range of options, one of

which was a retail rate of five times the wholesale rate, so you could have been looking at

€500 per gigabyte for a month. For a typical holiday-maker taking a two-week break, you

would be looking at, say, €250, which equates to around £210 just for using your

smartphone during a two-week break. It is important to bear in mind that the Commission

has a cap in place so that you cannot spend more than €50—

The Chairman: You would not want to spend €500 per month.

Julie Minns: But that cap is simply stopping customers doing what they want to do rather

than getting the pricing right.

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Q16 Lord James of Blackheath: If I understand you correctly, you are saying that the

application of the caps is having the effect of forcing the operators to reduce the quality and

range of service that they can provide.

Julie Minns: It is forcing consumers not to use their phone abroad as they would at home.

The fact that there is a limit on what you are allowed to let customers spend when they

roam means that people are stopped from using their smart phones.

Q17 Lord James of Blackheath: So that is a customer choice issue rather than a

provider limitation.

Julie Minns: It is a regulatory issue. If customers were to spend up to £210—based on the

Commission’s proposals—during a two-week break, they would not get anywhere near that

because, under the existing regulation, they are allowed to spend only €50 in any period.

To answer Lord James’s question, I think that the Commission’s starting point was definitely

overly cautious. We think that the ITRE committee’s proposals last week are a more

sensible position on the cap for wholesale data.

Lord James of Blackheath: Ms Durie is looking as though she does not entirely agree.

Robyn Durie: I do not entirely agree on the legal point. We are required to warn customers

once they reach 80 per cent of the €50 limit, but there is nothing to say that, once

customers have reached €50, they cannot continue roaming. I am a great advocate of the T-

Mobile network’s bolt-ons, which are required before you can start data roaming—and,

once spent, you cannot continue roaming until you have bought another—so there is

absolutely no ‘bill shock’ and you can use data as much as possible. I just want to clarify that

there is no legal limit.

To answer Lord James’s main question, from Everything Everywhere’s point of view the ITRE

committee’s proposed caps for voice and SMS were too low and its proposed caps for data

were too low and go on for too long. The committee’s proposed retail caps on data roaming

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would continue until 2017 and, for wholesale, until 2022. That is a very long period, given

that structural entry into the market has to be made available in two years’ time. Given that

the Commission is looking to build a digital Single Market operators have to make a return,

and we are being asked to bid for spectrum this year to build 4G2 and other networks.

Certainly from Everything Everywhere’s point of view, we are committed to spending a lot

of money to provide the best possible network in the UK and, unless we can make a

reasonable return, the proposals will make it difficult for us to do that. MEPs should bear in

mind that customers are probably far more concerned that we invest in our networks in the

UK—and that our related companies elsewhere should be able to do so in their countries—

rather than just having a mechanistic reduction in retail prices.

The Chairman: I would not bet on that from a consumer point of view.

Q18 Lord James of Blackheath: Do the other operators have a similar view? Given that

it seems to be 1-1 at the moment, does anyone else want to try to score the deciding goal?

Bob Warner: I will try to answer on behalf of the consumer—I certainly will not affect to

speak for the other operators. ‘Bill shock’ is a real problem, particularly for data. A lot of the

advice to consumers is simply, “Turn off data roaming when you go to Europe”, but

consumers should not really have to lose utility in that way. Someone earlier mentioned a

mapping application, which I also use an awful lot, but I never use that abroad because it is so

expensive. I think that the wholesale caps are getting us in the right direction and probably,

in terms of timing and the values, are about right.

Julie Minns quoted UK customers as using 1 gigabyte a month, but I think that the mobile

operators have created an issue for themselves by getting people in the UK hooked on free

data. Data is not free to the operators to provide it, but people in the UK will use 1 gigabyte

of data because it feels free in the UK and that is why it costs a lot when they go abroad. On

2 Fourth generation mobile networks

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behalf of consumers, I would go as far as has been proposed, but if we were to go below

those levels I think that we would really need to be careful that we do not bring in

unforeseen consequences. As I said, the wholesale rates are the most important things here

because, if the wholesale rates are right and the market works, there should be packages

available for consumers. In answer to your question, I guess that I am between the two

positions—probably I would say that these rates are okay, but I certainly would not go any

further to some of the lower rates that Three has occasionally put out.

The Chairman: Lord Ryder will ask the final question on ‘bill shock’, which I think, having

listened to what has been said, has a natural follow-through.

Q19 Lord Ryder of Wensum: I am conscious that ‘bill shock’ has come up in response

to previous questions, when it was mentioned by Mr Warner. As a customer, I am acutely

conscious of its perils, particularly outside the EU, so I wonder whether you feel that the EU

should be taking clearer action on this. In that context, would you like to expand on some of

your earlier replies?

Bob Warner: Absolutely, ‘bill shock’ is much worse outside the EU than within the EU.

Obviously, the EU’s remit is more limited out there—for instance, it has no ability to fix

wholesale rates in the rest of the world—but it can and should fix capping arrangements so

that, just as happens in Europe, consumers know that when they use their phone they will be

charged only up to a certain amount before they need consciously to contract in for the

next bit. In its recent work on ‘bill shock’, Ofcom recommended that operators should

voluntarily introduce measures for the rest of the world similar to those that they have for

Europe, but if that does not happen, Ofcom—and we—would support the EU introducing

those sorts of caps. Indeed, Ofcom went further and said that, if Europe does not do that,

the UK should do it unilaterally. I think that ‘bill shock’ is now a much bigger problem in

relation to the rest of the world than it is in the UK.

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Q20 Lord Rowe-Beddoe: Could I just ask a follow-up to that? From the consumer

viewpoint, is enough being done to advise the consumer on the implications of texting or

picking up messages wherever you may be? As a consumer, I have never been conscious of

receiving anything about that.

Bob Warner: Within Europe, you should—and I am sure will—always get a text message

when you arrive somewhere telling you what the data rate is and suggesting that, if you do

not want to contract into data use, you should switch off your data roaming.

The Chairman: I do not think that the last part comes up on the message.

Lord Rowe-Beddoe: No, it says that the rate is 37p per minute or something. If you have

a small phone rather than a big phone, you can miss that. As we get billed monthly, whether

online or not, perhaps the companies ought to be more consciously advising consumers not

just by text but by saying, “We would like you to use your phone abroad, but the

consequences are as follows.”

Bob Warner: The problem is that, for almost all consumers, this is a relatively small and

infrequent purchase, so they do not give a lot of time to researching it. If you go on the

operators’ websites, you can find the information. If you go on Ofcom’s website, there are

some really good tips on using your phone abroad, which includes turning off data roaming.

Lord Rowe-Beddoe: But you have to be proactive.

Q21 The Chairman: Are we ever told that we should look at Ofcom’s website?

Seriously, I am just having nightmares because I fly quite a lot and, of course, my new toy is

an iPad, on which I always read—at 5 o’clock in the morning—the Telegraph and The Times.

That does not matter here because I can use wi-fi or I am covered by my Vodafone contract,

but I am just thinking of how much I must have spent in Ireland a couple of weeks ago

because I was reading my newspapers on the iPad. Ideally, there should be a health warning,

just like “Smoking damages your health”. What is your view on that?

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Bob Warner: The question is: how do you do that? I think that the principle is absolutely

right, but reaching the consumers is not that easy. That is a job not for the Communications

Consumer Panel or for consumer advocacy but for the operators—they are your customers

after all.

Julie Minns: They are. Last week, Ofcom made its recommendations on unexpectedly high

bills, and we will certainly look at a number of those recommendations quite closely. From

an operator’s perspective, the obvious one is to look at extending the text alerts that we

currently send within Europe so that people receive such an alert when they go elsewhere in

the world. That is a reasonable ask of Ofcom, and Three is certainly looking at that

internally. The more general point, however, is how you give consumers the confidence to

use their smart phone or their iPad, with wi-fi or with their 3G SIM card embedded, without

fear of ‘bill shock’. That brings us back to the regulations and getting the wholesale caps

much lower for internet data, so that you are not necessarily fearful about reading your

newspaper on your iPad because you know that the European Union has set an objective of

trying to harmonise roaming rates and domestic rates in so far as is possible within the

Single Market. However, where the Commission started was nowhere near that. Following

the ITRE committee’s proposals, I think that we are much closer to getting a set of retail

offers into the market that would give customers the confidence to use their smart phones

and wireless devices when they travel abroad.

Robyn Durie: One problem with Ofcom’s proposal and for the Commission is that I am not

sure that the European Union has the vires to regulate roaming that involves third countries.

I certainly agree with what Ofcom said last week about the need for operators to be

transparent in what they do, and operators spend a lot of time and money on explaining,

through their websites, customer service agents and retail shops, what people should do

when they are roaming. For example, all our smartphones are disabled for roaming, so

20

people must positively turn it on. Throughout the world on the T-Mobile network, we

currently send those wretched SMS messages to say how much everything costs, so you get

them no matter where you are—they appear on iPads, laptops and everything else. We are

looking at voluntarily extending some of the other measures that have been used in Europe,

such as notifying people when they come up to 80% of their €50 limit.

However, I really think that this should not be done by regulation. All operators want their

customers to feel confident in being able to use their phone abroad as much as at home. To

me, one of the damning things about the first two roaming regulations is that use of voice

and SMS roaming has gone down rather than up as a result.

Q22 Lord Ryder of Wensum: I fully share your view on the regulation, but you said that

the message automatically comes up on iPads. Is that a categorical remark? I thought that the

message does not automatically come up on iPads.

The Chairman: The message comes up on smart phones, but it does not come up on the

iPad.

Robyn Durie: From personal experience, my iPad is barred for roaming so I have never

done it, but there is no reason why the message should not come up if you have a SIM card

that allows data roaming. That would come within the regulation.

Q23 Lord Bradshaw: I am aghast at what I have heard, which I would describe as a

conspiracy against the consumer. It is all very well referring to what you can get on the web

or what is in the regulations, but I imagine that in a lot of cases the consumer does not know

because they do not spend their life reading the small print which is sent out. I think anything

which would increase competition is a good thing, and if the Commission or the committee’s

amendments bring about more competition that is a good thing. I am also in favour of

absolute openness, so that you know what you are paying for. In a London taxi, you would

21

not get the chap putting his hat over the meter and charging what he liked for it. As I say, I

am speechless and I am going to continue to use postcards.

The Chairman: We will all become quill pen users.

Q24 Lord Brooke of Alverthorpe: Can I come back on that? Have you done some

research on the reasons why the volume has gone down?

Robyn Durie: Not rigorous research, but one message that has come back is that all the

publicity about this has made people more scared of using their phones abroad than at

home.

Lord Brooke of Alverthorpe: The big bills that people have heard of and read about in

the newspapers put them off, I suspect. I suggest that a little useful research might be helpful

for all parties.

Q25 The Chairman: It is not a good deal to try and kill the goose that lays the golden

egg. I know that I am probably the least technically minded person in this Committee but

when you told me that it is €0.10 per megabyte, I thought to myself, “I have a 64 gigabyte

iPad, or whatever it is, so for one gigabyte of data”—well, I have to say that I did not even

know the relationship between a megabyte and a gigabyte, so I have learned a lot today, not

least that.

It is really quite criminal, frankly—well, I would not say criminal but it is really horrendous. I

am at least, like Lord Bradshaw, astonished. We have all had to cope with that on electricity

and gas, but at least it is there. Yet on our bills we are not shown the reason why, or how

many gigabytes or megabytes or whatever it is, which is crazy. You are just trying to confuse

the ignorant—or at least somebody is—even more than they are confused at the moment. It

is no way to be members of the Single Market, frankly.

Julie Minns: I have one thing to say on that from a Three perspective, Chairman. We have

had an offer in the domestic market for well over a year-and-a-half now, which we call our

22

One Plan, and which genuinely has “as much as you can eat” data, for exactly these reasons:

consumers do not know when they update their Facebook or post their Twitter update, or

even check their emails, just how much data is going to be used. We absolutely recognise

that it is difficult to bring transparency to this, and what we have moved to offer in the

domestic market—where it is obviously on our own network and we have control of the

wholesale costs—is an unlimited plan. As Robyn Durie has said, T-Mobile has recently

introduced its own unlimited plan. What we are looking to the regulations to do here is to

enable us to offer similar plans to our customers when they go to Europe. I know we keep

coming back to it, but that is why the wholesale cap is so key to achieving that.

Lord Bradshaw: Like all regulators or people involved with regulation—this applies in

water, gas, electricity and other places—you are very knowledgeable about what you are

doing. On the other hand, the consumer at the other end is pretty ignorant, and there is a

total disjoint between the two sides.

Q26 The Chairman: If I could introduce this example. We are told about smart meters

for energy conservation in one’s house. If you had one of these things, you could see exactly

how much electricity you were using every day, every minute or every hour. Is there not a

case for having something—perhaps with a little pound sign—down in the bottom right-hand

corner which says, “This is the amount”? Then when you hit £20 and you realise that you

have just been checking only your emails, you would say, “Whoops, forget it”.

Julie Minns: Our customers have exactly that facility in the UK market, if you go on to

something we call “My3”. If I go on to on my handset and hit a little tab that says “My3”, it

will take me in there and show me exactly how many megabytes of my allowance I have

used. The difficulty we face when we go abroad is that we are reliant on the roaming partner

and the real-time billing, but we have definitely given that clarity to our customers in the UK

market because it is right that they should be able to check how much they have used of

23

their monthly allowance—if they have not taken advantage of our One Plan—and are

anxious to monitor their use. But yes, we have moved to address that in the UK market and

it has proved very popular.

The Chairman: Very interesting.

Robyn Durie: I think that most operators do that. We have a similar facility but if I might

come back, I find it much more comforting that on the T-Mobile network, when you get that

message you are offered the ability to buy a bolt-on. If you do not buy it, you do not have

data roaming. If you buy it, when it is finished up you do not have run-on charges so you

know exactly how much you are spending and there is no bill shock at the end of the day.

This is something we are looking to see whether we can provide outside the EU, but it gives

customers complete certainty. While it is sometimes a nuisance because, as you say, the

letters are very small and you have to text something to a particular number, you have

absolute certainty that you know how much you have spent and are not going to get any

shock when you come back.

The Chairman: That I suppose is some comfort.

Bob Warner: I just want to add that that discussion shows the range of options available and

their complexity, and the difficulty of actually informing customers. To me, that

demonstrates why you really do need this €50 cap, because at least you can be confident

that when you are in Ireland you did not use more than €50-worth. It is a long stop, but the

discussion we just had—about how difficult it is and what the options are—proves that you

really need to keep that long stop for quite a long time to protect customers against any

really big downsides. Also, we ought to have it in the rest of the world because it works in

Europe.

The Chairman: Thank you, that is very useful.

24

Erzsébet Fitori: The proposal of our mobile network operator members to have an option

in the roaming regulation voluntarily to reduce roaming prices, and have those included in

domestic packages, is actually very much in line with your call for more simplicity and clarity

for consumers. The idea of that concept which our mobile network operator members have

proposed is that you do not have to unbundle your roaming services, as required by the

Commission's proposal, but in exchange—from 2014, when the decoupling obligation would

enter into force—you would immediately include roaming minutes in your domestic

packages for a minor surcharge. But that would be predefined, so that you would understand

that if you paid a monthly subscription of £30 in the UK—I am giving a totally random

number—you could use, say 50% of that package for roaming purposes for an additional £5.

An alternative could be that there is a minor surcharge per minute, per megabyte or per

SMS, but that it would be in the range of a couple of euro cents, so you would know that the

difference between using your mobile phone at home and abroad is not very big. It is actually

quite small and comes either as a prefix charge added to your domestic subscription, or as a

prefixed and very small surcharge on top of your consumption—per minute, per SMS or per

megabyte. That would then mean that you would not have to unbundle the roaming services,

so that it would be a domestic and roaming package in one.

The Chairman: I see—combined. That is very interesting. So you are thinking about the

consumer.

Erzsébet Fitori: Absolutely, but I emphasise that it is only our mobile network operator

members who think that this would be a much simpler and much more consumer-friendly

solution. This would probably be the first such initiative or step towards a roaming-free

Europe, so to speak, linked to your domestic package and coming at your domestic price.

You would know how in advance how much it costs. It is really that first step.

The Chairman: Lord Walpole?

25

Lord Walpole: In addition to price caps, a number of structural solutions are being

proposed. These include measures which would allow customers to access data by

connecting directly to a network in the area they are visiting, thus avoiding roaming charges.

Are these solutions necessary as well as having price caps, and would they do away with the

need for caps?

Erzsébet Fitori: In a personal capacity, I would say that that is probably the $1 million

question.

Lord Walpole: I am glad that I found it.

Erzsébet Fitori: We would like to know the answer to it. Turning to the serious answer,

once again I need to give a more nuanced response. Again, ECTA’s mobile network operator

members think that something like a voluntary reduction option, as I have just explained,

would probably be much simpler and much more consumer friendly. That would actually

achieve the target that we are looking at in the Digital Agenda for Europe, which is to have

the difference between roaming charges and domestic charges converging to zero. If we look

at that as the political aim, our mobile network operator members say that, yes, the

voluntary reduction solution would be the answer. If that system is put in place, you would

probably then be able to phase out regulation because roaming would effectively be included

in your domestic charges.

Once again, those of our members who are not present in the mobile market and would like

to break into it think that there is a significant structural problem, so you need structural

measures to address that. For fixed-only operators that do not have a mobile arm, the most

important structural measure is to have wholesale access to mobile network operators’

networks. Therefore they very much welcome that part of the proposal, but for different

reasons. Business service providers would like to add roaming services to their pan-

European offers, which if you think about it is a very logical thing to do if you are offering

26

pan-European services. Equally, for fixed-only operators it would be a very interesting

complement to their existing packages.

Q27 Lord Walpole: Can I say that as far as I am concerned, although I have a mobile,

fortunately it does not work at home. I am very pleased with that mobile because it does

not interrupt me. Actually, it might interrupt me now because I am not sure whether it is on

or off. But I still understand what a telephone is and still know quite a lot about telephone

charges. I find using a telephone in Australia to get back here and get my things off the net

very much cheaper than any other way of using a mobile phone to do it—a BlackBerry, say. I

understand telephones and telephone charging and I do not like mobile phones at all. I hate

them, but they have their uses on occasions.

Lord Ryder of Wensum: I can confirm that Lord Walpole still has a pigeon loft.

Lord Walpole: Indeed.

The Chairman: Why do you constantly go on about not having enough broadband in your

neck of the woods?

Lord Walpole: No, we won on that one—we do have it. I take my laptop from here

home, and I have to use it. I use it for broadband, but that is a telephone wire and we know

how much it costs.

The Chairman: Yes, I suppose so.

Julie Minns: If I may, Chairman, let me make two very brief points on whether you need

both the caps and the structural solutions. From a Three perspective, we think there is some

merit in some of the structural solutions. One has been discounted by the committee last

week, and we would certainly agree with its rationale on that one, but rather than go into

the detail of the structural solutions there are a couple of key points for the Committee to

look at here. First, these structural solutions would not be in place before 2014, so you still

have two years during which consumers are vulnerable to unexpectedly high bills when they

27

are roaming. Secondly, for some consumers, unless you are quite savvy and want to put the

research into the structural solution that would be offered, the chances are that you are still

going to take your roaming from your domestic provider, which means that you still need

caps in place to protect those consumers. It is all very well for informed consumers like me,

perhaps, who will go out and do the research, but I just do not think that the majority are

going to do it—and that is where caps are necessary, so you need both.

Bob Warner: That is exactly what I was going to say on behalf of consumers. On this idea of

putting in another type of operator and giving a consumer choice about who to use when

they go abroad, it would be a pity if we had to go down that road in order to force the

operators down to lower levels of pricing. What you are actually doing by putting that in is

making what we demonstrated is a complex situation for consumers even worse, because

you are then asking the consumer to do this research and decide who to use when they go

roaming abroad. You are adding complexity for the consumers. It may well work for those

people who travel a lot, but particularly the less advantaged consumers are not going to do

it, because it is hard already and this would just be even harder. A much better solution is to

get the wholesale rates down and get competition between the operators, so that

consumers do not have to do this extra work just to save themselves a little money.

Robyn Durie: Can I disagree slightly with that? We talked earlier about electricity and gas,

where structural solutions mean you have more competition in the market, which must be

better for consumers. It does not mean that they all have to switch suppliers and have

domestic and international suppliers, but it introduces competition. That may give you a

long-term solution, because continued retail price caps—it is the retail ones we object to,

far more than the wholesale ones—are the most intrusive form of regulation. As I said

before, some of the levels proposed on the retail caps are not enabling us to make the

return on our investment that we need to be able to invest in networks, so we think that

28

the structural solutions will lead to more competition, and they are only two years away.

That will mean that there is no need for caps, because you should not have double

regulation.

The proposal on data that is referred to in the question is called local break-out, which

would mean that if you went to Italy you would have the choice of the four Italian

operators—essentially, as if you were a pre-pay user on an Italian network. The problem

with that is that you are not getting new operators into the market but still having to deal

with the four existing Italian operators.

Q28 Lord Haskel: On the question of broadband capacity, in any market of course prices

are arranged by competition, which is what we have been talking about. However, supply

and demand also have an impact. What is the position in Europe? Is there a shortage of

capacity keeping prices up, or is there an excess of capacity that may, hopefully, bring prices

down?

The Chairman: Good point.

Robyn Durie: The problem with mobile networks is that each call has a cost; it is not like

fixed networks where you have sunk costs and, once you have put the cable in the ground,

there is very little ongoing expenditure. For mobile calls, you have the costs of the mast and

the spectrum, which mean that each call has a cost. With international roaming, you also

have the need to bring the signal back to whatever country it has to go to. Given those

continuing costs, I do not think that we see a surplus of supply, but it is definitely a market:

when you have more competitors, the prices will come down, as has happened with data

prices domestically. There is no reason why data roaming prices will not come down with

increased competition.

Julie Minns: On capacity, I might just add that an important topic for governments and

regulators is how, as a regulator, you ensure that mobile networks have sufficient capacity.

29

You do that through your spectrum allocation policy—Bob Warner is laughing because he

probably knows what is coming next—so it is interesting to look at what has happened with

spectrum in the rest of Europe, where governments have chosen to take back historical

spectrum and redistribute it. The thing with spectrum is that not all spectrum is created

equal: some is great for capacity and some is great for coverage. In the UK we have an

unequal distribution of spectrum and, rather uniquely, the UK has chosen not to address

that, whereas the rest of Europe has. Having opened that can of worms, I will leave it at that.

Q29 Lord Walpole: Can I ask a silly question about the amount of availability? I used to

go quite often to see friends in Cherbourg and would travel by ferry. As you approached the

Isle of Wight, you could never use a mobile phone because everyone else was trying to use

one. Has that problem been overcome as yet? I think that the problem is that the receiver

on the Isle of Wight cannot take 400 calls straightaway. It probably can do so now.

Robyn Durie: Capacity on a mobile network requires two things: spectrum—I concur with

everything that Julie Minns said on that—and back-haul, which means that a fixed network is

required. Just as in rural areas people want greater broadband capacity, mobile networks

also need broadband to provide greater capacity in order to back-haul calls from their sites.

That may have been the problem on the Isle of Wight. Given the number of people, there is

probably not a spectrum shortage but there may definitely have been some sort of problem

with the back-haul, which is probably one of the single greatest bars to providing a lot of

capacity on a mobile network.

Q30 Lord Rowe-Beddoe: From listening to your evidence, it is quite clear that we

are all agreed that there have been considerable changes in the usage of mobile networks

over recent years, particularly in data access and data processing—obviously, I exclude what

has happened outside the United Kingdom. You have said that data usage has gone up in the

United Kingdom, but when people are travelling outside the United Kingdom usage tends to

30

go down, for obvious reasons. I do not know whether this question can be answered, but is

there any way with all these changes, which are clearly dynamic, that one can start to

provide some form of forward-proofing into how we operate? Is there any way that we can

future-proof?

Robyn Durie: The best way to future-proof in this area is to increase competition. That is

what the European Commission has done through the various communications regulatory

frameworks that it has introduced, which have all been about having second, third and fourth

operators—such as those in ECTA—coming into markets. I do not mean to go on about the

point, but we should let competition sort things out and let operators make the reasonable

return that they need to be able to continue to invest in the market, because without

investment you will not be able to future-proof.

Q31 Lord Rowe-Beddoe: I am a great fan of competition, but does it necessarily follow

that you will see price reductions?

Robyn Durie: Yes, roaming prices have come down and have moved from the level that the

Commissioner was concerned about. Her concern was that the prices were clustered

around the retail caps, but I think that we have seen far more offers and bolt-ons coming

into the market, so there is definitely increasing competition.

Q32 Lord Brooke of Alverthorpe: Sorry, I am confused here. I had rather got the

impression from answers to earlier questions that the majority of people were saying that,

without regulation, we would not have got the prices down. It was not due to competition

that prices came down. Yes, we are not short of competition, but latterly prices have been

forced down by regulation.

Julie Minns: The regulation around the wholesale cap has been absolutely critical and

without that you cannot have effective competition, certainly in the roaming market. That is

our perspective as Three.

31

On the benefits of competition, it might be useful to the Committee to illustrate what has

happened in the UK market over the past four years. Four years ago, before Three entered

the market for what is now known as mobile broadband—for any Members who use

dongles with their PCs or mi-fi devices, that is what we call mobile broadband—two of our

competitors were charging prices in excess of £50 for 1 gigabyte of data. We entered with

pricing under £10 and now, across the market, consumers are paying less than £10 for one

gigabyte of data. That confirms your point that, when you have an effective competitive

market, it forces prices down. That is why I would like to get this regulation right.

A key point, which was worrying in the first set of proposals from the Commission, is the

issue of review. I do not think that you can ever entirely future-proof something, and mobile

network operators are not always the best people at trying to future-proof or second-guess

what should be offered to consumers in the first place. Originally, the Commission said that

there would be only one review of the regulations over the next 10 years, and we were

concerned about that because of the pace of development in this market. Therefore, I think

that it is very welcome that the European Parliament has now recommended more regular

review of the regulation. I do not think that you can future-proof the regulation, but you can

certainly review it more often.

Bob Warner: If you are seeking to future-proof the regulation, I would agree with Robyn

Durie that the interventions that you make should be pro competition. If you have to

intervene, intervening at the wholesale level is better than trying to intervene at the retail

level because the wholesale components are probably not going to change very much in the

relatively near future. Getting your intervention at the wholesale level and, wherever

possible, stimulating proper competition are the best safeguards; intervening at the retail

level is always going to be wrong—it will always be 12 months out of date because this

market changes so quickly.

32

Erzsébet Fitori: I would agree with the observation that how we treat the wholesale level is

absolutely critical. However, one should perhaps think about the experience that we have

with wholesale regulation in fixed markets. The concept of the Commission’s proposal,

which went through the European Parliament’s ITRE committee, is that we create a roaming

market, basically, by allowing new entrants to enter as virtual operators via wholesale access

into the roaming market. That is the main idea, but at the retail level we then unbundle

roaming from domestic packages so these new operators can come in and offer an

alternative roaming service to that of the traditional domestic operators. If you look at what

has happened in the fixed markets where fixed networks have been unbundled, it took even

experienced regulators quite a few years to get that right. Therefore, I think that it would be

reasonable to have options in the regulation rather than just to rely on this concept of

wholesale access and unbundling of roaming services. Certainly, as I explained, our fixed

members and business service provider members very much welcome this combination of

wholesale access and decoupling of roaming services.

On the question whether this would remove entirely the need for caps, that is in a way the

$1 million question. We do not yet know how exactly the technical details of wholesale

access will be dealt with, and the devil lies in the detail. There are a lot of unknown factors

yet with regard to this more pro-competitive regime, which, as I said, we believe should be

in place. However, I think that it would be quite reasonable to put in an option for the

voluntary reduction of roaming charges, as I have explained earlier. Probably, the ideal

scenario would be that you maintain the retail caps system on a temporary timeframe, with a

view to removing it as a result of competition if a proper wholesale access regime is put in

place. Of course, the regulation is a relatively high-level document, which will not deal with

all the necessary technical details of how you can get wholesale access to a mobile network;

in order to make that work, a lot of work needs to be done.

33

From our perspective, we probably need a three-phase approach: temporary price cap

regulation as a safeguard; structural measures that are pro competitive; and an opt-out

possibility from the structural measures if, immediately from 1 July 2014, operators cut

down voluntarily their roaming prices to levels that are similar to their domestic prices. That

would be our recommended approach.

Q33 The Chairman: Why wait until 2014?

Erzsébet Fitori: That totally depends on what will be the deadline in the regulation for the

unbundling of roaming services. We believe that the deadline for bringing prices down

voluntarily should be the same as the deadline for the unbundling or decoupling of roaming

services. The two should be in parallel. Probably the most reasonable thing would be for the

two processes to be parallel; probably, for decoupling, mobile operators would need some

time to prepare themselves technically for it.

The Chairman: That is very useful, thank you.

Q34 Lord Rowe-Beddoe: If I may ask just one more supplementary, we have used the

word “competition” a lot this afternoon. To help me in my understanding of how the word

is defined in your industry, how many wholesalers are there in the United Kingdom and how

many retailers—or, as it were, operators—are there? What is the competition in numbers?

Erzsébet Fitori: As far as I am aware, there is no such definition. The definition that the EU

telecoms regulatory framework deals with actually defines “effective competition”, which

means that there is no player with significant market power—

Lord Rowe-Beddoe: That is approaching the word in a different way.

Erzsébet Fitori: So there is no dominant player present in the market.

Q35 Lord Rowe-Beddoe: But how many operators do we have?

Robyn Durie: There are four national network operators. In our case, we actually have two

networks so perhaps you could say there were five. There are a number of what are called

34

sub-national players—the largest probably being Cable and Wireless, which provides

services to companies such as Tesco and its own employees—while there are a number of

smaller ones. Then we have a range of wholesale operators, stretching from those that

provide their own switches and a lot of network components, such as Lycamobile, Vectone

and that sort, down to others that we call mobile virtual network operators, which

essentially just resell minutes on a network. We have two very large MVNOs that are

basically resellers: Virgin, which has in excess of 4 million customers, and Tesco Mobile,

which has close to that number as well.

The UK has achieved this spread of competition without any regulation to ensure that

wholesale operators could enter the market. We also have national roaming; I think that

Three has national roaming on our network, while Cable and Wireless has roaming on ours

and on the O2 network. Ofcom undertook a review of the mobile market a couple of years

ago and declared that, as far as it was concerned, it was an effectively competitive market.

The Chairman: How long ago was that review?

Robyn Durie: Two years ago.

The Chairman: But there have been huge developments since then, have there not?

Julie Minns: As Robyn Durie has alluded to, you have had the merger between Orange and

T-Mobile, so we have had consolidation in the UK market. Where I might slightly disagree

with Robyn about there having been no regulatory intervention to deliver us a degree of

wholesale competition is in relation to the last spectrum auction we had, back in 2000, when

there was a very clear public policy intervention to reserve a licence for a new entrant—

which Three bought—to come in and drive competition. Obviously Three would say this,

but we think we have been very successful in doing exactly what the then Government asked

us to do: to stimulate competition, push 3G rollout and innovate in the UK market. I think

you need a degree of public policy intervention at times. We definitely do not have time to

35

go through whether Ofcom's current proposals on the next spectrum auction are going to

be similarly successful, but let us just say that there is definitely a question mark over that.

The Chairman: Lord Plumb, you wanted to have a word.

Lord Plumb: My question was along the lines of that of Lord Rowe-Beddoe, and I think

you have answered it. However, I fall into the Lord Bradshaw camp to some extent, if not to

a great extent. On the other hand, roaming regulation is obviously progress. It is something

that will happen whether we like it or not, and the next generation is going to take it all for

granted. As I see it therefore, from all that you have said this afternoon, it is extremely

important to get it right.

I am a great believer in competition; that is really what it is all about. I am also a great

believer in private enterprise and in letting the market work without too much interference.

The more you interfere, the more it is going to cost; the more competition can be created,

the better the price should be to the consumer. That ought to be evident but in that case, to

what extent is there going to be flexibility in Europe? I spent 20 years in the European

Parliament and I have no doubt that this is something they are spending a lot of time talking

about at the moment. They will go on talking for a hell of a long time, because with 27

countries they will have 38 ideas, so I would have thought that in this field there has to be a

degree—if not a fairly substantial element—of flexibility at the end of the day. Knowing the

difference in the operation, country by country, do you think that that is going to happen, or

are we going to finish up with yet another regulation which is the old story, dominated by

Europe? The public will see that as yet another lesson we are getting from Europe without

the opportunity to do what we want to do ourselves. I say that as a European.

Q36 The Chairman: Can I just ask Members of the Committee in general whether there

are any more questions that they would like to ask our extremely helpful witnesses? If not,

can I finally ask a very simple question? Has any operator or provider actually failed, or have

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they just sold out and amalgamated with other people in order to line their own pockets? In

looking at the high street nowadays, even in small towns away from London, it sounds to me

as though there is an awful lot of attrition going on. You hear people say, “Well, I am not at

all surprised that that particular outlet failed”. However, I have the impression that because

yours is a relatively new industry—as opposed to, say, the motor industry—you feel

sympathy for each other, so you get in and you do not want people to rock the boat too

much. There is obviously competition to increase the number of subscribers you have, but is

there really cut-throat competition which could actually result in failure?

Bob Warner: I shall answer that, as a relative neutral on this. If you look at the UK market,

there is competition because of the mobile virtual network operators. People such as Virgin

and Tesco have come in and offered price competition. Ofcom's review a little while ago

said that the mobile operators as a group were not making excess profits. In the days of

perhaps 10 or 15 years ago, profitability was very good; it is a lot tighter now. That was one

of the drivers in T-Mobile and Orange merging. They were two network operators but they

did not, to use your phrase, sell out and make a truckload of money from it. I believe that

they merged because they were not earning a sufficient return on their own. I do not think

that Three is profitable yet.

As for Europe, I will use the example of Telfort in Holland, which I think was the fifth

operator. It sold out for next to nothing after O2 had paid several hundred million euros for

the licence. It sold out for £50,000 or something like that to KPN, the Dutch operator. The

mobile business across the piece is not the gravy train that it was, if it ever was, and

therefore you have to be careful here. I know I am supposed to be a consumer

representative but you have got to be careful you do not kick it too much, because if you do

that will not be in the long-term interests of consumers.

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The Chairman: That was not the purpose of my question, I can assure you. It was to try

and increase my information about the whole way that you operate, because it is a great

unknown. It is not like other companies, where we can see at a minute’s notice where they

are going right and where they are going wrong. We cannot do that because there is a sort

of opaqueness about the whole thing. My final question is: is there any question you think we

should have asked you that we have not? There is a shaking of heads, so I will just say thank

you very much indeed. It has been very instructive and informative, and you have been most

co-operative. Thank you.