Tackling partial not spots in mobile phone coverage. Response from the Mobile Broadband Group
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1 Tackling partial not spots in mobile phone coverage Response from the Mobile Broadband Group 1. The Mobile Broadband Group ( MBG ), whose members are the UK businesses of EE, Telefonica UK, Three and Vodafone, welcomes the opportunity to respond to the Department of Culture Media and Sport s ( DCMS )consultation on tackling partial not spots. 2. The MBG supports the DCMS s overall objective of improving the coverage provided by this critical component of national infrastructure. Investment in mobile infrastructure will underpin much of the growth in productivity that the DCMS is seeking, by making communication more effective and workforces more efficient. 3. We recognise that customer expectations and use of mobile technology is changing and that there is a need for continuous improvement. 4. Over many years mobile operators have been investing continuously in their networks (accounting for around 2-3% of all annual fixed capital investment in the UK economy). This has delivered new technology, higher data speeds, greater capacity and more widespread coverage (including in areas that where the economics can be very marginal). As a result customers have increasingly come to rely on mobile communications and this spurs demand for yet further investment. Summary 5. The MBG concurs with the DCMS that none of the proposals in the consultation are likely to produce a positive net present value (NPV) and, in accordance with the principles of better regulation, should not be progressed.
2 6. Furthermore, some of the proposed measures would be damaging to the competitive and dynamic ecosystem (on which we provide more detail below) and the overall consumer experience and, as such, would not deliver net benefits to consumers. 7. Nevertheless, the MBG strongly believes that there are steps that can be taken by operators, Government and regulators that will deliver improvements in coverage and, as consequence, will have a positive impact on the way consumers can access mobile technology services. 8. With respect to the consultation document itself, the MBG makes the following observations: Timing 9. The first point to make is that the response window that has been allowed for this controversial consultation is extraordinarily short. 10. The.Gov website declares: The government is improving the way it consults by adopting a more proportionate and targeted approach It is otiose to quote exhaustively from the Cabinet Office guidelines but two extracts are particularly pertinent in this context: Every effort should be made to make available the Government s evidence base at an early stage to enable contestability and challenge. For a new and contentious policy, 12 weeks or more may still be appropriate 12. While the DCMS have engaged mobile operators informally prior to the publication of the consultation, there was little or no solid policy development with which to properly engage, prior to the formal consultation. Furthermore, not all potentially affected stakeholders (such as Virtual Network Operators - MVNOs) have been brought in the discussion before now. 13. Within large organisations, three weeks is too short a time in which to engage the technical, legal, commercial and regulatory expertise and co-ordinate a thorough response (always bearing in mind that, for most, this work is in addition to day to day work, which is already heavily stretched on 4G roll-out and other priorities). 14. It is difficult to escape the conclusion that the timing is driven by short term parliamentary factors. This is not appropriate for a project of this magnitude, which could have long term impacts on the economics, competitiveness and technical implementation of the four mobile operators services offerings. 1
3 Market impact 15. The second point that the MBG would like to cover is the potential market impact of the DCMS s proposals. 16. The market structure of the mobile sector in the UK has served consumers extremely well. As the CEO of Ofcom recently said in parliamentary evidence We [the UK] probably have among the most competitive [mobile sectors] in the world, and we certainly have among the lowest prices anywhere in the world. 2 Three operators, with respectively 28m, 24m and 20m subscriptions have been in the market for twenty years. The most recent entrant is the challenger Three, which has 8m active customer, having launched in In the last 10 years, prices have fallen 64% in real terms, which compares very favourably with the fixed market, where prices have fallen only 16% As well as competing vigorously on price, mobile operators seek to differentiate their offerings on aspects such as handset range, value added services (e.g. TV bundles and VoIP), data speeds, customer service, call completion rates, retail estate and coverage. 19. This competitive ecosystem has been extremely beneficial to consumers in the UK. Enforcing 2G national roaming onto the mobile operators would potentially remove a significant differentiator from the competitive dynamic. 20. Furthermore, nobody can predict with certainty how voice services will be delivered in a 4G environment (either directly by the networks or by over the top providers VOIP). Mandated 2G roaming could have material distortive effects on how the market will play out. 21. In the mobile sector, the potential diminution in competition would be aggravated by technical inconvenience for example the actual call performance could be worse with an increase in dropped calls, data capability will be impaired when devices are connected to a guest network, even after returning to the coverage of the home network (the overlap could be several minutes) and device battery life will be adversely affected, as devices scan the airwaves for all networks, not just the home network. 22. The inevitable distortion in competition and increased technical difficulties are not captured in the DCMS s impact assessment, which further emphasises that the mandated roaming proposal should not to be progressed. 2 Ed Richards, Oral evidence to the Culture Media Sports Select Committee, 4 th November Data derived from Ofcom Communications Market Reports
4 Do nothing? 23. While the three options presented in the consultation offer a negative NPV and should not be taken forward, do nothing is not the alternative. There are plenty of steps that operators, regulators and Government can take to improve mobile coverage in the UK. Mobile operators 24. The MBG agrees with the DCMS that mobile infrastructure has become part of our critical national infrastructure. In the past thirty years, billions have been invested by the mobile operators in their networks. (Furthermore, unlike many forms of national infrastructure, which receive large state subsidies, this has been done on top what might be termed negative subsidy - 25 billion in spectrum fees and annual licence fees.) 25. So whilst mobile is perceived by many as a critical service central to people s lives, it does not benefit from the significantly more favourable environment for installation and upgrade of network infrastructure (e.g. the regulated access right regime) that is enjoyed by traditional critical services (such as water and energy) to support economic and efficient widespread connectivity and delivery. 26. All operators have announced significant investment, running into billions, over the next few years. This will have a beneficial impact on coverage and capacity for data and voice. Moreover, there will be increased mast sharing, as the two combinations of O2 & Vodafone and EE & Three rollout 4G infrastructure in the new frequency bands (and other potential enhancements such as VoLTE and VoWifi) 4. The regulator 27. The MBG believes that the regulator could take a number of strong steps to introduce more competition and fairer pricing into the connectivity market (i.e. the fixed telecoms infrastructure that mobile operators use to connect their base stations/towers to the core network.) 28. As has already been discussed, the economic viability of base stations is very marginal in any cases. Part of the reason for this is the high cost of connectivity. This is illustrated by the high EBITDA margins enjoyed by the dominant supplier BT Openreach (51% 5, which compares to the average EBITDA for mobile operators in the UK of 24%). This high margin has much to do with its dominance in the market, rather than operational efficiency. This demonstrates that there is considerable scope to regulate much lower wholesale prices for backhaul connectivity. 4 Voice over LTE i.e. the 4G standard 5 BT plc published Quarterly KPIs
5 29. Furthermore, an amount of unbundling could be achieved and competition introduced by regulating access to passive infrastructure. Enabling access to poles, ducts and dark fibre would enable competitive providers to develop alternative connectivity, creating a more flexible and efficient use of physical infrastructure and avoiding costly civil works. A similar intervention (e.g. local loop unbundling for the residential broadband market) has achieved success elsewhere in the market. Government 30. There are a number of steps that Government can take to improve the ease with which mobile networks can be deployed, for example: - Allowing mobile operators to undertake the contestable elements of supplying power to base station - Re-classifying some types of development to Permitted Development in order to provide greater certainty over rollout (e.g. allow mast heights to be increased) - Provide more access to Government land and sites - Providing greater guidance to public bodies on site negotiation to remove unrealistic commercial demands by public landowners - Updating the Electronic Communications Code. It is currently a barrier to rollout and should provide telecoms operators with similar rights of access to other essential infrastructure providers. 31. In conclusion, the MBG agrees with the DCMS that customers will continue to demand improved coverage. Moreover, the MBG is very confident that the operators, through voluntary measures, the regulator and Government can each play their part to enable enhancements that will ultimately exceed what can be achieved in the short term through the proposals set out in the consultation.
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