MARKET COMMENT
Oftel Forces Lower Mobile Charges

By Alan Oscroft
September 26, 2001

Liverpool -- After concluding its latest review of mobile phone charges, telecoms regulator Oftel has decided the industry is essentially uncompetitive and has tightened the cap on charges for calls to mobile phones.

Currently set at retail price inflation minus 9% and only affecting BT (LSE: BT.A) Cellnet and Vodafone (LSE: VOD), the new cap is to be set at retail price inflation minus 12% and will also apply to Orange (LSE: OGE) and One 2 One. The new regime will last for four years, with a review after the first two. As a result, Oftel predicts a cut in operators' income of £680m over the four years.

In an industry where there are four major players selling what is essentially a commodity product and increasingly differentiated only on price, Oftel seeing the mobile phone industry as uncompetitive might seem rather bizarre. How many major players are there in the supermarket sector going head to head? There's no Ofshop crying "uncompetitive" there, and customers certainly aren't suffering.

We can hardly open a newspaper these days without seeing ads for cheaper mobile phone services, the annual run-up to Christmas is a mad scramble by the four operators for new customers, and all four are constantly being rated by their relative positions in the highly-competitive customer acquisition and retention stakes. And let's face it, they're hardly making monopoly profits, are they?

In addition, the mobile phone operators have had to cough up very big money to get their 3G mobile phone licences and took on a great deal of debt in the process. So competitive is the 3G market expected to be that many people doubt their ability to turn a profit on those investments.

Oftel director general David Edmonds reckons that "As the caller pays the price of calling a mobile phone and has no choice about the network to which the call is being made, there is minimal incentive on operators to reduce termination charges."

That, to me at least, seems simplistic. Callers have the choice of not calling. If I'm buying a mobile phone subscription and I expect to receive a lot of calls, I'm perfectly capable of comparing such charges for myself. If customers currently don't bother about incoming charges, it's because they see it as unimportant, and it's their right to do so.

Oftel, like many bureaucracies, is in danger of letting power go to its head. Instead of tightening regulation it should be loosening it. Oftel's only reason for existence should be to help bring about the vital free market that will assist the UK in building the best mobile phone companies in the world.