UK Parliament launches inquiry into spectrum

The UK system of government and regulation can sometimes be confusing, with the Culture, Media and Sport Select Committee of the House of Commons this week announcing an inquiry into the use of spectrum in the UK and issuing a call for written evidence.

The Select Committee is neither the national regulatory authority with responsibility for spectrum (that being Ofcom), nor the relevant government department (that being the Department for Culture, Media and Sport – for details of how telecoms ended up there see this post). Instead the Select Committee provides parliamentary oversight and scrutiny, but has no power to set policy.

The issues being investigated include:

  • whether the proposed method of spectrum allocation promotes, or hinders, competition in the provision of mobile broadband services;
  • whether the upcoming auction can provide value for money for tax payers and how that should be balanced with benefits for consumers;
  • the potential for next generation mobile internet services offered by the forthcoming availability of spectrum;
  • whether the upcoming auction can deliver improved mobile broadband coverage in rural areas, as well as cities;
  • whether licence fees for mobile operators have previously been set at appropriate levels, and how this should be assessed;
  • how the position of the UK compares with other countries, with regards to the allocation and utilisation of mobile broadband spectrum;
  • the possible impact on alternative uses for spectrum.

Whilst the Committee has no formal power over Ofcom it is likely that Ofcom will take account of any finding or recommendations in the upcoming UK spectrum auctions of 800 MHz and 2.6 GHz spectrum.

Ofcom has wide jurisdiction and discretion to accept and resolve disputes

The CAT today rejected BT’s arguments that Ofcom has a narrow jurisdiction to accept and resolve disputes referred to it by Communications Providers pursuant to Section 185 of the Communications Act 2003.

The CAT joined two cases (one relating to ‘ladder pricing’  and one to charges for ethernet services above DSAC) in both of which BT alleged that Ofcom had no jurisdiction to determine the alleged disputes because:

  1. No dispute existed. BT contended that whilst there remained any scope for resolution of issues through, inter alia, future negotiation, no dispute existed. It relied on (i) the 32nd recital of the Framework Directive as modifying the meaning of ‘dispute’ in article 20 of the Framework Directive and article 5 of the Access Directive so as to require that all negotiations have been exhausted; (ii) Ofcom’s 2004 Disputes and Complaints Guidance; and/or; (iii) a ‘floodgates’ policy argument.  The CAT rejected all BT’s arguments.
  2. Alternative dispute resolution means were available. BT argued that (i) future negotiation constituted alternative means; and/or (ii) Ofcom should have used its Condition enforcement powers. The CAT again rejected both arguments.

The Watcher needs to declare an interest: he represented an intervener in this appeal, so readers should ‘filter’ this post accordingly.

RIM and Google compete to acquire Nortel’s patents

Readers with long memories will remember Nortel’s glory days of the 1990s, when it expanded rapidly by supplying equipment on the back of significant investment in competitive telecoms networks unleashed by the first wave of telecoms market liberalisation. It was badly hit by the dot.com crash, but managed to struggle through the noughties before filing for creditor protection in January 2009. Whilst the global financial crisis may have been the proximate cause of its filing, for Nortel the crisis had started much earlier.

Whilst Nortel’s glory days are in the past, there remains enduring value in its patents. The reason is the commercial power of patents: a patent grants the holder the right to exclude all others from using the patented invention, giving them a exclusive monopoly for the life-time of the patent (typically 20 years). This monopoly can be exploited in a number of ways: worked by the patent holder, enforced to keep others off the market, exclusively licensed, non-exclusively licensed or cross-licensed with others to get access to their technologies.

The last strategy (that of cross-licensing) in the perhaps the most interesting as patents are increasingly being used as strategic weapons by the largest global players – often the response to a patent action will not merely be defence of the action, but the launch of other actions relation to other patents or in other territories as a prelude to settlement and cross-licensing deals.

It’s this strategic power that explains Google’s $900m initial bid and unconfirmed reports yesterday that RIM has also entered the bidding for Nortel’s remaining 6,000 patents.

Meanwhile, in order to try to encourage patents to be held in the UK, the recent budget announced that the UK would continue to press ahead with implementing its ‘patent box’ tax incentive scheme.

Commission maintains its softly, softly approach on net neutrality (whilst carrying big stick)

Net neutrality. A topic that stirs strong emotion and strident commentary that sometimes bears little resemblance to the underlying issues.

The European Commission today published a remarkably thoughtful, balanced and considered Communication on the open internet and net neutrality in Europe.

It concludes that the current rules on transparency, switching and quality of service that form part of the revised electronic communications framework should produce competitive outcomes and that as the package is still being implemented it is too early to introduce additional measures.

However, the Commission:

  1. will work with the European national regulators’ collective body – BEREC – to explore potential issues including barriers to switching, practices of blocking, throttling or equivalent effect, transparency and quality of service and will publish a report by the end of 2012 any evidence uncovered;
  2. reserves its right to take action under the general competition rules (arts 101 and 102 TFEU) should that be needed;
  3. if required, issue additional guidance;
  4. if guidance is not sufficient, consider what additional legislative or other measures may be needed – focussing particularly on switching and transparency; and
  5. continue to work with member states on stimulation of broadband roll-out.

The relative calmness of the debate compared with the political polarisation in the US is striking. However, whilst the Commission is currently taking it easy, it is also signalling that it is prepared to use competition rules or introduce new laws should that be needed.

UK implementation of revised EU telecoms (electronic communications) framework published

The UK’s Department for Culture, Media and Sport (and although not in the title, telecoms) today published its response to the consultation on implementation of the revised EU electronic communications framework in the UK.

In contrast to the original introduction of the current EU Framework in 2003 which necessitated tearing up the Telecommunications Act 1984 and replacing it with the Communications Act 2003, the changes are evolutionary, rather than revolutionary. The statutory changes will be implemented by statutory instruments that will be laid in early May, with other changes being effected by Ofcom and/or the Information Commissioner by 25 May. Nevertheless, some of the changes are more material, and they are summarised below.

The current changes are not the final word with the Government confirming that it will be undertaking a wholesale review of the Communications Act. This will kick off with an open letter in May.

  1. Appeals. Despite (or perhaps because of) the level of interest in reforming the current ‘on the merits’ appeal regime, this issue has been deferred to further consultation. The response does say that they consider that the current rules ‘gold-plate’ the European requirements and that moving to a Judicial Review standard (which would  make it more difficult to challenge decisions than currently is the case) would be appropriate.
  2. Network and service security and integrity. The new requirements will be ‘copied out’ which leaves a degree of ambiguity as to their meaning. It is proposed that clarity will come from Ofcom guidance, which will refer out to the existing security concepts in ND1643.
  3. Dispute resolution.  A wider group (‘one-step beneficiaries’) will be entitled to refer disputes whilst Ofcom will no longer be compelled to resolve ‘free-standing disputes’ not related to existing obligations or be required to resolve network access disputes (although it will obtain a new discretion to resolve network access disputes). Ofcom will gain new powers to recover its costs from complainants dependent on their conduct and the outcome of the dispute.
  4. Ofcom’s information gathering powers. These have been significantly widened, and Ofcom may levy fines of up to £2 million for non-compliance.
  5. Ofcom enforcement. The one month remedy window in relation to contravention notices has been replaced by a flexible ‘reasonable time for response’, and penalties for non-compliance may be periodic and/or have retroactive effect.  
  6. Power to impose Maximum Retail Tariff. Ofcom will gain new powers to impose maximum retail tariffs. It is likely to be used almost immediately in relation to non-geographic call pricing.
  7. Net Neutrality. The response takes a light touch approach to the issue of minimum quality of service (one aspect of net neutrality) with no significant additional obligations.
  8. Personal data breach notifications. The response reaffirms a ‘copy-out approach’, subject to three additions: new powers will permit the imposition of civil monetary penalties, provide for audit rights and make provisions for obtaining information from third parties. The Information Commissioner will be consulting on detailed enforcement guidance.
  9. Cookies.  See the post on the excellent Datonomy blog.

In summary, it would seem that the response ducks or defers many of the more complex issues, so those debates will continue in the context of the Communications Act review.

‘Ladder pricing’ for calls to 08 numbers: stairway to litigation?

I have spent the last day and a half in court (British Telecommunications Plc (Termination charges: 080 calls, NCCN 1007) v Office of Communications and British Telecommunications Plc v Office of Communications (Ethernet Extension Services)) helping an intervening client argue, inter alia, that a fundamental disagreement was the same as a dispute. Sometimes these things do seem to end up like mediaeval theological debates. Another issue in the case was whether Ofcom had jurisdiction to accept and determine disputes whilst allegedly similar issues were subject to appeal. Perhaps more interesting to readers of this blog was one of those ‘similar issues’ currently before the CAT in multiple proceedings – a pricing concept described as ‘ladder pricing’.

‘Ladder pricing’ is a methodology for setting interconnection termination charges for calls to certain non-geographic numbers whereby the interconnection termination charges vary by reference to the retail price charged by the originating communications provider. In essence, the greater the retail price, the greater the interconnection charge. Those who like to see the numbers should look at the relevant section of BT’s carrier price list: 1.06 (which implements NCCN 1007 discussed below).

By way of backdrop, within the UK (and more generally the EU) communications providers are generally free to set their own interconnection charges unless and until a regulator has carried out a market review, found that a particular communications provider has market power and imposed appropriate remedies, which may include cost orientation.It would therefore seem to be a simple matter to identify what regulatory constraints (if any) applied and whether they are being complied with. However, in practice this issue turned out to not be quite so simple.

Ofcom first considered the question in its 5 February 2010 Determination to resolve a dispute between BT and each of T-Mobile, Vodafone, O2 and Orange about BT‘s termination charges for 080 calls, in which Ofcom applied rather convoluted reasoning involving three cumulative principles to BT’s proposed introduction of ladder pricing for calls to 080 (Freephone numbers) to reach the conclusion that BT’s pricing proposal was not fair and reasonable and that BT should therefore revert to its prior pricing structure. In fairness to Ofcom, they constructed the principles on top of a prior CAT finding that disputes should be resolved in a way that was fair (as between the parties) and reasonable (from a regulatory perspective). Ofcom’s determination was appealed.

BT then subsequently proposed ladder pricing in relation to calls to 0845 (local numbers) and 0870 (national numbers), and that proposal was considered by Ofcom in its 10 August 2010 Determination to resolve a dispute between BT and each of Vodafone, T-Mobile, H3G, O2, Orange and Everything Everywhere about BT‘s termination charges for 0845 and 0870 calls  in which it applied the same three principles to reject that further proposal. Again, the decision was appealed.

BT then made a different ladder pricing proposal in relation to 080 calls in NCCN 1007, and the most recent appeal concerned whether Ofcom was right to accept that issue as a dispute for resolution.

Meanwhile, there is an open consultation (closing today) on Ofcom’s general policy relating to Non-Geographic Numbers.

Rules applicable to all UK telecoms operators to change

Last week Ofcom started a consultation on revising the UK’s General Conditions of Entitlement and Universal Service Conditions. The consultation closes on 7 April, and will be followed by a statement, with implementation on or before 25 May 2011.

The changes are part of the UK’s implementation of the revised European Framework for electronic communications. In addition, (although not expressly part of this consultation) the UK will need to take account of the recent European judgment on the UK’s Court of Appeal’s reference as to what obligations may lawfully be imposed on designated universal service providers. This Ofcom consultation follows the broader, now closed (with responsibility transferred to DCMS), BIS consultation which covers wider changes to the Communications Act 2003, the Wireless Telegraphy Act 2006 and the Privacy and Electronic Communications Regulations 2003.

Within Europe and the UK, the scope of telecoms (or as it is more accurately now described, electronic communications) regulation is very broad, and as (some of) the General Conditions do, and will continue to, apply to any Communications Provider, the consultation will be of broad interest.

The main changes proposed are:

  • a requirement that number portability takes place within one working day of an activation request being received by a donor Communications Provider. This will apply to fixed, mobile and bulk mobile porting requests and is to be backed up by accessible compensation schemes where this deadline is not met (GC18);
  • access to emergency services (112/999) is to be provided via  SMS (GC15) as well as clarifying the scope of the access and the provision of location information obligation on network providers, resellers, VoIP providers (GC4);
  • changes to mandatory contract terms (GC9):
  1. ‘the maximum duration of initial consumer contracts will be 2 years; and users generally must be offered an option to contract for the provision of public electronic communication services and also make this information available to other end-users on request;
  2. subscribers must be able to withdraw from contracts penalty-free following a notice of contract modifications; and for a maximum duration of 12 months; and
  3. contract termination conditions and procedures for termination must not act as a disincentive to end-users from switching their providers.’;
  • an extension of the requirement to maintain proper and effective functioning of the network to mobile and nomadic networks (GC3);
  • the introduction of a process for transferring number allocations and permitting time-limited number allocations (GC17); and
  • the introduction of an obligation on Communications Providers to provide end-users with access and the ability to use services behind any numbers in the European numbering plan, including non-geographic numbers. Although the wording change appears small, this could have significant impact on access to VoIP and other services (GC20).

Whenever changes are made to rules with general application it is inevitable that in addition to the intended consequences there will be unexpected or unintended consequences. Whilst contemporary press coverage focused on the changes to contract terms affecting retail contracts for smart phone contracts (views were mixed), and access to emergency services via SMSs (positively received) my suspicion is that the more ‘technical’ changes to the definitions, requirements to maintain network functionality, provision of location data, ‘number trading’ and most importantly the end-user right to access and use services will have much more significant long-term impact, even though not highlighted in Ofcom’s executive summary.

Mobile operators to acquire more fixed assets in 2011?

Any twitter followers (to follow go to: @rbratby) may have seen my live tweet commentary from the AnalysysMason city briefing last night.

I thought the four speakers were well-informed and authoritative, and their presentations thought-provoking.

The first presentation summarised the results of some cost modelling they had undertaken relating to mobile networks, by reference to a number of scenarios. These included using existing technology, deploying LTE and off-loading increasing amounts of traffic to fixed networks via femtocells and wi-fi. The conclusions were not earth-shatteringly new – current network architectures would become uneconomic as data volumes increased, LTE helped but was expensive and off-load to fixed networks would help mobile cost structures.

The second presentation looked at the demand side of the equation and made the interesting distinction between mobile data by from dongles (currently significant volumes, but low revenue per GB) and mobile data from smartphones (volumes increasing, and higher revenue per GB than dongle traffic). The relative growth rates and revenue characteristics were good news for mobile operators, and the presenter suggested that network deployment, particularly of LTE, should be targeted in dense business areas, on the basis that femtocells and wi-fi handover would predominate in residential areas.

The third speaker looked at the applications that would drive data volumes (in both fixed and mobile). He identified TV, and in particular HDTV, as a key driver – something this Watcher agrees with. This demand would drive NGA investment by incumbent and cable operators, and he highlighted that fixed infrastructure retained a significant cost advantage over mobile infrastructure to deliver HDTV traffic. As a result, TV offerings will become of increasing importance to fixed operators and YouView’s success is critical to the long-term future of BT and TalkTalk, as the broadcasters and telecoms operators compete against each other with bundled multi-play offers.

The fourth speaker brought the first three presentations together to conclude:

  • mobile operators needed fixed assets in order to control costs – both backhaul in their networks and end-user connections for deployment of femtocells and wi-fi;
  • regulated access to NGA infrastructure was a key issue for mobile operators as it became widely deployed; and
  • whilst access to fixed infrastructure could be secured through commercial arrangements, recent activity suggests that we are likely to see more M&A activity with mobile operators acquiring fixed assets.

Ofcom opens investigation into sharp practices in the international calling card market

Have you ever used an international calling card? If you have, perhaps it was at a time when you didn’t have a fixed address, or were feeling the pinch? You probably saw the adverts that promised you cheap international calling and thought that they would be a great way to stay in touch with friends or family overseas in a cost-effective way.

If you did use an international calling card, what was your actual experience like?

Ofcom investigation and consumer experience report

Yesterday Ofcom launched an ‘own-initiative’ investigation into the UK international calling card market.  As well as opening the investigation it published a independent report into the consumer experience of using international calling cards. 

The report did not make pleasant reading, highlighting:

Availability and accessibility of terms and conditions

  • Very low availability and accessibility of terms and conditions at point of sale;
  • better on-line availability of terms and conditions, although in some cases still low accessibility; and
  • that the terms and conditions were ‘extremely complex’ and ‘difficult to interpret’.

Did the cards perform as advertised

  • Some of the cards did not perform as advertised;
  • in some cases a smaller number of minutes were provided than advertised;
  • a quarter of calls to fixed lines were subject to early disconnection, with an even higher proportion of mobile calls; and
  • 10% of newly purchased cards appeared to not work at all.

Benchmarking against alternatives

  • Calling cards in many cases were more expensive than other methods such as indirect access, although there was significant variation.

Customer service

  • Was accessible during office hours, but quality of information provided about tariffs, terms and conditions was variable.

The report concluded that “understanding which card will offer the best deal is almost impossible for consumers to determine.”

What next and comment

Having opened  the investigation, Ofcom’s next step will be to approach the companies in the market and ask for more information, whcih it will then use (together with its own research) to assess the extent to which the international calling card market participants are compliant with applicable consumer protection rules.  Whilst Ofcom (perish the thought that a statutory body might fetter its discretion) clearly has an open mind, the report seems to set up a definite ‘case to answer’ for at least some of the market participants. 

The more interesting question will be what happens in the market and whether the indirect access operators (there are a reasonable number) and/or the various MVNOs focussed on this market are able to use publicity about the Ofcom investigation as a means to increase their market share at the expense of the calling card participants.

Key telecoms regulatory issues for 2011 (do too many connectives watch star trek?)

With my first post done, I thought it best to try and provide a little substantive content.  Two years ago, I spent some time interviewing various CEOs, strategy and regulatory directors in various international communications companies to get their thoughts on the big issues that were coming up.  With the end of the year approaching it seemed like an opportune time to revisit that research and reflect on whether those issues were still current, and therefore worth continuing to follow.

At the time of the research, our over-riding thesis was that the telecoms industry was going undergoing structural changes that meant that regulatory structures well-suited to dealing with steady-state markets were being overwhelmed by the changes confronting them.  The market and regulatory result was likely to be similar to that experienced when other step-changes (competition, mobile telephony, broadband, etc) impacted on the market – confusion and delay.  Events over the past two years (even putting aside the small matter of the global financial crisis) would appear to have validated that idea.

The themes identified in 2008 were:

  1. Consumers, rather than the market players, were the long-term winners.  Amongst the market players, returns to the incumbents’ shareholders were better than the new market entrants.
  2. Next generation access (that is, high-speed fibre based last mile connectivity to the home or business) would be the defining issue for the telecoms industry globally.  Regulators however did not know how to approach the issue.
  3. The tension between the pipes and the poetry (telecoms infrastructure v content and services provided over that infrastructure) was starting to surface – and in particular how the costs of network upgrades would be financed.  Net neutrality had not at that stage really crossed the Atlantic, but the industry could see the way the winds were blowing.
  4. Spectrum availability,  in particular as an enabler of ubiquitous ‘current speed’ broadband, was identified as a critical factor issue to resolve, even before the iPhone and iPad.

Looking back, those themes still as relevant today as they were in 2008, so I will return to them in future posts.

Finally, the star trek reference of the title has got nothing to do with trying to spoof search engines, but in the real world it does strike me that we need less ‘next-generation’ ideas and more plain English action plans to actually make things happen.