<"The US is about two years behind Europe. But Europe is now a year behind Japan> snip <That is the main reason why Gent is now so interested in Japan, and Vodafone's growing investment there>
Careful reading suggested ;-) before running off screaming into the night. How about reading the Oftel paper he is unhappy with and reporting back? Snips follow.
oftel.gov.uk
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Market Influence
1.15 The term MI is defined in the mobile PTO licence and means that an operator has market power, so that it has the ability to raise prices above the competitive level for a non-transitory period without losing sales to such a degree as to make this unprofitable.
1.16 In March 2000, the Director General determined that Vodafone and BTCellnet had MI. A determination by the Director General that a mobile operator has MI triggers a number of obligations including:
to provide mobile airtime to qualifying service providers on request; and
not to show undue preference or undue discrimination in the provision of various services.
1.17 The MI-triggered obligations are designed to promote competition by preventing an operator using a position of Market Influence to behave in an anti-competitive manner, and to prevent the leverage of market power from the network level to retail services. As discussed in detail later in this consultation document, Oftel has particular concerns about the ability and incentives for network operators to leverage market power at the wholesale level to adversely affect competition in the downstream retail markets. Bearing in mind Oftel’s updated market definitions for the mobile sector, Oftel therefore considers that the most appropriate market to which MI designations should apply is the single wholesale market (which, in simple terms, represents the products that network operators sell to service providers and their own retail arms) within the broad sector represented by Figure 2.
1.18 In October 1999, an application for judicial review was brought by Orange against the Secretary of State for Trade and Industry in respect of his decision to include the concept of Market Influence in the licences that were granted in September 1999[Note C1.4]. Judgment was given on 25th October 2000 in favour of Orange. As a result of the judgment, the MI determinations made in respect of Vodafone and BTCellnet in March 2000 have no effect. The case was not directly concerned with the substance of the MI Determinations made in March 2000 or the process by which they were made. Thus, Oftel’s underlying reasoning for making those MI Determinations and the conclusions it reached were not challenged. Oftel is currently proposing to make MI determinations replacing those which were rendered invalid by the effect of the judgment [Note C1.5]. The proposed MI determinations are not related to, and will not influence, the decision-making process used to assess market competitiveness in this review, nor do comments made in this document in any way fetter the Director General’s discretion in relation to those proposed determinations. Please refer to Annex 3, paragraphs A3.18 – A3.26 for further details.
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snip (somewhat OT but interesting.)
SIM locking
2.22 The continuing prevalence of SIM-locking practices (all four operators lock pre-pay phones) by the mobile operators may act as a barrier to consumer switching and, in the future, could hinder consumers from using different operators for different services. This could impact on the future competitiveness of the mobile sector. Oftel believes that in some other countries (Italy and Iceland for example) it is normal behaviour for consumers to subscribe to two or three different networks, swapping SIM cards in their handsets to use different mobile operators for different services. SIM only services are now available in the UK, and Oftel is aware of one new mobile supplier that is attempting to supply a stand-alone SIM only international roaming service. Consumers can only take advantage of SIM only products if they have an unlocked handset or can easily arrange for their handset to be unlocked and are aware of such arrangements. Oftel will include questions designed to assess the level of consumer awareness of SIM locking in the next consumer survey.
2.23 Oftel is presently considering a number of consumer complaints in relation to the fees charged for SIM unlocking and the locking period imposed by operators. In the light of the conclusion of this review, Oftel will consider whether it should take further action to address SIM locking. This is discussed further in Chapter 5, Next Steps.
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Back to subject.
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Vodafone continues to earn profits well in excess of its cost of capital. This suggests that Vodafone’s prices may exceed the competitive level. BTCellnet’s accounting profit (a ROCE of around 12% can be calculated from BTCellnet’s statutory accounts for the year ending 31st March 2000) is substantially lower than that of Vodafone’s. The recent decline in ROCE for both operators may be indicative of increasing competitive pressure, although it could also reflect other factors. For example, a downturn in profitability may be expected to be temporary if the operator is pursuing a strategy of boosting subscriber numbers. Large-scale growth in subscriber numbers will tend to artificially depress profits in the short term because of the practice of subsidising subscriber acquisitions.
2.70 Vodafone has submitted figures to Oftel to show a comparison of year on year increases in turnover and capital employed (ie incremental turnover and capital employed). These figures show a much lower ROCE than for the total business and were submitted partly in support of an argument that new subscribers are less profitable than existing subscribers. In the 1998/99 review of the mobile market, Oftel explained at length why it was inappropriate to consider a market for new subscribers separately from existing subscribers. Oftel does not believe that examination of incremental numbers influences the conclusions that should be drawn from examination of the general trend, which is one of profits persistently and significantly in excess of the cost of capital. However, persistent low incremental profits could (but do not necessarily) indicate that Vodafone’s profits may reduce to normal levels at some point in the future.
2.71 Vodafone has also presented figures showing that when the 3G licence fee is included accounting profitability measures fall significantly. Oftel believes that it would be erroneous to take a fall in the measure of profitability due to the inclusion of 3G licence costs, which are sunk costs, as an indication of increasing competition. In addition, by generating lower profitability figures by taking into account the 3G licence fee, Vodafone fails to take into account the revenue streams that will be generated by 3G services. Oftel does not believe that lower profitability figures generated by the inclusion of the costs of the 3G licence fee at the present time can be taken as a reflection of a permanent downturn in profits caused by increasing competition
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