The UK Competition Commission (CC) has determined that charges applied by the UK mobile operators - O2, Vodafone, Orange, T-Mobile, and Hutchison 3G (H3G) - should be further reduced. This follows the latest investigation by the UK authorities into wholesale mobile voice call termination charges (the charges mobile network operators make to other telephone companies for connecting calls to their mobile networks).
The UK Communications Act 2003 (Communications Act) provides that certain price control elements of appeals against decisions by the UK communications regulator, Ofcom, must be referred to the CC for determination.
On March 27, 2007, Ofcom published its regulatory statement on mobile voice call termination charges, which set price controls on the mobile network operators for the four-year period from April 2007 to March 2011. H3G and British Telecom (BT) brought appeals against Ofcom's regulatory statement before the Competition Appeal Tribunal (CAT). On March 18, 2008, the CAT referred the price control matters raised in those appeals to the CC.
The CAT asked the CC to determine a number of questions relating to the elements of the price controls imposed by Ofcom. Ofcom had decided in March 2007 that the four largest mobile operators should reduce termination charges to no more than 5.1 pence per minute ("ppm") by the final year of the charge control period (i.e., April 2010 to March 2011) and that H3G should reduce its termination charges to 5.9 ppm. At the time of Ofcom's ruling, the regulated average termination charges for O2 and Vodafone were capped at 5.6 ppm and those of Orange and T-Mobile at 6.3 ppm. H3G was not subject to regulatory price caps prior to Ofcom's 2007 statement.
After a 10 month investigation, the CC found that two of the price control matters raised in BT's appeal were well founded. These related to spectrum costs and a network externality allowance. However, the CC rejected all of the price control matters raised in H3G's appeal.
As a result, the CC has gone further than Ofcom in its March 2007 statement. The CC determined that the charges for connecting calls to the O2, Vodafone, Orange, and T-Mobile networks should be reduced to 4.0 ppm by 2010/11 and that the charges for connecting to the H3G network should be reduced to 4.4 ppm by 2010/11. Although these amounts are expressed in pence per minute, the further reductions ordered by the CC are in the order of 20 per cent off current rates and the amounts in terms of revenue for the mobile network operators are substantial.
However, the CC's determination does not represent the end of this particular process. As the CAT itself acknowledged in its Judgment on the scope of the Tribunal's powers on disposal of the Appeal "complex and complicated appeals of this kind are liable to drag on". Even after the CC issues a determination, there is the possibility of a review of its determination by the CAT pursuant to section 193(7) of the Communications Act and the possibility that Ofcom may need to conduct further consultation prior to implementation of any modified or replacement condition.
Following the CC's determination, the CAT held a case management hearing on February 2, 2009. The mobile network operators H3G, T-Mobile, Vodafone and Orange intend to contest, on judicial review grounds, the CC's determination on the price control issues arising from the appeals.
As the CAT itself noted in its judgment of January 22, 2009, in the circumstances of these proceedings, further litigation is a "racing certainty". Given the substantial sums of money involved and bearing in mind that by extending proceedings the mobile network operators may be able to continue to enjoy substantial benefits that they may lose after an appeal, it is not surprising that both substantive and procedural challenges ensue.
The interaction between regulation and competition law is worthy of comment. In the first part of the appeal, the CAT dealt with whether or not H3G had 'significant market power' (SMP). To all intents and purposes, 'significant market power' in European communications law is the equivalent of dominance in competition law. H3G were ultimately unsuccessful in convincing the CAT that they did not have SMP. One of the arguments that they ran was that, for Ofcom to impose a price control condition on them, Ofcom had to show not only that they had SMP, but also that there was a real risk of them imposing excessive prices. It was pointed out to them that, under the provisions of the Communications Act, evidence of actual excessive pricing was not necessary: it was enough that there was a real risk that they might price excessively. This raises an interesting point of difference between ex post and ex ante intervention - in this case assessing how markets are likely to function in the future rather than how they have worked in the observable past.
The CC's determination represents the latest round in the ongoing debate and regulatory investigations into mobile termination charges. The CC itself carried out an investigation into mobile termination charges in 2002, following a reference by the then telecommunications regulator, Oftel (one of the predecessors to Ofcom). The issues are not new and, with persistent pressure at European level to reduce mobile termination charges, the debate is set to continue. As with any mandated price reduction, a question remains as to how mobile operators will seek to recoup reduced revenues from termination charges and whether, and to what extent, UK mobile users will see a 'waterbed' effect in the form of increased charges elsewhere or the reduction in subsidies for handsets.