It should be pretty obvious to readers of this blog that we struggle with some floors of Ofcom towers (Huw and team, not yours!). ‘We no speak bureaucrat’ and that may be a factor in how excruciatingly frustrating we find dealing with them. Their inaction on number portability and what some might call protection of mobile markets are not the topic here (note to self: no, really, avoid a rant). Whilst we find the unfairness in the UK telecom market abhorrent and the consumer harm caused by its regulator’s wilful inaction over blatant breaches of its own rules unacceptable, they are topics for another day. Today, given ‘limited resources’ is a phrase in the language of bureaucrat often cited to justify doing nothing (even where doing something would have taken less time), we wanted to look at what they had deployed those resources to do and, by their own figures produced using more ‘limited resources’, what they had achieved.
Overnight on February 1st 2014 Ofcom took away 86% of the income on incoming calls to geographic numbers. They argued this was because we had “Significant Market Power”, a claim they made on seemingly anyone with number ranges, even those not trading, and one contradicted by their own actions elsewhere in the same week. You can read the background in our blog at the time: OFCOM presses ahead regardless.
Our key points were that they’d render number portability loss making (it is and remains so), afford a windfall gain to BT in this and other areas, and deprive smaller CPs of valuable revenue needed to innovate.
One of Ofcom’s roles is ensuring competition, right? So those scallywags with significant market power who were extorting a powerless BT needed to be brought into line, presumably to protect the consumer from harm by rising prices? We don’t know what that review cost (FOI anyone?) but we do know it caused, and continues to cause, harm to CPs who are not the incumbent. That is all worth it though if the consumer benefitted. Let’s look at Ofcom’s figures then…
Wholesale revenues indeed fell 11% 2013 to 2014. That is less than the 86% taken on inbound as that will be offset by cost reductions, for those operators able to benefit from them. That figure is an aggregate though and lost in the detail may be niche operators who lost pretty much all of their income and business, or the incumbent who we expect saw a gain.
Retail revenues actually rose over 10% though, despite call volumes falling 13%.
It strikes us that this presumably costly exercise, using ‘limited resources’ has achieved nothing to protect the consumer. What it has achieved is a windfall gain to the incumbent and a shift of margin from wholesale to retail fixed providers. The incumbent remains the largest retail operator. Is that regulation or market distortion? Who really has the Significant Market Power?
Mobile Termination Rates
Over recent years Ofcom has also pro-actively mandated that mobile termination rates drop. Cheaper mobile calls are great for consumers. Us being a recipient of an MTR is a relatively recent thing and thus, we haven’t made much of a fuss about it!
The reality is though that reducing the MTR has taken an estimated £2.1bn out of the mobile operators pockets and redistributed it. That affects not only the mobile operators but operators such as us providing value-added conveyance between operators – as the pie gets smaller fewer crumbs fall off it!
But again, if this benefits the consumer and protects them from scallywags with “Significant Market Power” (oh yes, we have that in mobile too apparently despite Ofcom still denying us some of the basic resources needed for Simwood Mobile) then it is all good. Let us have a look:
So this again looks to us like volumes have dropped, wholesale prices have been forced down, whilst in retail terms prices have barely moved, ergo margin has risen. It appears to have done little to promote competition or protect the consumer. What it has achieved is a shift of margin from wholesale to retail fixed providers. The incumbent remains the largest retail operator. Is that regulation or market distortion? Who really has the Significant Market Power?!
Prediction: Non-Geographic call costs to rise dramatically
Non-geographic call costs are excluded from Ofcom’s data but we have expressed bewilderment at the NGCS changes and their scope for consumer harm. We expect next year’s report will show an increase to consumers from calling non-geographic numbers in the region of tens, if not hundreds, of percent. Or will it be omitted from the report altogether, after many meetings eventually conclude that two prices is not easier for consumers than one, and changing the prices of all the numbers they know has created a Wild West scenario and harm from fraud.
Whilst we will never know how things would have panned out had Ofcom not performed these presumably costly market interventions, we think one can make a pretty good guess from the above graphs. If Ofcom works for the taxpayer and has spent tax-payer money pursuing its stated purpose of promoting competition and protecting consumers, with the result of increased margin to the incumbent, distortion to the detriment of alternative networks and raised consumer prices; one has to ask: What was the point?