On breaking the rules, regulators, telecoms, and various European issues

Now being based in Hong Kong, I am not actively exposed to the dialy grind of telecoms in Britain (and the EU). So I was quite surprised to read in last week's New Media Age, that there is a long line of scandals with TV broadcasters abusing TV-interactivity via mobile phones. In the UK? I am very surprised - and disappointed - by this. I had been aware of some of the earlier stuff like the Big Brother TV show which invites viewers to vote (on paid SMS votes) who to toss out of the programme. In 2006 some TV producers decided to re-instate some contestants who had been expelled by the viewers. This was found to be against the interests of the viewers and Channel 4 was fined for this. After all, if we vote to get rid of someone, it is quite unfair to find that person back in the show - and the show to ask us to vote again (and pay again) who we want now to leave.

You'd think this was big publicity and the TV producers would learn to be very mindful of SMS interactivity on TV. But no. Now the NMA reports that currently under investigation are accusations that: Richard & Judy's TV show asked viewers to send in votes, after the voting had closed; X-Factor (think American Idol/Neuvelle Star) said votes cost 35p, when they cost 50p (43% more than stated!); Ant & Dec's Saturday Night Takeaway asked for more votes after the winner had been picked; Blue Peter asked a member of the live audience pretend to be the winner when their voting system failed; and Saturday Kitchen asked viewers to send votes to an episode which was a recording.

So on the TV-voting - this is a 2 billion dollar industry already. LETS NOT KILL THE GOOSE THAT LAYS THE GOLDEN EGGS. In any country, any TV market - please please please. Lets keep this as honest and reasonable and fair as we possibly can. One Crazy Frog incident can do permanent damage to us and the reputation of televoting.

But there's more on the area of regulators and telecoms. Ofcom the British regulator announced this Wednesday that they will cut interconnect fees that mobile operators charge. The four big mobile operators, Vodafone, O2, T-Mobile and Orange each charge currently between 5.8p and 6.3p for terminating telecoms minutes into their networks. The fixed operator BT charges about 1p. Obviously mobile networks have much higher actual operating costs to deliver that voice minute to a mobile phone, so a difference is justified. But Ofcom now announced that these charges are too high. Ofcom mandates they be cut to 5.1p per minute.

Does that matter? In the big picture of British telecommunications, it means a cut of half a billion UKP pounds in a year, by the time they are fully in effect in 2011. But in practise, the effect only really applies to outbound calls from fixed landline calls to mobile phones. As the telecoms traffic between mobile operators of roughly the same market size as the four big mobile networks in the UK - the change in prices is almost negligent, as there is a huge barter of minutes outbound from one mobile network to another, and back. So if Vodafone "owes" T-Mobile 50 million minutes, and T-Mobile "owes" Vodafone 48 million minutes, the only net 2 million minutes are actually paid.

But with minutes from the fixed network to mobile, the difference is great. Every minute from Vodafone to BT costs Vodafone only 1p, while every minute from BT to Vodafone costs 5.6p today. When that comes down to 5.1p, these minutes become significantly cheaper to produce, and BT can pass these savings onto its customers.

So while the Ofcom interconnect ruling does apply to mobile calls, it does not really impact the actual behaviour of British phone users that much. My take on this, is that Ofcom is seen as one of the activist regulators, very much on the cutting edge of telecoms regulation, liberalization etc. And now as Ofcom has shown this example - and set the UK price levels for what it considers reasonable, you can expect most EU regulators to follow suit, probably Scandinavia first and South Europe last, if history is any guide. But certainly, I applaud this regulatory intervention. Mobile termination rates are based on historical analysis from times of analogue and early digital networks, when assumptions were that only 20% of the total population would carry mobile phones. Today when in Europe there are 105 mobile phone subscrptions to every 100 European citizens, we clearly have a robust mobile telecoms economy that has grown much beyond its original business plans. And any interconnect regimes that were set in the last decade are hopelessly out of date. There is a lot of room to reduce interconnect rates.

Which leads rather nicely to EU's chief telecoms regulator, Viviane Reding. She has been active in reducing the horribly over-priced international roaming charges (and we strongly support her initiatives in this). Viviane Reding was also in the news in this week's Financial Times on 29 March where in an interview she said she wanted the major incumbent telecoms operators in Europe to be forced to split their operations and functionally be regulated separately on their network and on their service portfolio. The biggest reasons for this are the problems independent broadband and telecoms service providers have in landing fair deals from the incumbents. The incumbents have plenty of opportunities to "cheat" by offering hidden subsidies from one part of the business (network) to another (services). I am happy that the EU telecoms commissioner is taking a pro-active position on this, but am also hoping that by now the telecoms operators would have learned and themselves take an active role in becoming more transparent and honest in their dealings with their local smaller competitors.

Comments

[Mark]

Para 5 : Should that be "effect of a price change is negligIBLE" (rather than negligENT)?

[Touraj Parang]

This ruling can actually end up hurting the UK consumer IF Ofcom does not do more to open up competition in UK. Check out my posting on our company blog (http://jaxtr.blogspot.com)