Adapting

Ad ti regulation
l ti for
f a
mobile,, wireless world
David Stewart, Competition Policy Director
20 March 2009
Content

• Ofcom’s Mobile Sector Assessment - scope

• The UK mobile sector today in 7 slides

• The UK mobile sector tomorrow in 5 slides

• Ofcom’s Mobile Sector Assessment – emerging

g g findings
g

1
Ofcom is re-assessing our approach to mobile issues

Principal Should Ofcom revise its approach to regulation of the mobile sector, in order to
question
ti respond to the changing market environment?

Primary
What are the How are What are the What is the scope
questions
q
i li ti
implications off consumers and purposes of for
market change citizens affected mobile deregulation, com
for mobile and by developments regulation, and petition and
wireless in the mobile where should its innovation in the
services?
i ? sector? focus lie? mobile sector?

Phase I consultation focused

f on these three questions Phase II

2
Content

• Ofcom’s Mobile Sector Assessment in 5 slides

• The UK mobile market today in 7 slides

• The UK mobile market tomorrow in 5 slides

• Ofcom’s Mobile Sector Assessment – emerging

g g findings
g

3
 Total UK mobile take-up

100 122.0 127.2

109.1 116.3
Subscrriptions (milllions)a

99.5
80 88.0

per 100 populattion

82.6 100
Contract
60

40 73.2 76.3 50
65.5 69.8 Connections
52.8 59 7
59.7 per 100
49.5
20 population

0 0
2002 2003 2004 2005 2006 2007 2008
By household (Q4 08)

Mobile: 92%
Source: Ofcom / operators Fixed: 85%
Note: Includes estimates where Ofcom does not receive data from operators Internet: 67%
Broadband: 60%

4
UK telecoms industry retail revenue
5 year
CAGR
29.1 30.4 30.5 3.1%
28.4
ail revenue (£bn)

30 26.2 27.6 4.1%

2.7 2.8 2.8
25
2.5 2.6
6 33
3.3 33
3.3 8 8%
8.8%
23
2.3 2.6 3.0 33
3.3
2.2
20
10.5 11.9 13.0 13.8 15.0 15.3 7.8%

10
Reta

11.2 10.6 9.8 9.4 9.3 9.1 -4.1%

0
2003 2004 2005 2006 2007 2008*
Fixed calls & access Mobile voice & data Internet & broadband Corporate data services

Sou ce Ofcom
Source: O co / operators
ope a o s
•2008 data includes estimates for 2008
Some historic figures have been revised due to reallocation of revenues

5
Share of total UK fixed and mobile telecoms connections

100%
nections

7.5 8.7 11.1 14.1 CAGR

14.8 15.3
15.6 3.5 3.7
80% 15.1 3.7 4.5
14.9 14.8
11 1
11.1 14.6 14.6 -1.31%
Proporttion of conn

11 0
11.0 10.5
60% 13.8 10.6 10.9 10.9 - 0.37%
14.1 15.0 15.9 16.0 16.9 4.21%
13.7 14.0
40% 14.5
5.3 5.0 13.9 14.8
45
4.5 14.8 1.48%
4.2 4.2
20% 4.2
32.7 29.4 26.0 22.8 20.8 18.8 - 10.46%
0%
2003 2004 2005 2006 2007 2008

BT Cable Vodafone O2 T-Mobile Orange 3UK Other

Source: Ofcom / operators
Note: Includes estimates where Ofcom does not receive data from operators; other includes CPS, WLR,
Mobile ISP and MVNO subscribers in additional to fixed OLOs. Some historic figures have been revised
due to reallocation of connections.
6
 Comparison of wholesale and retail market shares
2004 - 2008
Retail market share of base Wholesale market share of base
(Pre and post pay) (Pre and post pay)
30% 30%
O2

25% O2 25%
T Mobile
Vodafone Vodafone
20%
are of subscrptions

20% Orange

Share of subscriptions
Orange

T Mobile
15% 15%
Sha

10% 10%
Virgin
5% Three 5% Three

Tesco
0% BT 0%
1

1
Q

Q
04

05

06

07

08

04

05

06

07

08
20

20

20

20

20

20

20

20

20

20
Source:
So rce Ofcom / operators
Note: Includes estimates where Ofcom does not receive data from operators

7
Fi d and
Fixed d mobile
bil call
ll volumes
l

CAGR
300
247 255 2.5%
Call minutes (billions) a

226 228 231 233

44 49 54 61 72 79 12.3%
200
15 15 17 21 27 31 16.3%

100
167 164 160 151 148 145 -2.8%

0
2003 2004 2005 2006 2007 2008*
Fixed Mobile pre-pay Mobile contract

Source: Ofcom / operators

* 2008 data includes fixed-line estimates for Q4 2008

8
 Outbound SMS volumes

120 117
und SMS (billions)

100 94 SMS volumes

(billions)
80
Monthly
60 outbound SMS
84.5 per connection
40
Outbou

62.3 Monthly
20 45.8 outbound SMS
26.8 35.2
17.6 22.2 per capita
0
2002 2003 2004 2005 2006 2007 2008

Source: Ofcom / operators

Note: Includes estimates where Ofcom does not receive data from operators
Some historic figures have been revised due to new data received.

9
 The changing consumer behaviour

A significant proportion of consumers uses content on

their
h i phone
h
% of people using mobile functions
Camera 41%
Store photos 34%
Games 17%
Upload pictures to PC 15%
Diary or organiser 13%
MP3 12%
Video camera 11%
Internet access 11%
Send and receive video clips 9%
FM radio 9%
Instant Messenger 8%
Email access 7%
Doanload video clips 4%
Download applications 4%
Ability to locate places using GPS 2%
Video calling 2%
Walkie-talkie 2%
Podcasts 1%

0% 10% 20% 30% 40% 50%

Source: Ofcom research, Feb/Mar 2008

Base: All who own a mobile phone

10
Content

• Ofcom’s Mobile Sector Assessment - scope

• The UK mobile market today in 7 slides

• The UK mobile market tomorrow in 5 slides

• Ofcom’s Mobile Sector Assessment – emerging

g g findings
g

11
The underlying networks are moving towards NGN
M i ffrom convergence att the
Moving th core, towards
t d end
d tto end
d IP networks
t k
Phase I: Phase II: Phase III:
Core convergence Edge convergence Full convergence

Fixed world TDM voice TDM voice

Access xDSL data
xDSL data IP over
IP extending to
Copper/Fibre/Cable
LE/node (21 CN)
High-capacity
Core
IP/MPLS core

Converged
g core All IP core networks
networks

Core Circuit switched voice

Packet switched data LTE/WiMAX
((IP over air radio
HSDPA interface)
GSM / GPRS HSUPA
Access
UMTS
Mobile world

Today 2011-2014 2015+

12
The mobile value-chain is changing

Network Mobile Device Distributor

Equipment
q p Network Vendor
Vendor Operator
Tower & Mobile Content
Backhaul Service Provider
Provider

Geo

13
Internet brands are increasing their presence in the
mobile
bil market
k
Online brands in the mobile space Mobile internet brands

14
Mobile will be more like fixed internet, but also different

Today: mobile network at the centre Future: separation of content and ‘pipe’?

Applications All applications (including Applications Applications are able to emulate

voice, SMS ringtones etc) are network functions eg: Mobile VoIP,
Services Services Apple app store billing to credit card
delivered using ‘network
intelligence’ via the mobile
operators network
End-users
E d are able
bl tto choose
h and d pay
for different elements separately:
Mobile Network Billing is managed by the Mobile Network • Pay the network provider for
network access
• Pay application provider for
content or service pprovided ((or
advertisers pay)
End-user End user devise is ‘locked’ to End-user
device specific configurations that the device Any USB device
network can control

Regulation focused on mobile

More diverse,
diverse less distinct
operators
Customer relationship / service delivery Payment flow

15
For consumers, this could mean more choice – but also
more complexity
l i
Possible Implications for consumers

Retail competition Network

remains fierce
Innovative applications
and services inc.
mobile internet
+ -
Larger bundles for
voice/SMS/data
i /SMS/d t
Services split from
devices (SIM-only, new
‘non-handsets’))
More information
available to consumers
Consumer outcomes competition may
be less intense
More complex
• ‘Mobile’ remains but serving tariffs, devices, ser
different needs, with more vices
choice for some consumers
Bundling and
complexity
• Confusion for others increases
switching costs
• Remote coverage may
increase, but competitive More scope for
impact of fewer networks mis-selling and
scams from wider
unclear
pool of suppliers

16
Content

• Ofcom’s Mobile Sector Assessment - scope

• The UK mobile market today in 7 slides

• The UK mobile market tomorrow in 5 slides

• Ofcom’s Mobile Sector Assessment – emerging

g g findings
g

17
Emerging findings

• Overall

• Role of competition

• Role of regulation

• Innovation

• Investment

18
Actions and implications

• Competition

• Consumers

• Access

• Spectrum
p

• Coverage

• Termination rates

19
We are consulting on options for reform of MTRs

• Current charge control ends in 2011

• MSA sees increasing pressure after 2011 from:

– Convergence
– Competition (including spectrum release)
– Regulation

• Commission’s Recommendation issued

• 6 options considered:

– Complete de-regulation
– LRIC+ (as today)
– LRMC (similar to Recommendation)
– Capacity-based charging (similar to internet access)
– Reciprocity btw fixed and mobile (similar to US)
– True bill-and-keep (similar to internet peering)

20
Questions?