Future Mobile Competition

Brandon Lewis Excerpts

Wednesday 14th March 2012 Westminster Hall

[Alun Cairns (Vale of Glamorgan) (Con)]

It is a pleasure to serve under your chairmanship this morning, Mr Gray, and I am grateful for the guidance that you have offered.

What we are debating is extremely important to the whole United Kingdom, to the communication links in our constituencies and to the economy in general, and we are considering the future of the new generation of mobile communications. From the outset, I want to pay tribute to the Minister and the Secretary of State for Culture, Olympics, Media and Sport for the priority given and the commitment shown to the subject and for how they and Ofcom have reacted to the demands of the House and of the wider marketplace.

The new generation of mobile communications brings fantastic opportunities for use and management of data to benefit business, the public sector and lifestyle and for great efficiencies in ways that we can only imagine. I do not want to labour such points today, however, because I want to focus on some of the technical issues in the latest Ofcom consultation.

The UK has an extremely competitive mobile communication market, which has benefited the economy hugely and resulted in mobile communication prices that are among the lowest in Europe. Ofcom originally consulted on the 800 MHz and 2.6 GHz spectrum allocation and auction process last March. At the time, its proposal to require a 95% population coverage obligation caused considerable concern in Parliament. During an exceptionally well attended debate in the main Chamber, many Members called for an increase to a 98% population obligation.

I am delighted that Ofcom responded positively and revised its preferred options in the new consultation to include a 98% coverage obligation, which shows a significant commitment to areas that were left behind following the 3G auction. Rural areas in Wales, England, Scotland and parts of Northern Ireland suffered under those arrangements.

[Brandon Lewis (Great Yarmouth) (Con)]

I congratulate my hon. Friend on securing this important debate, although it is a shame that no one from the Opposition is present. Does he agree that the opportunity is hugely important for rural areas, because of the economic benefits provided to places that are otherwise remote and lacking in infrastructure?

[Alun Cairns]

I am grateful to my hon. Friend for underlining such a valid point. The launch of 4G mobile communications will be the last opportunity for a valuable area of the spectrum to be used, auctioned and marketed to benefit the whole economy. Ofcom and the Minister have reacted to the demands of my hon. Friend and many of our colleagues. Let us compare that reaction with the 3G launch administered by Ofcom under the previous Administration and the benefits for areas such as Wales. Despite an auction that netted £22.5 billion, Wales has been left with only 79% 3G coverage, against 98% coverage in England. The 2G coverage in Wales remains at 89%, compared with 99% in England. We might have expected the previous Government to invest some of that fantastic 3G windfall into some of the not-spots, along the lines now being followed for 4G by the Minister and the Secretary of State.

Even within the 98% 4G option, Ofcom presents two main alternatives, the first of which is to set the higher but specific population coverage obligation to include the outcomes of the Government’s mobile infrastructure project. The second option is to specify a coverage obligation by reference to the existing 2G network in combination, plus the additional mobile voice coverage added through the Government’s MIP. Strictly speaking, the second model risks not reaching the exact 98% population coverage, but it gives the opportunity to go well beyond that, dependent on the MIP roll-out and its nature and form.

I therefore support the second option, with its greater opportunity, but ask that Broadband Delivery UK consult actively in and outside Parliament on how best to use the resources that the Minister and Secretary of State have made available. I ask BDUK to pay particular attention to the sort of data on Wales that I mentioned as a result of the deficiencies of the 3G auction.

A further significant difference between the two Ofcom consultations relates to the breakdown and split of the spectrum and the proposals to guarantee national wholesale competition on the current scale. That is of fundamental importance to maintaining the strong competition and benefits thereof that I mentioned earlier. We need to remember that the 800 MHz spectrum is the most desirable to all operators. It allows the best coverage possible both in and outdoors. In simple terms, it travels further and penetrates buildings much more effectively than higher ends of the spectrum.

The March 2011 consultation guaranteed such provision for two operators, partly because Telefonica and Vodafone currently operate on the 900 MHz spectrum, which holds similar properties to the 800 MHz level. The auction was to be split into portfolios, starting at a pair of 5 MHz blocks. Some believed that such a level offered insufficient capacity and others objected to two operators gaining an absolute right to the 800 MHz spectrum. Responses to the consultation led to changes, by removing the preserved rights for two operators and increasing the portfolios to blocks of a minimum of 10 MHz.

The basis of that change is significant, because Ofcom revised its opinion on the interpretation of the reach of the 800 MHz spectrum, by comparison with that of the 1,800 MHz spectrum. At the outset, it believed that operators with a large amount of low-frequency spectrum would have an “unmatchable competitive advantage”, but the latest consultation shows that its position has changed and it now believes that low-frequency spectrum is not a necessity for all operators—if an operator had sufficient 1800 MHz spectrum, it would still be able to compete.

Ofcom now believes that an operator can compete with others operating at a lower frequency, possibly with a price trade-off in compensation for reduced indoor coverage. That is a respectable argument, but not one that I accept. I do not think that it is practical or realistic for consumers to differentiate in such a way, even if the technological claims are robust. There is no effective way, other than experience, in which even an informed consumer will be able to assess the quality of indoor coverage of a service provider.

Contract tie-ins range between one year and two years, so switching provider in the short term is not an option, and coverage and quality could also change within that period because of further investment in additional masts, so confusing the situation further. It could be argued that that was the position when each generation of mobile communication was auctioned and rolled out. At such times, however, the markets were developing and people were prepared to compromise in the short term. Even after the 3G auction, Hutchison used that business model to gain market share, but now that the market has matured, all operators compete on similar terms.

Intense competition would not exist over the longer term in a mature market without the availability of 800 MHz or any further spectrum auction to sustain market interest, and the whole intention of the policy to maintain four credible national mobile operators in competition would be undermined. Over the longer term, the operator without 800 MHz or 900 MHz would walk away or be subject to a takeover by one that had the desired spectrum.

I therefore urge Ofcom and the Minister to consider splitting the auction portfolios, so that four operators have the opportunity to secure low-frequency spectrum. That is less prescriptive than the first consultation, but each operator, including the possibility of a new entrant, must have the opportunity. There are only three pairs of 10 MHz blocks, and my proposal could mean splitting to up to six pairs of 5 MHz options with appropriate guarantees, which is similar but not identical to what was offered in the first consultation. That would deliver long-term sustainable competition, protecting the consumer in the best way, rather than by regulation at a later stage.

Finally, I want to turn to data roaming. Charges by all operators at the moment are wholly unacceptable, with monthly bills running into possibly hundreds of pounds for people travelling in Europe or north America. The European Commission recently proposed a cap of €100 per gigabyte, which could be multiplied by five to reach a retail price of up to €500 per gigabyte, equating to £420 per gig. Clearly, that is far too high and undesirable for individuals and businesses.

The European Parliament recently voted to halve the wholesale cap to €50 per gig, which is encouraging, but I would ask the European Council to move still further. Most infrastructure spend has already been made. By comparison, UK consumers pay £10 per gig within the UK, and even after reform, data roaming could still cost £164 per gigabyte at the reduced level by 2014. Clearly, it is necessary radically to reduce roaming prices. Lower wholesale rates drive market competition and allow operators to develop lower cost propositions. The regulations will be finalised in June, and I ask the Minister to respond to these calls in the same way that he and Ofcom responded so positively to the shift from the 95% coverage obligation in the 4G auction to the 98% coverage obligation.

I will bring my remarks to a close by emphasising the priority that the Government and the Minister have given to such an important policy. We are in the last-chance saloon in marketing the new generation of mobile communications strongly, effectively and efficiently to gain and maintain the right level of competition. There is a threat that some operators may pursue challenges through the courts, but I hope that an arrangement can be delivered on securing the right level of competition, so that all may be reassured, but with ultimate choice to the consumer, while driving prices down in a similar but not identical way to that in which the 3G auction was used.