purple motes

The U.K. Competition Appeal Tribune recently issued a "judgment on the core issues" in a dispute concerning U.K. mobile call termination rates. The judgment concerns mobile call termination rates that were in effect from 1 Sept. 2006 to 1 April 2007. That's a period slightly shorter than the period between the Competition Appeal Tribune's judgment (20 May 2008) and Ofcom's most recent decision (7 July 2007) in its lengthy regulatory proceedings considering call termination rates.

The Competition Appeal Tribune (CAT), however, has not yet decided what money will be shifted among the companies. The CAT's Judgment explains:

On handing down this judgment, therefore, the Tribunal will set a date for the submission of any further contemporaneous evidence as discussed in paragraph [194] above. The Tribunal intends then to proceed to determine the rates in dispute. At that stage the Tribunal will seek the parties’ views as to which, if any, of the non-core issues remain to be decided. Once any such issues have been decided the Tribunal will be able to remit the decisions to OFCOM with appropriate directions, in accordance with section 195 of the 2003 Act.

Which company gets what money for mobile calls made from 1 Sept. 2006 to 1 April 2007 probably won't get decided, I'd guess, before mid-2009. Such a decision has no effect on the public's mobile calling behavior, because calling behavior can't be adjusted retrospectively. Maybe that's why the OfcomWatch folks don't seem much interested in the details of the issue.

The CAT referred some related call termination issues to the Competition Commission on 18 March 2008. The Competition Commission is required to report to the CAT on these issues by 31 Oct. 2008. The CAT noted (para. 196) that it "needs to balance the desire not to prejudge the Competition Commission’s investigation against the desire to resolve these disputes as soon as possible." Having three government agencies involved in resolving a mobile call termination dispute undoubtedly adds to the time required to do so.

The economic behavior relevant to this dispute is that of lawyers, lobbyists, and regulatory affairs staff persons. Ideally, each party in the dispute will expend resources pursuing it until the party's marginal cost is equal to its marginal expected return (roughly, increase in probability of winning times size of expected winnings plus probability of winning times increase in size of expected winnings). It's entirely possible that all parties together will spend more on pursing the dispute than size of the winning pot the final decision establishes. Regulatory affairs' principal-agent problems in large companies make this outcome more likely.

Call termination rates are a difficult problem best viewed in light of an overall structural strategy for communications industry development. Having multiple government bodies deciding narrow, short-period, backward-looking termination rate issues in an adversarial case-and-appeals process isn't likely to produce a forward-looking regulatory framework for communications industry development.

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On 27 March 2007, Ofcom released a statement setting mobile voice call termination charge controls for the next four years. These new charge controls replace charge controls set to expire 31 March 2007. The previous charge controls had been set for 1 September 2005 to 31 March 2006, but then had been extended for additional year. The previous charge controls had been subject to a lengthy, contentious appeal and a revision that eliminated separate control across rather different types of competitors (fixed-mobile termination vs. mobile-mobile termination). In conjunction with issuing the new charge controls, Ofcom began considering revising those controls in view of the impact of indirect routing for mobile number portability on the effective termination charge.

Inter-carrier compensation issues are quite difficult for regulators. Ofcom's recent call termination statement comes about two years after Ofcom initiated formal consideration of new charge controls through publication of a document entitled Wholesale mobile voice call termination -- a preliminary consultation (7 June 2005). Following that preliminary consultation were two other consultations, Wholesale mobile voice call termination -- market review (30 March 2006), and Mobile call termination -- proposals for consultation (13 September 2006).

Economic formalisms seem to constrain Ofcom's ability to do sensible policy analysis. European Commission recommendations urge national regulatory authorities to define, "in accordance with the principles of competition law," a relevant "market" for regulatory action to be "voice call termination on individual mobile networks" (see Framework Directive 2002/21/EC, Article 15). Ofcom carefully considered Significant Market Power (SMP), Countervailing Buyer Power (CBP), a "two-sided market" (that's not meant to be a duplicative description; it's an organization of transactions currently attracting attention in leading economic and business analysis), and a variety of other concerns of the type typically raised in competition cases. In line with EC recommendations, Ofcom then concluded:

There are separate markets for the provision of wholesale mobile voice call termination in the UK to other Communications Providers by each of Vodafone, O2, Orange, T-Mobile and H3G. (paragraph 1.10)

Ofcom deserves respect and appreciation for collecting considerable data and examining in detail the structure of mobile voice services and businesses. However, defining as "markets" individual companies' mobile voice call termination services is conceptually absurd. Such "markets" are by definition "monopolized" by the company with respect to which they are defined.

Competition law should not be allowed to obtain a dominant position in communications policy analysis. A well-established, highly competitive symbolic market for legal and regulatory claims exists within the framework of competition law. That market spurs economic growth for lawyers, economists, regulatory affairs departments, technical consultants, etc. For more inclusive economic development, communication regulators should consider interconnection rules in relation to broad economic development goals.

Having communication service providers earn a large share of their revenue from basic voice communication is likely to impede growth in broadly capable networks and innovative communication services. Ofcom's charge controls set mobile voice call termination rates about 5 pence per minute through 2011. Consider those charges with respect to some real-world communications development goals. Vermont, for example, is pursuing the goal of having for everyone, everywhere state-wide symmetric mobile data service of at least 3 Mb by 2010, and at least 20 Mb by 2013. Such development could easily support zero-price mobile call termination charges. On the other hand, if zero-price mobile termination charges would cause a major loss in revenue to mobile service providers, such charges are much less likely to occur. Through both regulatory lobbying and large expenditures on marketing and promoting, communications service providers can sustain prices with little relation to economic and technical aspects of reality.

Requiring communication providers who offer voice communication to accept voice communication from others at no charge to those others would help to deflate revenue from basic voice communication. One technical description of this sort of interconnection regime is "bill and keep". Discussion of bill-and-keep has tended to focus on inter-carrrier compensation (pie splitting or money-routing) rather than on more important issues of industry structure. Regulation of mobile voice call termination rates has much broader implications for communication service users than pass-through of termination rate reductions or the particular circumstances of mobile voice calls. Regulation that supports per minute pricing of voice communication through the year 2011 does little to foster important communications possibilities that are already clearly visible.

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An important trend in communications policy has been to give persons more freedom to communicate using radio devices. The U.K. Office of Communication (Ofcom) currently is consulting on new ways of defining licenses for communicating using radio spectrum. Ofcom proposes to specify in licenses spectrum usage rights. It proposes to define these rights by specifying geographic boundaries and about thirteen parameters relating to power flux density, including parameters relating to time and location density. Of course, many other parameters will be relevant to modeling and measuring these rights. Compared to the structure of parameters embedded in specific technologies and applications, this new structure of license parameters gives licensees more freedom to communicate using different radio technologies and for different purposes.

Adjudication of spectrum usage rights through an institution separate from the spectrum regulatory body would make spectrum usage rights less uncertain and more secure. The authoritative meaning of spectrum usage rights may not be clear. If the spectrum regulatory body adjudicates the spectrum rights that it issues, it can further specify or revise the rights it grants through the adjudicatory process. If an independent body adjudicates the rights, then the spectrum regulatory body cannot do this. Independent adjudication disciplines the public specification of spectrum usage rights. Similarly, the spectrum regulatory body might prefer at some future time to revise spectrum usage rights granted earlier. Having an independent institution adjudicate spectrum usage rights makes those rights more secure under subsequent changes in spectrum policy.

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