1.1

In fulfilling its duties as the regulator of converging communications industries, Ofcom periodically takes stock of the strategic role of regulation in the particular sectors we regulate. We believe that now is the right time to carry out an assessment of the UK mobile sector. The purpose of this Assessment is to identify whether and how regulation needs to adapt to a changing market.

1.2

 Our principal statutory duties are “(a) to further the interests of citizens in relation to communications matters; and (b) to further the interests of consumers in relevant markets, where appropriate by promoting competition".These two obligations, as well as our duty to encourage innovation, are at the heart of this Assessment.

1.3

 Our goal is for the mobile sector is to ensure that the sector contributes fully to the UK economy and society at large. In practice, this means that individual and business consumers have a range of choices offered by competing providers and that choosing (and switching) between providers is easy, quick and safe from scams. For citizens, it means widespread availability of those services needed to participate meaningfully in society, and clear and practical responses by regulators to the changing demands of digital citizenship, in areas like privacy, identity and content. For industry, it means being able to compete and innovate in the context of a clear regulatory framework supported by effective enforcement to protect consumers, where appropriate.

1.4

This goal is realised in the market, through the actions of customers and providers, not the regulator – but regulation has an important role to play in creating the conditions for success.

1.5

This document sets out, and invites comments on, our initial views on the performance of the mobile sector and how it might change in future. We look at the growth in the use of mobile services, and how that has affected the interests of citizens and consumers. We analyse market trends and developments, as a way of framing how the mobile sector could evolve in the future. Finally, we draw together the current trends and possible future scenarios to ask: what are the implications for regulation, and the industry, if we are to realise the full potential of the mobile sector for citizens and consumers?

1.6

The mobile industry has changed significantly in recent years, in ways that have benefited us individually and contributed to UK society – reflecting rapid growth and technological advances underpinned, in part, regulation:

• mobile has become nearly ubiquitous. 84 per cent of people aged 8 or over use, or have access to, mobile services;

• mobile has become a critical input for business, with mobile communications now a vital element in an increasingly services-based economy;

•  the mobile sector is now larger by revenue than the fixed and broadband sectors combined;

•  with five mobile network operators, as well as several large ‘virtual’ operators, the UK market is often cited as one of the most competitive in the world; and

•  the market continues to change. For example, demand for mobile broadband services has grown dramatically since late 2007.

1.7

In past years, the mobile sector has become more important; in future the sector looks set to become more complex. The sector continues to evolve rapidly with the potential for fundamental changes across a complex value chain. More spectrum is becoming available (including the digital dividend). Technology continues to change quickly. And now a new wave of data-based services, including mobile broadband, promises to bring together two of the most significant features of modern communications: the flexibility of the internet and ease and immediacy of mobility. Although there is a lot that we do not yet know about how events will unfold, we are optimistic about the potential benefits that these changes will bring for UK citizens and consumers.

1.8

Competition relies on new challenges for its vitality. While the UK enjoys a higher level of competition than is evident in other markets in Europe, the mobile sector is particularly challenging for new entrants – the barriers to entry are high. There are obstacles in terms of spectrum, technical standards and infrastructure that remain formidable in the eyes of many prospective entrants (large and small). Removing or minimising those barriers (for example, by releasing spectrum) wherever we can will remain an important objective for Ofcom.

1.9

 At the same time, the mobile sector is an increasingly integral part of a broader communications market. The distinction between fixed and mobile networks, previously clear, is starting to blur. In an international marketplace, events here are affected by events elsewhere – both within Europe and, increasingly, in developing economies with whom we are interdependent.

1.10

Most of us report ourselves satisfied with our mobile service (and we are more likely to be satisfied with our mobile service than with our fixed or broadband service). However, a significant minority are dissatisfied and the number of complaints received by Ofcom and other agencies, in particular about bills and cases of mis-selling, appears to be rising. Given the scale of the industry, relatively small percentages can under-emphasise the real difficulties experienced by millions of us with our mobile service.

1.11

For many, the quantity of minutes, texts and in some cases data we receive in typical service ‘bundles’ has dramatically increased. However, the benefits of this trend are unevenly distributed, with contract customers appearing to have fared better than those who rely on pay-as-you-go services.

1.12

 Coverage of mobile networks is generally good, although there are still areas of the UK which are not served by some or all of the operators. People living in those areas, and businesses seeking to serve them, may be disadvantaged by lack of access to mobile voice and data services. For 3G network coverage there is still a noticeable difference between city and countryside, with some parts of (each of) Scotland, Wales and Northern Ireland, and some regions of England, having poorer coverage than the UK average.

1.13

 There are also groups of people who are excluded from mobile services for other reasons. For example, older people, and disabled people, each have disproportionately low levels of mobile ownership. Those without access to credit or a bank account may not be able to obtain the most favourable prices or packages. As mobile becomes a more important way to communicate, these issues become more significant.

1.14

Our vision is for a UK mobile and wireless sector that serves the needs of those who live and work in the  UK by offering them:

• a wide choice of competing providers of mobile and wireless networks which we are able to be used reliably while commuting, travelling, at home or in the office,

• easy and reliable mechanisms to allow consumers to switch between competing network and service providers;

• a wide choice of good value and affordable mobile and wireless services  (voice and data) - including mobile internet access that is, to the extent technically feasible, as open and flexible as today’s fixed internet;

• a diverse range of high-quality content and, where appropriate, protection from harmful content

• coverage across as much of the UK as is economically feasible (and, potentially, going further where that is socially desirable); and

• protection from unfair practices and scams, including those infringing citizens’ interests in protecting their personal information, identity or location.

1.15

 These outcomes are most likely in an market environment where citizens and consumers benefit from competition, and industry has the ability and incentive to innovate, with the opportunity to earn fair returns on investment.

1.16

 Our goal is to set regulation so as to maximise the likelihood that these outcomes will be delivered by competition as markets evolve. Often, this involves responding to an identified market failure (and being mindful of the risks of regulatory failure). In doing so, we are guided by our regulatory principles, including a bias against intervention – balanced by a willingness to intervene firmly, promptly and effectively, when required.

1.17

Today’s trends may lead the UK mobile sector to follow a number of different paths. In particular, fixed-mobile substitution, increased data use and new applications and technology are all potential drivers for significant market change. In this Assessment, we have considered these trends individually and then in combination to develop a number of illustrative scenarios to describe possible future market outcomes. These scenarios are designed to help frame views about what might happen in future.

1.18

This assessment is not intended to be a blueprint for increasing the scope of regulation of the mobile sector. Indeed, we are looking for opportunities to de-regulate where possible. Our strategy is built on recognising the value to citizens and consumers of competition at the deepest level of infrastructure where that competition will be effective and sustainable. In mobile markets, that has meant competition between end-to-end networks. We are also looking to adapt regulation to remove unnecessary regulatory obstacles to innovation, where they exist, and to enable the market to function efficiently.

1.19

We see scope for further de-regulation as competition advances. In particular, it will further the interests of citizens and consumers to continue our existing programme of spectrum release, and to consider whether and how quickly to de-regulate fixed services in the face of competition from mobile services. We intend to pursue both

1.20

At the same time, some elements of mobile services have remained regulated despite the presence of retail competition. In these cases, we intend to consider whether there exists a better, less intrusive, way to achieve good outcomes.

1.21

 A particularly important question is how, if at all, the mobile termination rate regime should change after the current charge control ends in 2011. Now is the right time to engage in a strategic debate about the future of that regime. The growing debate about the possible changes to the structure of mobile termination (such as ‘bill and keep’ arrangements) deserves careful consideration.

1.22

 In other areas, we want to understand the extent to which market conditions will deliver specific outcomes that are in the interests of citizens and consumers – for example, an open and thriving mobile broadband environment with scope for innovation across different parts of the mobile value chain. Where competition will secure these goals, the question of regulation does not arise. Where the market seems unlikely to deliver those outcomes, the question then needs to be asked: what role, if any, might regulation play?

1.23

Sometimes, regulation may have the unintended consequence of holding back innovation (a good reason to be vigilant in rolling back regulation wherever we can). We intend to be active in searching for ways to adapt regulation to a world in which mobile, wireless and fixed networks may inter-operate, and compete, in more complex ways. In preparing for a converged world, clarity of purpose and technology-neutrality will be vital. 

1.24

 At this stage, we are not setting out any specific proposals for regulatory change. Instead, as with the Strategic Review of Telecommunications, we are asking a number of questions, the answers to which are important in shaping our approach to changing regulation in a changing market.

1.25

 We have taken this approach deliberately, and with a view to enabling an open and candid debate about the future of the sector, the role of regulation and the ways in which we can fulfil our duty to further the interests of citizens and consumers.

1.26

We regard this consultation as a step to increased engagement with stakeholders affected by events in the mobile sector, and to help us ensure that regulation evolves and does not trail market developments.

1.27

 We are particularly interested to engage with interested members of the public, and with consumer representatives, as well as those with a commercial interest in these issues. We have also set up a blog to enable discussion of these issues among stakeholders, and to help us to understand these issues better, from a range of perspectives. The blog is accessible via http://comment.ofcom.org.uk/mobileblog/

1.28

We will also conduct further research into some of the areas that may represent cause for concern, such as the potential exclusion of certain groups of citizens and consumers from mobile services, and the detailed causes for recent complaint levels. We will also carry out further analysis of the options with regards to mobile termination rates and participate in the European debate on this issue.

1.29

 After we have had chance to hear views from the consultation and gathered further evidence, we will set out the specific steps we propose, and if necessary, a timetable, as we move to conclude our Assessment.

1.30

As well as inviting feedback on the analysis and questions noted elsewhere in this document, we are asking stakeholders for feedback on the four primary questions of our Assessment:

1.31

Question 1.1: What are the implications of market change for mobile and wireless services?

1.32

Question 1.2: How are citizens and consumers affected by developments in the mobile sector?

1.33

Question 1.3: What are the purposes of mobile regulation, and where should its focus lie?

1.34

Question 1.4: What is the scope for deregulation, competition and innovation in the mobile sector?