Office of Telecommunications

PROPOSED MODIFICATIONS OF THE CONDITIONS OF THE LICENCES OF TELECOM SECURICOR CELLULAR RADIO LTD (“CELLNET”) AND VODAFONE LTD (“VODAFONE”)

The Director of Telecommunications (“the Director”) in accordance with section 15(3) of the Telecommunications Act 1984 (“the Act”) hereby gives notice that, following his consideration of the reports of the Monopolies and Mergers Commission (“the Commission”) of 4th December 1998, on the references made by him on 5th March 1998, with respect to the price of calling mobile phones (“the references”), and having regard to the modifications proposed by the Commission by which the adverse effects specified in the reports could be remedied, he proposes to make modifications to the licences granted to Cellnet on 22nd March 1984 (the Cellnet licence) and to Vodafone on 9th December 1993 (the Vodafone licence). The effect of the modifications which the Director proposes to make is set out in the Schedule below. The Director proposes to make the modifications for the following reasons: (1) In making the References, the Director required the Commission to investigate and report on certain questions relating to the matter specified in the References. The matters were whether the charges made by Cellnet and Vodafone to operators of fixed public telecommunications systems (“termination charges”) for the delivery of calls to telephone handsets connected to the Cellnet and Vodafone networks respectively and the charges for unanswered calls to such handsets and for the diversion of such unanswered calls operate or may be expected to operate against the public interest. (2) In reporting to the Director, the Commission concluded that these matters operate and may be expected to operate against the public interest and specified the following adverse effects: (a) the Cellnet’s and Vodafone’s call termination charges are higher than the level required to cover efficiently incurred costs together with a reasonable rate of return and to finance the activities that Cellnet and Vodafone are licensed to carry out and which would not deter competition, contrary to the interests of consumers and other users of telecommunications services as regards price. The relevant level of the termination charge is 11.7 pence per minute for 1999-2000; and (b) that the costs to callers from the charges made by Cellnet and Vodafone for unanswered calls terminated on recorded announcements, and their charges for unanswered calls which are diverted from the announcement of the diversion, are unpredictable and uncontrollable, contrary to the interests of such callers. (3) Having regard to the modifications specified by the Commission, the Director’s proposed modifications are, in the Director’s opinion, requisite for the purpose of remedying or preventing the adverse effects specified in the Reports in that the conditions of the licences as modified under the proposal and having the effects set out in the Schedule below would reduce Cellnet’s and Vodafone’s charges to the public interest level specified by the Commission. This level of charges would cover the efficiently incurred costs of an operator with 25 per cent share of the total market for incoming calls to mobiles including an allowance for a reasonable rate of return for 1999-2000 and provides for continuing control of the level of Cellnet’s and Vodafone’s termination charges for the following two years. The proposed modifications also provide that no charges should be made by Cellnet and Vodafone for unanswered calls and calls which are diverted before such calls are answered. The Director is required by section 15(3) of the Act to consider any representations or objections which are duly made and not withdrawn. The consultation procedure comprises two stages. In the first stage, representations or objections to the proposed modifications may be made to Vince Affleck, OFTEL, 50 Ludgate Hill, London EC4M 7JJ, telephone 0171-634 8819, e-mail vaffleck@oftel.gov.uk) by no later than 19th March 1999. Any confidential information should be clearly marked as such and separated out into a confidential annex. All representations or objections received by OFTEL, with the exception of material marked confidential, will be made available for inspection in OFTEL’s Research and Intelligence Unit. In the second stage, interested parties are invited to send comments to Vince Affleck, details as above, by no later than 26th March 1999, on representations or objections received in the first stage. Copies of the proposed modifications can be obtained from Lisa Etwell at the above address, telephone 0171-634 8835, e-mail letwell @oftel.gov.uk). Schedule A new identical condition would be added to both Cellnet’s and Vodafone’s licences to provide for control of charges they make to operators of fixed telecommunications systems for terminating calls until March 2002. The condition would provide that Cellnet’s and Vodafone’s weighted average termination charge should not exceed 11.7 pence per minute for the year 1999-2000 and that this ceiling should be reduced in each of the following two years by RPI-9 per cent. The weighted termination average charge is to be based on actual traffic minutes by charging period in the 12 month period to 31st December of the preceding year (“the base year”). Where any termination charge is in force during only part of the year, the weighting is to be derived from the profile of call minutes in the corresponding part of the base year. The weighted average termination charge is to be calculated according to Cellnet’s and Vodafone’s respective standard charges and no account is to be taken of discounts offered to any particular customer or any particular category of call, for example incoming international calls. If either of Cellnet or Vodafone fails to secure that its average termination charge has not exceeded the levels specified for the financial years 1999-2000 or 2000-2001 they must compensate by adjusting downwards the price control in the following year by the amount overcharged. If it appears to the Director that either Cellnet or Vodafone is likely to exceed the maximum allowable termination charge for the year 2001-2002, the Director may direct the relevant operator to make the appropriate adjustments to its termination charge in that year for the purpose of avoiding that failure. The condition also prohibits a termination charge being raised in respect of a recorded announcement provided by the relevant licensee informing the caller of the inability to complete the call because the mobile handset is switched off, coverage is not available or the handset rings and remains unanswered. Provision is made for consultation with the Licensee before making a direction under the modification condition. The Director General proposes to use his information powers already in the licences of Cellnet and Vodafone to obtain the information required to monitor compliance with this condition. D. Edmonds, Director General of Telecommunications 16th February 1999.