the big picture for voice call termination

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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