JOINT COMMITTEE ON COMMUNICATIONS, MARINE AND NATURAL RESOURCES debate -
Wednesday, 2 Mar 2005

Mobile Phone Market: Presentation.

Chairman

The meeting will consider the review of dominance in the mobile phone market. We have a presentation by ComReg of its research and EU endorsement. I thank Ms Isolde Goggin and her fellow commissioners for taking the time to attend and to make members aware of the work ComReg has done, particularly its work on dominance in the mobile phone market and the EU Commission views on ComReg's position.

I publicly thank ComReg for supplying its presentation in advance of today's meeting. This has allowed members to reflect, prior to this meeting in public session, on the important issues at play. The joint committee has agreed in private session that it should report to the Oireachtas on the mobile phone market and, in the interim, make a statement on the issue. I will read out the statement at the end of the public presentation today.

I ask those with mobile phones to please switch them off. I draw attention to the fact that members of the committee have absolute privilege, but this does not apply to witnesses appearing before it. The committee cannot guarantee any level of privilege to witnesses appearing before it. Furthermore, under the salient rulings of the Chair, members should not comment on, criticise or make charges against a person outside the House, or an official by name or in such a way as to make him or her identifiable.

I advise members that the format is that we will hear a presentation, which will be followed by a question and answer session. The joint committee has a slot for its meeting and accordingly I propose that we finish the meeting not later than 6.30 p.m.

Before we begin this public hearing with ComReg, I remind members and the public that the new EU telecommunications framework was agreed by all member states of the European Union and was transposed into Irish law by the previous Minister for Communications, Marine and Natural Resources, Deputy Dermot Ahern, in July 2003. Under this framework, along with every other national regulator in the EU, ComReg is required to conduct reviews of a series of markets in this jurisdiction. One of these markets was the wholesale mobile access and call origination market.

It is understood that ComReg has carried out an in depth and extensive review of the market in Ireland, which is being endorsed by the Competition Authority and the European Commission. We will hear from ComReg on the results of this work, and the plans it has to introduce more competition through the introduction in Ireland of mobile virtual network operators or MVNOs.

Members will recall that mobile phone operators have appeared twice before the committee, on 14 October 2003 and 23 November 2004, commenting on prices in the marketplace. We decided that we would not finish our business on the latter date and would wait for the outcome of ComReg's analysis and deliberations. We will complete that work today. Perhaps I might ask Ms Goggin to begin by introducing the members of her delegation.

Ms Isolde Goggin

Thank you for the opportunity to appear before the committee and make this presentation. I am the chairperson of ComReg, and my two fellow commissioners, Mr. Mike Byrne and Mr. John Doherty accompany me. Mr. Gary Healy is the director of the market development division, which is particularly concerned with the market analysis process and is implementing the framework the Chairman has very clearly outlined, describing the review we are required to carry out under EU law.

I will attempt not to take up too much time with the presentation, since I know there is a great deal of interest in the subject, and I see from the audience that there is also a great deal of interest among the mobile operators. Our objectives in the mobile market can be stated very simply: to enhance competition and support the consumer. We see the first as taking place through furnishing consumers with greater choice, allowing operators to provide them with more innovative products and services and letting competition drive down prices. We see supporting the consumer as supporting a range of initiatives that promote an informed consumer and enhance consumer welfare.

Perhaps, without being too repetitive, I might reprise a little of what has been said. We have an obligation to review these markets, and we must come to a decision one way or another as to whether they are effectively competitive. There is at times something of an implication that we are mounting our white horse and galloping off tilting at windmills, looking for trouble. However, I can assure members that we do not need to go looking for it. The obligation on us is to review this market for mobile access and call origination. We must say that it is either effectively competitive or not; we must come down on one side or the other. If it is competitive, we walk away and say that no regulatory intervention is needed in the market. If it is not effectively competitive, we must identify the company or companies with single or joint dominance in the market and impose appropriate regulatory obligations.

We have a document we produced, a 220-page tome with the rather detailed legal and economic analysis that we are required by the legislation to conduct. We have picked out one or two of the major points illustrating the type of analysis we must produce. It is a matter of deciding whether the market is effectively competitive. They discuss how many operators there are and what their market shares are. It is fairly obvious that, with a large number of players and a small market share, there is no question of dominance. How do pricing and profitability compare with other markets? What is going on in the market? How vigorously are firms competing? Are the fringe competitors likely to disrupt the current market equilibrium? As our analysis is forward-looking, we must predict what is likely to happen in the next two years or so.

This is what we found regarding market shares. Essentially, since the entry of Meteor, they have not changed a great deal. Initially, we had a single player, which was Eircell, an arm of Eircom. Then we had the entry of a second player, originally Digifone, subsequently O2. However, those market shares flattened out, whereas in a vigorously competitive market, one would see those lines wiggling around and crossing over each other. There would be a great deal of movement, vigour and change. However, what we have found is a fairly static situation.

When it comes to considering how that compares across key European markets, some of the other market reviews have already been conducted. If one examines the UK, one sees that it has four operators with almost even market shares, around the 20% or 25% mark. The dark part below is the market share of the two top operators, who have only 51% between them. Another two operators have the remaining 49%, meaning that there is a very balanced market. There is also a smaller, fifth player. In some of the other markets, that percentage creeps up. However, we are far out in that our two top operators have more than 90% of the market. By pure market share, one would say that there is not a great deal of competition. However, that is not the only factor; there are several others to take into account when it comes to dominance.

We examined the issue of the average revenue per user and how much people pay for services. The idea was circulating that the Irish people talk more and that we therefore deserve to pay more. However, when we looked into the detail, we found that there is not really a linear correlation across Europe between how much one talks and how much one pays. We are towards the higher end of that spectrum when it comes to monthly minutes of use. We use 198 minutes per month, but we pay on average €47. The ARPU figure refers to average revenue per user each month. In countries such as Finland and France, we see that they use more minutes per month but pay less. The per-minute charge is obviously less than ours. We have found that the argument that we are simply a very voluble nation did not really stack up. The average revenue per minute is on the high side, though it is not the highest in Europe. If one takes that together with a high number of minutes of use, one sees that they contribute to the high average revenue per user. In particular, when one breaks that down into prepaid and post-paid, it becomes apparent that the latter ARPU is particularly high.

The other factor that we considered was the profitability of the Irish operations compared with that of other subsidiaries of the same companies, where those figures were available. When we looked into those again in detail, we found that the profitability was higher for the Irish subsidiaries than for other comparable subsidiaries of the two main operators.

The third feature I highlighted at the beginning was the presence of fringe competitors and what they might be expected to do in the market over the next few years. We have Meteor, the third player which entered the market a few years ago and initially made some inroads into market share. However, as members will see from the diagram, those have not really changed much in the past three years or so. They had 3% market share of mobile revenue at the end of June 2005, and 6% by subscribers. Their market share by subscribers is higher than by revenue, since they tend to have more of the lower-end subscribers who do not use or pay as much. That share has risen in recent months, and we recognise that in the paper. We attribute it to the fact that it got a national roaming agreement with one of the other operators which enabled it to offer a better service, and we wanted to copper-fasten that in our decision.

"Potential competition" is the phrase used in this kind of analysis to mean companies not currently offering services in the market but that could very easily enter it and gain a market share. A fourth licensee known as "3" is expected to be launched this year. However, it will be entering a market where there is already a very high degree of penetration and not a great number of people left in Ireland who do not have at least one mobile phone. When one looks at what has happened in other markets with a high degree of penetration in which companies have launched, one sees that they do not build up a great market share over a few years. They also have a condition in their licence to offer a mobile virtual network operator, or MVNO, agreement to a third party. However, we felt that, within the lifetime of this review, that would not impact greatly on the current state of play.

Our review of the market concluded that it was not effectively competitive and that the two players with collective dominance were Vodafone and O2. With the Chairman's permission, I would like to ask Mr. Doherty to go into the detail of what we plan to do having come to these conclusions, what we say should happen next and how we envisage it evolving.

Mr. John Doherty

Ms Goggin has covered the issues in the marketplace, and in the course of the next few slides, I would like to examine the steps that ComReg proposes to address the issues we have identified.

It is clear that our objective is to exercise light-handed regulation in a way that is appropriate yet flexible and responsive. In the context of what we have been trying to address, we originally identified two steps we believed needed to be imposed in the marketplace. The first was national roaming and the second was indirect access, or MVNOs.

On national roaming, some members may recall that we called for it in our initial consultation. Meteor and O2 entered into an agreement in September 2004 that has had benefits. The indications are that Meteor's market share has been growing over the intervening period. In addition, from a licensing obligations point of view and as a result of the 3G competition, Vodafone is required to provide national roaming as part of its licence. We have therefore mandated national roaming.

When it comes to indirect access of MVNOs, ComReg has made its position fairly clear throughout the process. We believe that there is clear evidence of demand for access and, in common with many other countries, that it will be the next stage of development of the mobile market here. Our strong preference is for that to be achieved through commercial discussions, but we will intervene if necessary. Why do we believe MVNO access is the right approach? This is not a theoretical exercise. We believe there is clear evidence from other markets of the potential benefits it would bring. We believe this evidence to be fairly transparent in the markets. It benefits two sides. Consumers benefit because MVNOs can bring the experience they have had to bundle products and services and to target particular segments of the market. A fixed line operation, for instance, entering as an MVNO, will be able to bundle products and services and meet the needs of individual customers. It also stimulates price competition. Evidence in Scandinavia demonstrates, for instance, that prices have fallen by between 20% and 25% during that time. In other markets it has been good for the mobile network operators. Despite what others say, and I am sure members of the committee have heard it, there is evidence that it has boosted traffic on individual networks, enhancing network utilisation. It also allows network operators to concentrate on high value segments of their customer bases and to develop their own businesses as well.

A significant amount of experience may be drawn from MVNOs in other markets. In Denmark, for instance, MVNOs account for about 23% of the market. As I said earlier, prices have been falling by between 20% and 25%. In Finland the 12 MVNOs make up about 11% of the market and in the UK they represent about 12%. Many members will know the name Virgin, in particular, which covers everything from airlines to record shops. It has developed a brand aimed at the youthful end of the market and achieved a 7% market share. Interestingly, following on from its success in the prepaid market it is considering entering the post-paid market as well. Other well known brands range from Tesco to Arsenal. It is a broad church.

As Ms Goggin mentioned, we are obliged to look at the respective markets before reaching our conclusions. In terms of looking at the market this slide basically shows the distribution of MVNOs across Europe. There are approximately 33 million subscribers in total already. These break down into a range of what are the classic service providers, or the resellers in minutes, through to retail brands such as Arsenal and Tesco, the new brand entrants into the mobile space and then telco brands such as Tele2. This is not a theoretical model. It represents the fact that 10% of all mobile subscribers in Europe use MVNOs, so this is a significant element of the total market.

In terms of process and the steps ComReg has taken on the market review of mobile access, we are obliged to consult nationally on the proposals. We also have to seek the views of the Competition Authority and those of all the other national regulatory authorities, NRAs. In addition, we have to seek the endorsement of the European Commission, which has a veto in this process. This seeks to set out graphically the various steps we have taken. The Competition Authority has endorsed the proposed approach we have taken as regards the market, and the EU has also endorsed the decisions we have taken.

This just seeks to illustrate the process we have taken. I do not need to go though every step of it, but it is important to recognise that the Competition Authority and the European Commission endorsed the decision ComReg has taken.

The last slide I will cover before handing over to Mr. Byrne just reviews some of the process. It does not set out to identify which of the various routes will be taken, but seeks to indicate the various options open for the future. On 22 February we designated the significant market power, SMP, decision. From that point these various options come into play, because an appeal to the electronic communications panel is one that is open at this stage, and from that through to other options going forward. We need to go through all of those, but it just illustrates some of the other steps that have to be followed from here. I will hand over to my colleague, Mr. Byrne, who will cover some of the consumer elements at this point.

Mr. Mike Byrne

As Ms Goggin mentioned, the consumer welfare underpins a large proportion of ComReg's objectives. ComReg is continually seeking ways in which we can better protect consumers and enhance our understanding of the issues and problems they face. In this section of the presentation I want to deal with some of the initiatives we undertook in 2004, and which we plan to undertake in 2005. One of the key areas deals with tariff transparency — the importance of prices as presented to consumers being transparent and understandable. This is a requirement under universal service obligations, USO. Following extensive consultations between January and June 2004, ComReg published a code to be followed by all operators. The code requires that price information is accurate, comprehensive and accessible. That decision became effective from 1 October last. ComReg plans to commence a review of operator compliance with the code, beginning next month, in April, six months after its implementation date.

The next area I want to cover is with regard to the well-publicised over-billing by industry. What is now in place is a template or standard that is rigidly adhered to. Basically, each company is required to provide a detailed report on the cause, nature and extent of any over-billing. We also require that every consumer is contacted and his or her account credited — and an inconvenience credit is paid in many cases. We have also looked at the requirement for independent audits to be carried out on the billing systems and this has been done in a number of cases. We continuously monitor any incidences of alleged or real billing inaccuracy or overcharging by the operators. Billing is a key component of all telephony industries and services. There have been incidences of overcharging from day one and there probably will be, again. It is a long road in terms of trying to identify the phenomenon, but ComReg is committed to ensuring the consumer is protected to the maximum level in this regard. ComReg requests the support of members of the committee for the additional powers we believe will be in the miscellaneous provisions Bill, which will help to protect consumers against incidences of overcharging.

The next area I want to address is about ensuring that consumers are better informed. The best type of protected consumer is one that is fully informed. For that reason the Minister for Communications, Marine and Natural Resources, Deputy Dempsey, launched an initiative in terms of our new website, www.askcomreg.ie, which is geared to be a more consumer friendly Internet site, in terms of the questions and conditions consumers face. On that website many consumer guides are published, including how to register a complaint against an operator when one feels one is required to do so. There are also consumer guides as regards protection against autodial or traffic, introductions to single billing etc. It covers the broad range of ComReg’s remit, not just on the mobile side.

The next section is something ComReg will deliver in the third quarter of 2005. ComReg signalled its intention to develop an online interactive tariff website to help consumers to better inform themselves as regards the best packages that suit their needs in terms of fixed, mobile, deal-up and broadband services. Again, the main objective is to inform consumers through the provision of independent advice, to drive competition to enhance price awareness that will result from such a website. In terms of the project's status, the preliminary briefings with the industry have taken place. Generally the response has been positive, for which we thank the industry. We issued a tender document in 2004 and are currently in discussion with a preferred supplier. The target date for completion remains the third quarter of 2005.

I apologise that the last slide is so technical for this time of the evening. Essentially what I am trying to show is that there will be three main areas within the site. There is a section where the operators will be able to provide their tariff information. In other words, they will be linked into the site. ComReg will administer an area of the site where we will oversee the rating rules applied. In the user interface each individual consumer is able to enter consumer profiles and get the best package that suits his or her needs.

Chairman

I understand the dominant mobile phone operators, O2 and Vodafone, will now appeal to the electronic communications appeals panel. Is that Ms Goggin's understanding also?

Ms Goggin

They have the option of appealing within 28 days of our decision which was taken on 22 February. We cannot say what they will do but they have that option.

Chairman

Would they be bound by the decision of the appeals panel? Would ComReg also be bound by its decision?

Ms Goggin

We would. The decision of the appeals panel would be either to endorse the decision or to send it back to us for further consideration. It could do this either in whole or in part.

Chairman

Would the mobile phone operators be bound by the decision? Would they have the option of appealing it again? From the slide, I think Ms Goggin is indicating they have the option of appealing the decision to the courts.

Ms Goggin

Anybody has the option of appealing to the courts at any stage of the process.

Chairman

Is Ms Goggin indicating that she is not interested in mandating O2 or Vodafone regarding fixed wholesale prices? Would ComReg prefer that contracts were agreed with MVNOs in order that they could be introduced to the market?

Ms Goggin

We would like people to engage in serious negotiations. A negotiated solution could give a good return on investment to both parties. It would not damage the interests of either. If that process can be started, we would have a dispute resolution function. If agreements were not reached within a certain period of time, we could step in. We have a back-stop power to enable us to set prices but that is very much as a last resort.

Chairman

What happened in the United Kingdom? I understand Vodafone has an arrangement with BT mobile, while O2 has an arrangement with Tesco. I am sure Virgin and others have different arrangements as MVNOs. Were they mandated by Ofcom or did they just do it on a commercial basis?

Mr. Doherty

They entered into commercial arrangements.

Chairman

Therefore, there was no mandate.

Deputy Eamon Ryan

I thank the witnesses for the presentation. I was trying to consult my colleagues on our Latin history to figure out who were the members of the Triumvirate which ruled Rome. It seemed to be a very good system. Caesar was one but I cannot remember the other two.

This committee has often been critical of ComReg. About two years ago we were very critical and words like "lap-dog" and "poodle" were used. It seems ComReg is now developing into a good watchdog for the consumer. I can only put this down to the structures which seem to be working well. I commend ComReg for the work it is doing and support it completely in the direction it is taking. If we are critical here on occasion, it is fair that we also give praise when it is due.

If commercial negotiations do not succeed in introducing such an MVNO, do the representatives have any timescale by which ComReg could order the introduction of such a system? Are the parties looking to enter into negotiations or is that confidential information? When would it be possible to give an indication as to which parties might be interested?

I received correspondence earlier this year from persons who were involved in the provision of a prepaid mobile phone service. They argued that they should have an entitlement to provide for some kind of new billing system. Obviously, it might be different from a post-paid system but I cannot believe it is beyond the bounds of possibility that someone should be able to check what he or she is spending on a prepaid mobile. In general, ComReg is taking the right steps which my party supports.

Deputy Durkan

I support the stance taken by ComReg on the mobile phone industry. Even a cursory glance will show there is a glaring lack of competition in the industry. Only 6% of the market in Ireland is available to other service providers. The speed at which competition is increased should be accelerated as it will benefit the consumer. How long will it take for this competition to materialise? In the United Kingdom there is enormous competition and monthly bills to the consumer are considerably lower than they are here. To what extent has ComReg studied the efficiency of the service in the United Kingdom?

Apparently, people love conversation in Finland, yet despite this fact, the cost per month to the consumer is much lower. The Germans have the lowest monthly bills in any country in Europe. They must have discovered some secret that we do not seem to know here. Their monthly bills are dramatically lower than ours. This has a knock-on effect in industry and the public sector. Revenue per mile in Germany and Belgium is obviously higher but we are not at the lower end of the market.

Page 10 of the presentation refers to light-handed regulation that is appropriate, flexible and responsive. How is "light-handed" defined? I presume the reverse is heavy-handed. Would a heavy-handed approach have brought about greater competition at an earlier stage? To what extent can this be encouraged?

Ms Goggin

I thank Deputy Ryan for his commendation. We may as well bask in it now because I am sure we will appear before him again under different circumstances.

This is being seen as a decision in favour of consumers. Sometimes we will have to take decisions which will not be so popular. However, we always make what we believe are the correct decisions. Sometimes we have to allow prices to rise in the short term in order to secure investment in the long term.

We deliberately left vague the issue of commercial negotiations and the timescale for intervention. We could have told the companies involved that they only had so much time to negotiate before we stepped in. That might almost become a de facto grace period during which no serious negotiations would take place because of an expectation that the regulator would step in. Sometimes what is known as regulatory gaming takes place in which companies do not get involved in serious negotiations because they think they will get a better deal from the regulator. We felt that not specifying a timescale created more of an incentive for companies to get serious because they would not be clear when the regulator might step in.

On the issue of confidentiality, in general that kind of discussion would be confidential. In the final version of the remedies, we intend to ask the mobile operators to provide us with regular reports on discussions they have had. We would be able to report in general terms on the level of activity in that area although not in terms of identifying a specific operator.

Deputy Eamon Ryan

Can Ms Goggin give a rough idea of the number of companies, excluding existing mobile phone operators, which have expressed an interest in getting involved in such negotiations?

Ms Goggin

We are aware of six or seven companies which have expressed an interest.

Chairman

Would ComReg make that information available to the two dominant mobile phone operators?

Ms Goggin

The figures are in the public domain, as are the identities of some of the candidates because they have openly expressed an interest in doing this.

Chairman

Did they request this information from ComReg?

Ms Goggin

Yes, they requested it from ComReg and from the European Commission. We provided it for the European Commission in the form of a confidential annex because the discussion with ComReg was entirely confidential. It was not appropriate for ComReg to disclose that the discussions had taken place.

Chairman

At what stage would it be appropriate?

Ms Goggin

It would be appropriate if the candidates get successful mobile virtual network operator, MVNO, agreements.

Mr. Byrne will deal with the question on prepaid mobile billing and Mr. Doherty will deal with light-handed regulation.

Mr. Byrne

I thank Deputy Eamon Ryan for his kind words on our work on consumers, which we appreciate. With regard to his question on the information that could be provided for prepaid consumers, the idea behind tariff transparency is that all tariffs should be transparent in regard to both prepaid and post-paid consumers. We can say with some degree of certainty that prepaid tariff information is available on operators' websites. The Deputy's question was specifically on some kind of bill or statement.

Deputy Eamon Ryan

It concerned a record of where the money had been spent.

Mr. Byrne

As I suggested in my presentation, we plan to conduct a review in April next. We will see if this matter can be included within such a review. I am not sure it is either technically possible or possible in a regulatory sense for that to happen. However, with an element of goodwill on all sides, we could consider whether action can be taken to benefit consumers, who are the operator's customers in this regard.

Mr. Doherty

Deputy Durkan asked on light-handed regulation. The first thing to understand about the delineation in this area is that until the introduction of the new framework, we could not regulate this area. It is not something which, as the Deputy suggested, we could have done earlier. We did it when the new framework was introduced. We carried out an exhaustive review of the market, considered all issues, consulted with all relevant parties and then issued our decision on the back of that, as we are obliged to do.

We generally prefer light-handed regulation if it achieves the objective. However, we should not disguise the fact that if this does not happen as we suggest, we will intervene in the market place again. The reason for the distinction between light-handed and heavy-handed regulation is that we could not regulate this space until the new framework was introduced. Since then, we have put in place the remedies we thought were required.

Deputy Durkan

How much investigation went into comparing average monthly consumer bills? Of the five countries listed Ireland has the highest average bills, which leads to the conclusion that we have the most expensive mobile phone service in Europe, or close to it, as the UK and Germany have very competitively priced monthly bills. There must be some common denominator that would lead ComReg to come to a conclusion as to the causes in this area.

There is no excuse for being at the top of the list of five countries. We cannot claim the cost of providing the service or the technology is any more expensive in this country than in other European countries. What is the reason for the cost, other than the lack of competition?

Chairman

We will deal with that question presently.

Deputy Durkan

I would like it answered now in case I have to leave.

Chairman

That is fine.

Mr. Doherty

ComReg has carried out extensive studies which took the best part of 12 months. We considered EU benchmarks and tariff information throughout this process, which has formed the evidential base for the decisions we have taken. That body of work extended over a 12 month period and we have constantly kept these elements under review. This feeds in as one element of the decision. The average rate per user, ARPU, is an important but not exclusive element. ComReg considered concentration in the market and other elements which aided us in coming to a decision. However, the information is broadly available internationally. It is benchmark-type information, which is the basis we have used for reaching our conclusions.

Deputy Durkan

Will Mr. Doherty explain the main reason that, of the five countries listed, Ireland's ARPU is the highest by far?

Mr. Doherty

As we stated in the remedies, looking at it from the other way around, we believe more competition in the market place would help to ensure consumers get the best deal possible. This is the recommendation we are now making.

Chairman

These are not ComReg's figures but Merrill Lynch's. Is that correct?

Mr. Doherty

Yes.

Senator Kenneally

I welcome the representatives of ComReg and congratulate them on their presentation. The committee is happy with the way ComReg seems to be moving on this. I am glad ComReg's presentation to the committee has debunked the myth that the Irish talk more on their mobile phones than others, which was a recurrent theme in previous presentations from mobile phone operators. ComReg has provided examples indicating that the average number of minutes of use is higher in other countries, yet Irish consumers are still paying more.

With regard to the figures for average minutes of use and average revenue per unit, have these been broken down between prepaid and post-paid consumers? We learned that the prepaid element seems more fashionable in Ireland than in other countries but it also seems more expensive. Can the ComReg representatives supply a breakdown between the different types of consumer? The delegation outlined the average revenue per minute across the various European countries. Has this been broken down between post-paid and prepaid customers?

Deputy Fitzpatrick

The figures provided are outstanding with margins of 38% and 48% on turnovers of half a million in the case of both companies. A net profit in these cases would be approximately 30%. Vodafone and O2 have 95% of the market between them, according to a graph shown to the committee. According to my information, in the past five years Vodafone and O2 have emerged to rank as the sixth and tenth, respectively, largest companies on the Irish stock exchange, if measured by operating profits. Vodafone has higher operating profits than the Kerry Group which is a long-established, international company operating in some fairly tough markets. Does the delegation agree these types of profits are remarkable in a market of approximately four million people?

Newspaper reports have indicated that Vodafone is accumulating losses of some €2 billion. Does the delegation believe Vodafone's Irish customers are subsidising its losses?

Chairman

Does that figure relate to international losses?

Deputy Fitzpatrick

Yes.

Senator O’Meara

I thank the delegation for the comparative figures it has provided and its clear enunciation of the issue, which has debunked some of the prevailing myths. The question is whether competition is working in the mobile telephone market. It is clear a duopoly exists with the two main operators commanding more than 94% of the market and consumers obliged to pay high costs.

Will MVNOs meet their potential in terms of their impact on pricing? As the delegation observed, the arrival of MVNOs has stimulated competition in Scandinavian countries where prices have dropped by as much as 25%. This is a development which Irish consumers would greatly welcome. Does the delegation believe a similar situation will arise here?

Ms Goggin

I ask my colleague, Mr. Healy, to answer Senator Kenneally's question regarding the average revenue per user, ARPU.

Mr. Gary Healy

Information on the breakdown between prepaid and post-paid usage across European countries is not published by the operators. However, we examined average revenue per user or total tariff packages for prepaid and post-paid customers for the purposes of benchmarking Ireland against other European countries. This exercise indicated that for post-paid usage Irish prices were among the most expensive across 15 or 16 countries. Prepaid prices were found to be close to the European average at fourth or fifth cheapest. In terms of ARPU, therefore, prepaid services are more competitive than post-paid.

Ms Goggin

We have looked at the issue of profitability as one of a range of factors. Any assessment of collective dominance will involve an examination of ten or 12 major factors. If companies are not profitable, there is an entirely different set of problems for the regulator. We are not opposed to the operators making profits but the level of those profits is one factor that is indicative of an unsatisfactory level of competition in the market.

It is difficult to assess whether some degree of cross-subsidy is taking place in the context of a very profitable Irish market. Many losses are paper losses based on high fees paid for third-generation, 3G, licences in other countries. It is possible operators are profitable at an operational level but a multi-billion euro payment for a licence must be included in a company's accounts.

The question as to whether competition is working is the issue we must analyse in regard to each of the 18 markets for which we have a regulatory responsibility. In this instance, we have concluded there is inadequate competition and that a kick-start is required. In this context, we expect the introduction of MVNOs to create instability and shake up the market. We have seen in other markets that the arrival of a good MVNO with the potential to attack other operators' customer bases will induce those operators to offer more competitive services almost as a defence mechanism.

MVNOs can target a particular niche customer base, perhaps on the basis of an affinity group such as the supporters of a particular football club, in conjunction with a company with a good retail brand such as Tesco or Virgin, or simply by pursuing whichever is the most profitable sector of the market. There is potential for competition but it has not transpired without intervention and there have been no signs of its emergence. It is for this reason we feel the market needs this type of boost.

Chairman

I understand mobile phone operators have concluded access deals on a commercial basis throughout the European market. Has there been any resistance or legal difficulty in other jurisdictions in regard to the introduction of MVNOs? For example, has an operator in any European country taken a legal stance akin to that which the two Irish operators have indicated they may consider?

Ms Goggin

We are not aware of any such legal issues. In most cases, the introduction of MVNOs has been done on a commercial basis whereby the MVNOs are seen as a competitive weapon which allows operators to compete more vigorously with each other.

Chairman

Is Ms Goggin aware of any such difficulties anywhere in Europe?

Ms Goggin

No. The only area that is different is Denmark where MVNOs are mandated on the basis of national rather than EU legislation. Even there, they are highly successful.

Chairman

Is it the case that commercial deals have been concluded with operators in all other countries?

Ms Goggin

Yes.

Chairman

Is that the preferred option for Ireland?

Ms Goggin

It is absolutely the preferred option.

Chairman

I understand one mobile phone operator has done a deal with Hutchison Whampoa to provide 3G and roaming services in the Irish market and that offers have been made to Esat BT and Eircom in this regard. Is ComReg aware of this?

Mr. Doherty

We are aware Vodafone has concluded a roaming agreement with Hutchison Whampoa, the 3G operator which is operating under the brand name "3", under the terms of the licence it obtained in winning the 3G licence competition. It is for the companies involved to answer for their activities. All we can say is that no MVNOs are operating——

Chairman

I am merely stating that my own inquiries indicate that two mobile phone companies are beginning to actively engage or are already in the process of engaging with potential MVNOs. Does the delegation consider this encouraging?

Mr. Doherty

Yes. Our argument is based on the desirability of commercial agreements to facilitate such developments.

Deputy Kehoe

A visit to Australia and Singapore with the Chairman and clerk to the committee for consultations with mobile phone operators in those jurisdictions forced me to conclude that operators are taking the shirts off the backs of Irish customers. They are like wolves in sheeps' wool in their exploitation of this lucrative market. In view of the prices available in Australia and Singapore, has ComReg received inquiries from operators there in regard to entering the Irish market? If such inquiries were made, what would be the likely response?

Ms Goggin

As we outlined earlier, there are confidentiality issues regarding our knowledge of operators who have approached us with an interest in entering the Irish market. There have been a number of serious potential candidates but it is not appropriate to disclose names. However, these inquiries are welcome and we encourage companies to enter into negotiations with the operators. We welcome what the Chairman has said in this regard.

Chairman

Will Ms Goggin clarify whether Meteor commands 10% of the market? I understand it experienced a significant surge before Christmas when Santa Claus helped it secure new customers.

Ms Goggin

We estimate Meteor has slightly less than 10% of market share by number of subscribers.

Chairman

Does it have approximately 9% of the market share?

Ms Goggin

Yes. However, it commands less than that in terms of market share by revenue because its customers are mostly prepaid users who spend less money per month than post-paid users.

Chairman

What market share would Meteor require in order for ComReg to cast out on the collective dominance position of the other two operators?

Ms Goggin

It is difficult to say. It is not for us to state all national regulatory authorities must seek approval from the European Commission for their analysis.

The fifth slide shows the two highest operators. The European Commission has endorsed our finding that there is collective dominance. Based on revenues, the first two operators in Finland have 73% of the market between them but the Commission has endorsed the finding that there is no dominance. There is something for which to play in between.

Deputy Durkan

Another obvious comparison can be made. France is next to Ireland in having the lowest level of competition in the marketplace. We used to be told that we had higher mobile phone bills because we talked too much. The Finns talk much more and our populations are almost comparable, yet their bills are considerably lower. The French also speak a lot more and their bills are also much lower than ours. I have come at this question from a number of angles but I am not sure if I have received an answer. There must be some factor whereby the consumer pays more in Ireland than anywhere else. I presume the answer with regard to France is economies of scale in terms of population. However, that answer cannot be applied to Finland because there is no great discrepancy. Therefore, there must be another factor which I cannot see. There seems to be a huge difference in the average monthly bill to the Irish and Finnish subscriber.

Chairman

I have the read the document from the European Commission which sets out what must and must not be done. I am a little concerned about fringe competitors and how ComReg will decide the two major operators are no longer dominant considering the continued rise of Meteor. How will ComReg monitor the position?

Ms Goggin

We will be monitoring the market share of fringe competitors but it is not a simple question of market share. The analysis requires us to look at all factors. Apart from market share, we will also look at other happenings in the market such as price and the degree of competition. We will keep the position under review as the European Commission has asked.

Deputy Durkan

Is there any way we can get an answer to the question? There must an obvious one.

Ms Goggin

We are coming at the issue from a completely different angle. The Deputy is looking at it from the point of view of price and all the factors that might explain it. However, we are required to look at the issue in a different way, namely, is it competitive and what are the factors which decide whether it is?

Deputy Durkan

That is not necessarily true. The function of ComReg is to ensure adequate competition in the market. However, if there is a serious discrepancy in the prices charged to consumers here compared to similar consumers in other countries, there is an obligation on ComReg to look seriously at the matter and try to identify the root cause. We previously accepted the explanation that the Irish talked too much but that is obviously not the case because the French talk a lot more and have much more interesting conversations because they pay a lot less. However, it becomes a serious issue when one considers the position in Finland which has a comparable structure in terms of terrain, yet it is far more consumer-friendly in so far as bills are concerned.

Mr. Doherty

We believe the market is not "effectively competitive". This is made up of a number of elements, of which our pool is one. We have proposed particular remedies to try to ensure the consumer gets a good deal. That is the essence of what we are saying. Rather than focusing on one element, we have looked at all of them and the steps we are taking seek to enhance competition in the marketplace for the benefit of consumers.

Chairman

I mentioned at the outset that the committee had agreed to report to the Houses of the Oireachtas and that in the interim period the committee had agreed in private session a statement on the mobile phone market. The clerk will distribute copies of the statement to members, representatives of ComReg and anybody who requires a copy.

A statement of 2 March of the joint committee on the review of the mobile market states:

The committee draws attention to the fact that the mobile sector, with a penetration rate of over 80% and individual usage rates which are among the highest in the world, is now the most buoyant, economically vital and competitively important area of the Irish communications sector.

The committee commends the work carried out to date by ComReg with regard to the competitive position in the Irish mobile phone sector and notes the endorsement of the EU Commission in its commentary and vindication of the work undertaken by ComReg. It recommends that mobile phone companies work with ComReg, rather than seeing matters on the issue of market remedies become lost in expensive and time consuming litigation which results in the Irish consumer continuing to lose out on an effectively competitive market.

The committee calls on mobile phone companies to adopt the highest standards of transparency in reporting comparative pricing and usage information across the EU in order to demonstrate the relative value available to Irish consumers. It encourages the mobile phone companies to enter into voluntary mobile virtual network operator, MVNO, arrangements on commercial terms in Ireland at an early date, and notes that such voluntary arrangements are becoming increasingly prevalent in the EU and are particularly relevant to the experience in the UK and Denmark. It draws attention to the impact that properly constructed MVNO agreements may have in expanding the usage of mobile services and increasing the competitiveness of the Irish economy overall.

The committee calls on the mobile phone companies to pay increased attention to the particular circumstances of the Irish market in devising and deploying market strategies here. It recommends the Government, ComReg and mobile phone companies co-operate more closely to ensure public policy allows the fullest possible development of the mobile sector.

I thank ComReg commissioners for attending.

The joint committee adjourned at 6.40 p.m. sine die.