UK market "anti-competitive" says 3 CEO

Kevin Russell, the new CEO of 3UK, has hit out at regulatory inadequacies that he claims are hobbling competition in the UK market place.

Mobile number portability (MNP) and termination rates (MTR) in particular should be a serious concern for the industry, he told telecoms.com. In 2006, he said, 3’s net termination settlements with the other carriers ran to more than £50m.

Russell said he has spent a “disproportionate amount of time” dealing with regulatory issues since joining Hutchison’s UK WCDMA operator as deputy CEO in December 2006. He succeeded Bob Fuller as CEO in May this year.

“We’ve got an MNP system [in the UK] that’s pretty much in the dark ages,” Russell said, describing it as “a fundamental failure”.

Russell was previously CEO of 3’s Australian operation, where there has been a two hour lead time on number portability since 2001. “I assumed that was how most advanced markets worked,” he said. “Then I came to the UK and found that it takes five days to port a number. It’s prehistoric and only 10 per cent of customers port. I was stunned.”

As a pure 3G operator, 3UK has the market’s most WCDMA subscribers, with 3.9 million as of May this year, according to Informa’s World Cellular Information Service. But it remains way behind the four incumbents; Orange, in fourth place has over 15 million subscribers across its GSM and 3G networks.

Russell argued that the four incumbents, O2, T-Mobile, Vodafone and Orange, which have roughly equal market share, have not been motivated to drive MNP because “It’s a cosy market and no-one wants to rock the boat.” MNP was intended to remove the principal barrier to churn as subscribers are reluctant to part with their mobile phone number.

A report published earlier this year by Analysys supports the assertion that MNP has not enjoyed widespread success. According to Alastair Brydon, co-author of the Analysys report Mobile Number Portability: strategies for operators and regulators, who spoke to telecoms.com in February, only relatively small numbers of consumers are porting.

“Probably the main reason it’s not being used is that operators haven’t publicised it,” said Brydon. “When you buy a phone, it’s not something you’re told you can do. People just aren’t aware of it.”

But Analysys found that it is not automatically the newer or smaller carriers that win out when MNP is successfully managed. Rather, the better networks enjoy improved popularity.

Russell said that, because porting is so difficult in the UK, some of his customers are retaining their old contract for inbound traffic, using 3 only for outgoing calls. He also said that 3’s cost of acquisition is higher than it could be because the firm has to give more to the subscriber to persuade them to relinquish their number.

“I do know that we have lost potential customers because of this and that we haven’t benefited from the incoming revenue that we should have got, in some cases,” he said. “And I know that we’ve paid more than we should have done to get the customers.”

He also criticised termination rates in the UK, revealing that, in 2006, 3’s net settlement costs were in excess of £50m. 3 is appealing UK regulator Ofcom’s ruling on termination rates which credits 3 with significant market power (SMP). While Ofcom did bring rates down earlier this year, it’s not far enough for Russell.

“There is a fundamental problem in the UK market on mobile to mobile termination rates. You cannot have a new entrant subsidising profitable incumbents. It has no place in a level, competitive playing field,” he said.

Russell’s criticisms may be interpreted by some as excuses for 3’s performance since it launched just over four years ago. But he rejected this suggestion. “I would be the first to say that there are things that 3 can do better operationally and we’ve got a lot more hard work to do. But I look at the outcome of the current MNP and MTR situations and I know that they’re anti-competitive and I know that means that retail pricing and market share have been propped up.”

Visit telecoms.com next week to read the full interview with Kevin Russell