Regulation’s what you need

By The Informer

Even operators privately admit they need to be regulated. While the laissez faire, free market utopia to which many of us aspire should preclude such interventions, in many cases a perfect market is impossible and it appears to be human nature to exploit oligopolies as much as possible. Hence some kind of independent body is required to protect the consumer.

It will already be painfully apparent to readers of Telecoms.com that the barriers to entry to the telco game are high. Just rolling out the initial network alone would bankrupt most small countries while maintaining, renewing and selling it is a logistical operation of biblical proportions. So it’s not like incumbent operators need to be constantly looking over their shoulders for an upstart operator being incubated in the proverbial garage.

Typically you get an oligopoly of 3-4 MNOs all competing with each other, but at the same time trying not to ruin it for everyone by pricing too aggressively. Every now and then one of them will publicly bemoan some external threat, such as how much they have to subsidise iPhones or how intrusive regulation has become. Of course these few companies would never dream of acting as a cartel and collaborating to keep prices as high as possible, but the media can sometimes be a handy way of legitimately communicating with your competitors.

Markets with a high barrier to entry, such as utilities, need regulators because competition is deemed insufficient to ensure they function optimally for the consumer, but who are these regulators and how are they appointed?

In most cases the head of a regulator is appointed by the government, and can also presumably be sacked by them. If you were to ask most people what their job function is, they would probably give you an approximation of the job description written on their contract. If they were being brutally honest they would probably say “to please my boss,” because that’s most people’s overriding concern during a given working day: pleasing the boss in order to earn a promotion/pay rise or at the very least prevent a bollocking.

So if the head of Ofcom is appointed by the Prime Minister, it stands to reason they will at least be sensitive to his whims. That the favourite to be its next head is currently a civil servant only serves to strengthen that impression.

Imagine Ofcom’s concern, therefore, when our dear leader had to cut short well-earned breaks in some of the more remote parts of the UK because he couldn’t get a mobile signal. It seems the PM is never truly on holiday (or at least he has little faith in his deputy) and the inability to check in with Barack Obama and Angela Merkel, presumably to make them jealous by sharing shots of carefree frolicking on the beach over WhatsApp, was sufficient to make him call the whole thing off.

Dave wasn’t happy and, knowing what side his bread’s buttered on, Secretary for Culture, Media and Sport Sajid Javid wasted little time in seeking political capital from the revelation that mobile coverage is a bit rubbish in some parts of England. The something that apparently must be done at times like this amounted to a compulsory national roaming plan, which Javid presented for hasty consultation at the start of November.

“It can’t be right that in a fifth of the UK, people cannot use their phones to make a call. The government isn’t prepared to let that situation continue. We’ve been talking to the mobile companies about the problem and they are working with us to find a solution,” said Javid. Needless to say the supposedly competing mobile companies didn’t think sharing their core assets with each other was a great idea.

The consultation concluded, the government and the operators are now apparently in negotiations, which are likely to conclude in some degree of commitment to geographical coverage, which it will all on Ofcom to enforce. On the surface this all seems fair enough; access to precious spectrum should come with some strings attached. But there already were conditions that operators must cover a certain proportion of the population, the thing that’s irritating them is that the goalposts are now being shifted to geographical rather than population coverage.

This raises many new questions. If, say, a 90% geographical coverage target is set, who determines which precise areas this covers? Will this designation apply to all operators or is everyone given a different patch of wilderness they have to cover? And perhaps most importantly: how does this new condition affect the value of the spectrum the government was so keen to maximise its revenue from in the auctions?

In the 4G auctions O2 got 2 x 10 MHz of 800 MHz spectrum at a discount, on the condition that it provide a mobile broadband service for indoor reception to at least 98% of the UK population and at least 95% of the population of each of the UK nations by the end of 2017 at the latest. If you now attach geographical coverage conditions (more onerous than population coverage) to spectrum that had originally been sold with no strings attached, then you effectively devalue it. So will operators be entitled to a discount on the cost of the spectrum?

And while we’re talking about public funds, what happened to the government’s Mobile Infrastructure Project, which received £150 million to deal with these so-called not-spots? Things seem to have gone a bit quiet there and there’s clearly little hope that it will provide a substantial solution to the issue.

So, while the need for a telco regulator is unquestioned, the government ultimately pays its bills so it’s exposed to political, as opposed to practical, influences. The next time the Prime Minister is unable to check the footy scores on holiday in the Lake District, expect the UK’s operators to be bracing themselves for another round regulation.

Take care.

The Informer