Vodafone 2002 Annual Report Download - page 25

Information on the Company Vodafone Group Plc 23Annual Report & Accounts and Form 20-F
Regulation
The Company’s operating companies are generally subject to regulation
governing the operation of their business activities in each of the countries in
which they operate. Such regulation generally takes the form of industry-specific
legislation covering communications services as well as competition legislation.
The following section describes the regulatory framework and key regulatory
developments in the European Union and selected countries in which the Group
has significant interests.
European Union
New regulatory framework
In February 2002, the European Union (“EU”) adopted a revised regulatory
framework for the communications sector, replacing much of the legislation first
introduced when the sector was liberalised in the 1990s. The new legislative
package must be implemented into national legislation by 24 July 2003.
The new regulatory framework introduces a number of important changes.
In particular, it aligns some important regulatory concepts, such as the definition
of those markets in which regulatory intervention may be imposed and the
threshold for intervention itself, with those employed in EU competition law.
This is expected to increase the consistency of the approaches taken by National
Regulatory Authorities (“NRAs”) within the EU and would impose upon them an
increased obligation to analyse market conditions in detail before imposing
regulatory intervention. The Significant Market Power (“SMP”) threshold for
intervention will be raised from a prima facie level of 25% to accord with the
legal concept of “dominance”established under EU competition law.
Under the revised Framework Directive, NRAs must analyse markets which will
be specified in a European Commission Decision on market definition. Regulation
can be imposed upon undertakings with SMP (either individually or collectively)
in the markets as defined in the Framework Directive and / or the Commission
Decision on market definition. Only in exceptional circumstances may the NRA
identify markets not previously defined by the Commission Decision on market
definition.
Appeal rights for undertakings are also strengthened by the introduction of a
right to appeal on the merits of an NRA decision.
The practical implications of the new regulatory framework will depend upon how
the Commission seeks to further interpret the application of the Directives, for
example through the issue of guidelines, and how Member States and NRAs then
act upon such guidance.
Roaming charges
As part of its sectoral enquiry into roaming charges, in July 2001, officials of the
European Commission visited the offices of operators in the United Kingdom and
Germany, including Group subsidiaries. The investigation is seeking evidence of
collusion and / or excessive prices, in relation to both retail and wholesale
roaming charges. The European Commission has yet to indicate how or if it may
proceed in these matters.
In February 2001, certain Group operating companies notified the European
Commission of the agreements between them established to support the Eurocall
flat rate roaming tariff, and are in discussion with the European Commission with
a view to gaining competition law clearance for those arrangements.
Northern Europe Region
United Kingdom
The UK Government has announced its intention to replace Oftel with the Office
of Communications (“OFCOM”), a regulatory body which will hold broader
responsibilities for media and other communications industries as well as
telecommunications. Interim measures, allowing for the constitution of OFCOM
and the appointment of personnel and premises, were passed by Parliament in
March 2002 and the full Bill (“OFCOM Bill”) is expected to be debated in
Parliament in the last quarter of 2002. Amongst the Government’s proposals
are that OFCOM be run by a board rather than a single individual.
The OFCOM Bill is to be used to implement the new EU regulatory framework.
It may also be used to implement certain aspects of an Independent Spectrum
Management Review, which was reported in March 2002. The report’s principal
recommendations were that the UK Government should introduce spectrum
trading at the earliest opportunity and that administrative pricing should be
applied with greater rigour to spectrum which was at the early stages of being
traded, held by public institutions and/or not tradable at all. The Government will
respond to the report later in 2002.
In September 2001, the Director General of Oftel concluded his review of the
mobile market and, in particular, his review of charges for the termination of calls
onto the networks of all mobile network operators. He concluded that the mobile
market was ‘prospectively competitive’ and that the existing obligations upon
Vodafone UK and MMO2, known as ‘Market Influence’ conditions, should be
removed, allowing Vodafone UK and MMO2greater commercial flexibility in
dealing with independent service providers. The Director General formally lifted
the Market Influence designation on 5 April 2002.
The Director General also concluded that charges of mobile operators for the
termination of calls to their networks should be reduced by twelve percentage
points less than the UK’s Retail Prices Index, i.e. RPI-12, for the period from the
expiry of existing price caps, April 2002, until March 2006 and proposed licence
modifications to all four UK operators pursuant to these proposals. Vodafone UK
rejected the Director General’s proposed modifications in November 2001 and, in
January 2002, the Director General confirmed that he had referred the matter to
the Competition Commission, which will report by the end of 2002.
Other countries – call termination
A number of NRAs have recently considered or are considering the regulation of
charges for the termination of calls to mobile networks. Existing European
regulation requires that operators designated as having SMP in the national
market for interconnection must offer cost-orientated charges for such services.
NRAs in Belgium, France, Sweden and the Netherlands have reached decisions,
or are in the process of making decisions, which are expected to result in
significant reductions in termination charges.