Vodafone 2008 Annual Report Download - page 149

The Group’s operating companies are generally subject to regulation governing
the operation of their business activities. Such regulation typically takes the form
of industry-specific law and regulation covering telecommunications services and
general competition (anti-trust) law applicable to all activities. Some regulation
implements commitments made by governments under the Basic
Telecommunications Accord of the World Trade Organisation to facilitate market
entry and establish regulatory frameworks.
The following section describes the regulatory framework and the key regulatory
developments at the global and regional level and in selected countries in which
the Group has significant interests. Many of the regulatory developments
reported in the following section involve ongoing proceedings or consideration of
potential proceedings that have not reached a conclusion. Accordingly, the Group
is unable to attach a specific level of financial risk to the Group’s performance
from such matters.
World Radiocommunication Conference
During October and November 2007, the World Radiocommunication Conference
of the International Telecommunications Union met in Geneva to consider
changes to the Radio Regulations. The next such Conference will be held in
2011. The Conference establishes, by means of international treaty, the basis
upon which radio frequency bands may be used in the signatory countries
(which include all markets in which Vodafone has interests). Such agreements
are required to prevent interference between users in different countries and
to facilitate the development of scalable technologies such as GSM or UMTS.
The most important outcome of the 2007 conference for Vodafone was the
identification of additional spectrum in the UHF band for mobile services and,
in particular, the identification of spectrum in the 790-862 MHz range for mobile
services in Europe.
European Union
The EU Regulatory Framework for the communications sector (“the EU Framework”)
was adopted in 2002 and has been implemented by all EU Member States
although there remain both ongoing and new infringement proceedings against
a number of Member States for late or inadequate implementation.
The EU Framework consists of four principal Directives outlining matters such as:
the objectives to be pursued by national regulatory authorities (“NRAs”);
the way in which telecommunications operators are to be licensed;
measures to be taken to protect consumers; and
ensuring universal provision of certain telecommunications services and the terms
and basis upon which operators interconnect and provide access to each other.
The EU Framework seeks to align the techniques for defining where sector
specific regulation may be applied, and the threshold for when such regulation
can be applied, with those already employed in EU competition law. It is also
intended to ensure consistency of approach amongst NRAs within the Member
States. All NRAs are required to take utmost account of a list of markets which are
specified by the European Commission (the “Commission”) in a Recommendation
when deciding which markets to investigate. The second such Recommendation
was published by the Commission in November 2007 and for the mobile industry
includes only the market at a wholesale level for ‘voice call termination on
individual mobile networks’. Two markets included the first Recommendation,
one for the ‘wholesale national market for international roaming’ and the market
for ‘access and call origination’ on public mobile networks, have been removed.
NRAs may still review other markets subject to satisfying certain tests.
Under the EU Framework, regulation can only be applied to undertakings with
significant market power (“SMP”), either individually or collectively, in the relevant
markets, subject to the Commission’s consent. SMP under the EU Framework
accords with the concept of “dominance” under existing EU competition law.
For individual dominance, this generally implies a market share of at least 40%,
although other factors may also be taken into consideration.
In November 2007, the Commission published proposals to amend the EU Framework
(“the review”). Any changes to the EU Framework would become effective following
their transposition into national law from around 2010. Not all of these affect
Vodafone directly. The proposals that may directly affect Vodafone include:
the proposed creation of a new European regulatory authority;
the extension of the Commission’s powers so as to allow it, rather than national
regulators, to determine remedies where SMP is found;
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the addition of functional separation as a remedy subject to certain conditions
being fulfilled;
fundamental changes to the licensing of spectrum, introducing more flexibility,
trading and market-based approaches;
some ‘net neutrality’ provisions to address the concerns that the services of some
internet service providers (“ISPs”) will be blocked or otherwise discriminated
against by network operators;
proposals that number portability be completed in one day on all networks in the EU;
various measures to address concerns about network security; and
various measures to address the provision of services for the disabled.
The proposed changes are now being debated in the European Parliament and
the Council of Member States and this process is expected to continue for most,
if not all, of 2008. The impact of the review on Vodafone will depend on the
changes actually adopted by the EU, the manner in which revised directives are
subsequently implemented in Member States and how the revised regulatory
framework is then applied by the respective NRAs and the Commission.
Spectrum
In February 2007, the Commission published a communication on its plans to introduce
greater flexibility in the use of spectrum in selected bands, including 2G and 3G bands,
through the use of Decisions agreed with the Radio Spectrum Committee (an EU level
committee comprising the Commission and Member States). These reforms are
expected to take place in advance of the review. The first proposed measure is a
replacement of the GSM Directive by a decision to allow the deployment of UMTS
services using 900 MHz and 1800 MHz spectrum (“refarming”). The Commission
submitted formal proposals for such a decision to the European Parliament in July 2007.
In November 2007, the European Commission made a policy announcement on
the 800 MHz ‘digital dividend’ spectrum (to be released following the transition
from analogue to digital TV). It urged Europe, and the Member States in particular,
to create new harmonised bands of spectrum for mobile broadband services and
mobile TV. The need for action on the digital dividend has been supported by
leading European Parliamentarians, and the Member States are expected to respond
with a statement at the EU Telecoms Council in June 2008.
International roaming
In June 2007, a regulation (the “roaming regulation”) under Article 95 of the EU
Treaty came into force requiring mobile operators to offer a ‘euro-tariff’ under
which the cost of making calls within the EU is capped at 49 eurocents per minute
and the cost of receiving calls within the EU is capped at 24 eurocents per minute.
Customers who had not otherwise already opted for another roaming tariff, such
as Vodafone Passport, were automatically opted onto the euro-tariff. The roaming
regulation also requires that wholesale roaming charges within the EU are capped at
an initial average rate of 30 eurocents per minute and that operators provide certain
tariff transparency services to customers when they roam. The level of the retail and
wholesale caps will fall in a further 12 and 24 months following the application of
the regulation, which will terminate after three years.
The Commission is required by the roaming regulation to consider whether voice
roaming should continue to be regulated beyond the expiry of the current regulation
and, if so, what form such regulation might take. In addition, the Commission is required
to review SMS and data roaming and to consider whether regulation is required,
and if so, what form this might take. The Commission is consulting on these matters,
with a view to publishing conclusions in late summer or early autumn of 2008. The
Commission indicated in February 2008 that it would consider regulation in the event
that SMS retail roaming prices did not approach justified levels, which it considered to
be not more than 12 eurocents per SMS. The Commission urged the industry to adopt
more predictable and transparent tariffs for data roaming services, and suggested that
wholesale data roaming pricing should fall to around 35 eurocents per megabyte.
Call termination
At 31 March 2008, the termination rates effective for the Group’s subsidiaries and
joint ventures within the European Union, which differs from the Group’s Europe
region, ranged from 6.40 eurocents (5.09 pence) to 11.84 eurocents (9.42 pence),
at the relevant 31 March 2008 exchange rate.
The Commission is studying the regulation of call termination and is expected
to consult upon and then issue a Recommendation in the autumn of 2008.
The Commission has indicated that it is concerned by what it considers to be the
unjustifiably wide range of regulated rates set by NRA’s in the EU and by their level
relative to its view of cost. The NRAs are required to take utmost account of the
Commission’s recommendations, but may depart from them in justified circumstances.
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Vodafone Group Plc Annual Report 2008 147
Vodafone – Additional Information
Regulation