Future national wholesale competition

Two risks for national wholesale competition, which would arise in the absence of measures to promote competition in the auction, were identified by Ofcom during the March 2011 Consultation. The risks are 1) only less than four competitors would hold minimum required spectrum portfolios and 2) concentration of spectrum or asymmetric distribution of spectrum. A number of proposals were set out by the regulator to address these risks.

With regard to the first risk, Ofcom proposed a spectrum reservation with a view to have at least four national wholesalers holding a certain minimum spectrum portfolio taking into account the existing spectrum holdings. With regard to the second risk, Ofcom proposed to impose spectrum caps on both overall spectrum holdings taking in to account the existing holdings and spectrum caps on sub-1GHz holding.

Ofcom received a number of responses to its competition assessment and it raised a number of challenges to the proposals of March Consultation. The four existing national wholesalers, Telefonica, Vodafone, Everything Everywhere and H3G challenged the proposals. The measure to ensure at least four national wholesalers in the UK was severely criticized by Everything Everywhere, Vodafone and Telefonica, but the measure was appreciated by H3G.

Telefonica and Vodafone were concerned since they thought that Ofcom was acting in favour of Everything Everywhere and H3G.The measures taken with regard to the spectrum held by Everything Everywhere made them suspicious. Everything Everywhere has large holdings of 1800 MHz spectrum and it would enable the firm to provide LTE easily. This is an advantage over the other two companies. Everything Everywhere and H3G wanted Ofcom to ensure 2 X 10 MHz of 800 MHz spectrum to them rather than 2 X 5 MHz. H3G also argued to making the overall holding of spectrum more equal.

Concerns about future national wholesale competition Paying heed to the responses to March 2011 consultation and the further analysis, made Ofcom to revisit the competition assessment and its proposals made during the March 2011 Consultation. As a result Ofcom was able to identify two potential competition concerns for the national wholesale level. They are 1) the apprehension that there will be less than four reliable national wholesalers and 2) even if there are four credible national wholesalers, there is a possibility of one or more wholesalers not in a position to compete across a wide range of services and customers.

Competitors may have advantages over certain aspects of service. This is a main feature between rivals in many competitive markets and it is not a cause for concern. In one way it is beneficial to consumers as the rivals seek to exploit their advantages, other competitors would try to mitigate their areas of disadvantages. It may lead to creativity and new possibilities will be opened up before the consumers.

However, a) Ofcom will be concerned with non-credible competitors, where a national wholesaler has too many disadvantages and insufficient counterbalancing advantages over its rivals b) Ofcom is also concerned about a situation where the competition across the range of services is limited as it would be detrimental to the interest of the consumers. These two points are also considered by the regulator.

A national wholesaler could remain a credible competitor even if in some areas of service it is weak, or the wholesaler is not in a position to provide a particular service or customer segments. For example if the wholesaler is able to provide good quality service in most indoor locations but fails to provide connections in the most difficult to serve regions, that wholesaler would remain a credible competitor. Again if the national wholesaler is able to provide HSPA+ services but at the same time, despite the demand from the consumers for LTE service, fails to provide the same for a period of time, would be considered as a credible competitor.

At the same time if the disadvantages overweigh the advantages and the substantial part of the market is affected by it and if the disadvantages are not compensated by its advantages, then that national wholesaler would cease to be a credible competitor.

As for the second concern, Ofcom is of the opinion that if competition across the range of services is limited, it won’t be desirable for the consumers.

Ofcom consider that the first concern i.e. a situation where there are less than four national wholesalers, is more important than the second concern i.e. wholesalers not in a position to compete across a wide range of services and consumers, - in terms of potential consumer detriment. The first concern affects the interest of all consumers whereas the second concern affects only a particular segment of services or consumers. More over there would be alternate services available to the consumers. Consumers are able to switch over to other alternative services in a competitive market.

These two competition concerns are almost similar to the risks to national wholesale competition which the regulator had already identified in March 2011 Consultation. Now Ofcom wants to make a distinction between risk that a national wholesaler has to face with regard to its credibility and the competitive disadvantages that are faced by a national wholesaler when he competes with the provision of particular services or customer segments. With regard to the second concern, in March, Ofcom focused on the over concentration or asymmetric distribution of spectrum. Other sources for this competition concern have been identified by Ofcom. The regulator has identified the means to serve the consumers in the hard to serve or ‘no spot’ areas and also the capability to have an early route to LTE placement.