Future Mobile Competition

– in Westminster Hall at 10:47 am on 14th March 2012.

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Photo of James Gray James Gray Conservative, North Wiltshire 10:47 am, 14th March 2012

If those hon. Members who took part in the previous debate would like to move on quickly and quietly, as Mr Speaker often says, we can start this debate early, because both the Minister and the hon. Member who proposed the debate are present in the Chamber.

Photo of Alun Cairns Alun Cairns Conservative, Vale of Glamorgan 10:59 am, 14th March 2012

It is a pleasure to serve under your chairmanship this morning, Mr Gray, and I am grateful for the guidance that you have offered.

What we are debating is extremely important to the whole United Kingdom, to the communication links in our constituencies and to the economy in general, and we are considering the future of the new generation of mobile communications. From the outset, I want to pay tribute to the Minister and the Secretary of State for Culture, Olympics, Media and Sport for the priority given and the commitment shown to the subject and for how they and Ofcom have reacted to the demands of the House and of the wider marketplace.

The new generation of mobile communications brings fantastic opportunities for use and management of data to benefit business, the public sector and lifestyle and for great efficiencies in ways that we can only imagine. I do not want to labour such points today, however, because I want to focus on some of the technical issues in the latest Ofcom consultation.

The UK has an extremely competitive mobile communication market, which has benefited the economy hugely and resulted in mobile communication prices that are among the lowest in Europe. Ofcom originally consulted on the 800 MHz and 2.6 GHz spectrum allocation and auction process last March. At the time, its proposal to require a 95% population coverage obligation caused considerable concern in Parliament. During an exceptionally well attended debate in the main Chamber, many Members called for an increase to a 98% population obligation.

I am delighted that Ofcom responded positively and revised its preferred options in the new consultation to include a 98% coverage obligation, which shows a significant commitment to areas that were left behind following the 3G auction. Rural areas in Wales, England, Scotland and parts of Northern Ireland suffered under those arrangements.

Photo of Brandon Lewis Brandon Lewis Conservative, Great Yarmouth

I congratulate my hon. Friend on securing this important debate, although it is a shame that no one from the Opposition is present. Does he agree that the opportunity is hugely important for rural areas, because of the economic benefits provided to places that are otherwise remote and lacking in infrastructure?

Photo of Alun Cairns Alun Cairns Conservative, Vale of Glamorgan

I am grateful to my hon. Friend for underlining such a valid point. The launch of 4G mobile communications will be the last opportunity for a valuable area of the spectrum to be used, auctioned and marketed to benefit the whole economy. Ofcom and the Minister have reacted to the demands of my hon. Friend and many of our colleagues. Let us compare that reaction with the 3G launch administered by Ofcom under the previous Administration and the benefits for areas such as Wales. Despite an auction that netted £22.5 billion, Wales has been left with only 79% 3G coverage, against 98% coverage in England. The 2G coverage in Wales remains at 89%, compared with 99% in England. We might have expected the previous Government to invest some of that fantastic 3G windfall into some of the not-spots, along the lines now being followed for 4G by the Minister and the Secretary of State.

Even within the 98% 4G option, Ofcom presents two main alternatives, the first of which is to set the higher but specific population coverage obligation to include the outcomes of the Government’s mobile infrastructure project. The second option is to specify a coverage obligation by reference to the existing 2G network in combination, plus the additional mobile voice coverage added through the Government’s MIP. Strictly speaking, the second model risks not reaching the exact 98% population coverage, but it gives the opportunity to go well beyond that, dependent on the MIP roll-out and its nature and form.

I therefore support the second option, with its greater opportunity, but ask that Broadband Delivery UK consult actively in and outside Parliament on how best to use the resources that the Minister and Secretary of State have made available. I ask BDUK to pay particular attention to the sort of data on Wales that I mentioned as a result of the deficiencies of the 3G auction.

A further significant difference between the two Ofcom consultations relates to the breakdown and split of the spectrum and the proposals to guarantee national wholesale competition on the current scale. That is of fundamental importance to maintaining the strong competition and benefits thereof that I mentioned earlier. We need to remember that the 800 MHz spectrum is the most desirable to all operators. It allows the best coverage possible both in and outdoors. In simple terms, it travels further and penetrates buildings much more effectively than higher ends of the spectrum.

The March 2011 consultation guaranteed such provision for two operators, partly because Telefonica and Vodafone currently operate on the 900 MHz spectrum, which holds similar properties to the 800 MHz level. The auction was to be split into portfolios, starting at a pair of 5 MHz blocks. Some believed that such a level offered insufficient capacity and others objected to two operators gaining an absolute right to the 800 MHz spectrum. Responses to the consultation led to changes, by removing the preserved rights for two operators and increasing the portfolios to blocks of a minimum of 10 MHz.

The basis of that change is significant, because Ofcom revised its opinion on the interpretation of the reach of the 800 MHz spectrum, by comparison with that of the 1,800 MHz spectrum. At the outset, it believed that operators with a large amount of low-frequency spectrum would have an “unmatchable competitive advantage”, but the latest consultation shows that its position has changed and it now believes that low-frequency spectrum is not a necessity for all operators—if an operator had sufficient 1800 MHz spectrum, it would still be able to compete.

Ofcom now believes that an operator can compete with others operating at a lower frequency, possibly with a price trade-off in compensation for reduced indoor coverage. That is a respectable argument, but not one that I accept. I do not think that it is practical or realistic for consumers to differentiate in such a way, even if the technological claims are robust. There is no effective way, other than experience, in which even an informed consumer will be able to assess the quality of indoor coverage of a service provider.

Contract tie-ins range between one year and two years, so switching provider in the short term is not an option, and coverage levels and quality could also change within that period because of further investment in additional masts, so confusing the situation further. It could be argued that that was the position when each generation of mobile communication was auctioned and rolled out. At such times, however, the markets were developing and people were prepared to compromise in the short term. Even after the 3G auction, Hutchison used that business model to gain market share, but now that the market has matured, all operators compete on similar terms.

Intense competition would not exist over the longer term in a mature market without the availability of 800 MHz or any further spectrum auction to sustain market interest, and the whole intention of the policy to maintain four credible national mobile operators in competition would be undermined. Over the longer term, the operator without 800 MHz or 900 MHz would walk away or be subject to a takeover by one that had the desired spectrum.

I therefore urge Ofcom and the Minister to consider splitting the auction portfolios, so that four operators have the opportunity to secure low-frequency spectrum. That is less prescriptive than the first consultation, but each operator, including the possibility of a new entrant, must have the opportunity. There are only three pairs of 10 MHz blocks, and my proposal could mean splitting to up to six pairs of 5 MHz options with appropriate guarantees, which is similar but not identical to what was offered in the first consultation. That would deliver long-term sustainable competition, protecting the consumer in the best way, rather than by regulation at a later stage.

Finally, I want to turn to data roaming. Charges by all operators at the moment are wholly unacceptable, with monthly bills running into possibly hundreds of pounds for people travelling in Europe or north America. The European Commission recently proposed a cap of €100 per gigabyte, which could be multiplied by five to reach a retail price of up to €500 per gigabyte, equating to £420 per gig. Clearly, that is far too high and undesirable for individuals and businesses.

The European Parliament recently voted to halve the wholesale cap to €50 per gig, which is encouraging, but I would ask the European Council to move still further. Most infrastructure spend has already been made. By comparison, UK consumers pay £10 per gig within the UK, and even after reform, data roaming could still cost £164 per gigabyte at the reduced level by 2014. Clearly, it is necessary radically to reduce roaming prices. Lower wholesale rates drive market competition and allow operators to develop lower cost propositions. The regulations will be finalised in June, and I ask the Minister to respond to these calls in the same way that he and Ofcom responded so positively to the shift from the 95% coverage obligation in the 4G auction to the 98% coverage obligation.

I will bring my remarks to a close by emphasising the priority that the Government and the Minister have given to such an important policy. We are in the last-chance saloon in marketing the new generation of mobile communications strongly, effectively and efficiently to gain and maintain the right level of competition. There is a threat that some operators may pursue challenges through the courts, but I hope that an arrangement can be delivered on securing the right level of competition, so that all may be reassured, but with ultimate choice to the consumer, while driving prices down in a similar but not identical way to that in which the 3G auction was used.

Photo of Ed Vaizey Ed Vaizey The Parliamentary Under-Secretary of State for Culture, Media and Sport 11:11 am, 14th March 2012

It is a pleasure, Mr Gray, to serve under your chairmanship this morning. I congratulate my hon. Friend Alun Cairns on securing this important debate. I think it is the first since we announced the mobile infrastructure project, so it gives me the opportunity to update the House on what is happening. My hon. Friend is fast gaining a reputation as something of an expert in the sector. In the Back-Bench debate, he led the calls to increase the coverage obligations for the 4G auction, and those calls were listened to, as he acknowledged in his speech. He has given a highly accomplished résumé of some of the key issues surrounding mobile competition, which only he and a select few others in the House probably understood. That is a measure of his expertise.

It was apparent to me when I took up my post as Minister with responsibility for communications that this matter is incredibly important and that we must get it right. I sometimes joke—perhaps I should not—that I never thought that I would be quite so excited by spectrum policy management as I am, and the reason is that it is fundamentally important to the future of the UK economy. We know that the internet has already contributed something like one quarter of the value of growth in gross domestic product in the UK in recent years, and without a vibrant communications sector that growth would be stunted. In the last year, almost two thirds of mobile handsets sold were smartphones. There is a huge hunger for data, and more and more people will access the internet and data on portable devices, whether smartphones or tablets.

To increase his already considerable expertise, I urge my hon. Friend to read the recent speech by Ed Richards, the highly effective chief executive of Ofcom, on dynamic spectrum management, which will be the next challenge to ensure that white space spectrum—the spectrum that sits between the spectrum that we allocate in more conventional ways—can be used. There is real hunger for spectrum as more and more people acquire devices. Spectrum is necessary not just for capacity, but for fast speeds. No one wants a smartphone that takes ages to download a website.

Spectrum and broadband access are becoming increasingly like utilities such as water, gas and electricity in that they are a fundamental tool with which to engage with modern life, because they allow people to access a wide range of services, such as handling their bank accounts, paying bills, doing homework, or accessing Government services. Equally important, they allow many small and medium-sized enterprises to increase their footfall and access to different marketplaces. All that needs to be sorted out.

When I was appointed, it was clear that unblocking the release of 4G spectrum to the market was essential. My hon. Friend alluded to the fact that the debate has been going on for a number of years. We were at one minute to midnight, so we ordered Ofcom to conduct a combined auction of 800 MHz and 2.6 GHz spectrum as soon as possible. Ofcom has consulted extensively on that, not once, but twice. The 4G auction is not just about faster broadband; as I said, it will help improve coverage. Having listened to my hon. Friend and others, the auction design now includes demanding coverage obligations of up to 98%.

We must not forget the important role of competition in the UK’s mobile communications market. When we directed Ofcom to design the auction rules, we made it absolutely clear that we want to maintain a four-operator marketplace. We want a competitive marketplace, not just because it drives down prices for consumers, but because it encourages innovation. We believe that it is important to retain that level of competition, so in the run-up to the auction, we directed Ofcom to assess both current and future competition in the UK market, and to take that into account in the design of the auction.

A major point that my hon. Friend made was his concern about the parcels of 800 MHz spectrum that are to be auctioned. He suggested that those parcels should be 5 MHz rather than 10 MHz, and pointed out that that was proposed in the original consultation document to enable all four operators to have access to the 800 MHz spectrum. Ofcom conducted genuine consultation. It is often said that consultation is a sham, and that minds have already been made up, but Ofcom listened to the industry, and its overwhelming view was that parcels of 5 MHz were simply not big enough to have appropriate capacity, so Ofcom has proposed parcels of 10 MHz. The consultation has now closed, and we await the final auction rules, and the mobile operators’ reaction.

As my hon. Friend well knows, the circle is difficult to square, because sub-1 gig MHz—that is, the 800 and 900 MHz to which he alluded—is seen by some as the best sort of spectrum because it travels further and penetrates further, as opposed to spectrum above 1 gig, which has greater capacity. In conducting its analysis of future competition, Ofcom took the view that that gap was narrow, and my hon. Friend will have seen that Ofcom announced proposals yesterday to liberalise 1,800 MHz for 4G services.

We now find ourselves in an unusual position. Operators above 1 gig have been arguing for a long time that they must have guaranteed access to sub-1 MHz, otherwise they cannot compete, and those operators with sub-1 MHz spectrum are jumping up and down and saying that those with spectrum above 1 gig now have a huge competitive advantage. Interestingly, whichever operator someone works for, it always appears in their world view that other operators have an extraordinary competitive advantage. However, I will adopt the tone taken by my hon. Friend and say to all operators that the time for arguing about such matters in the courts has long passed, and that for this country to maintain its economic edge and dynamic communications market, we must proceed with the auction and with spectrum liberalisation, which in any case we are required to do by the European directives.

I am immensely pleased that we have secured Treasury funding for the mobile infrastructure project that my hon. Friend mentioned. In the autumn statement, the Chancellor announced that £150 million would be set aside to fund that project which, where possible, is intended to cover mobile not-spots. As I said earlier, that money was secured because of the increasing recognition that mobile broadband coverage is becoming as important as fixed broadband coverage—if not more important—particularly in rural areas.

Since that announcement, my Department has worked closely with Ofcom to define the scale of the problem and identify the so-called not-spots. As my hon. Friend will know, a great deal of commercial sensitivity surrounds the precise location of those not-spots, and mobile network operators understandably guard such information closely. Subject to agreement with data holders, however, we intend to publish an indicative map that will give hon. Members a sense of where the project will focus. Additionally, we must communicate with the European Commission to ensure that the project meets the requirements of state aid regulations.

As I said earlier, the mobile infrastructure project is intended to cover areas where there is no coverage from any mobile operator—complete not-spots. In other areas, an individual might think that there is no coverage, but they may be with an operator that does not have coverage in that area—a partial not-spot. Ofcom is working closely with the industry to see whether that can be addressed. Of course, such matters are commercially sensitive because any operator that has invested in a network in one area would look askance at a second operator that was able to work in the same area with financial assistance from the Government. We must work with the operators to try and ensure that they all begin to provide coverage in areas that are not currently covered.

The definitional phase of the mobile infrastructure project is nearing completion and I am aware, not least from debates such as this, of the strong and increasing interest in it. My fellow MPs can rest assured that we will engage closely with the devolved Administrations and with those local authorities that will be most affected by the project—or, to put it another way, those that are destined to benefit most. Such engagement will ensure that people’s voices are heard when designing the overall solution, and that where choices need to be made, the project meets local needs. It will continue throughout the lifecycle of the project and allow local considerations to be taken into account.

A lot of work is being done to improve mobile coverage, and we must ensure that our planning complements that. We are also seeking to achieve synergies with the rural broadband programme, for which £530 million has been set aside, and that may include, for example, sharing backhaul—the fibre connections that are required for fibre in the ground and mobile connectivity to work.

Getting the industry on board is an essential part of delivering the project. We issued the first step in the procurement process, a prior information notice, before Christmas, and responses to that and to a further industry consultation document issued in January have given us a clear picture of what the industry is expecting to see throughout the process. We followed up that consultation with a series of meetings and workshops to ensure that what we are doing is fit for purpose, and that the capital infrastructure will be used to best effect.

Following detailed discussions with mobile operators about the best solutions to the problems of overall coverage, we are moving swiftly. We intend to begin a procurement process this spring with a view to signing a contractor to provide the necessary infrastructure by the end of the year. Ideally, benefits will begin to be felt this time next year, and the whole project will be delivered within a highly stretching three-year timetable.

My hon. Friend’s third point was about data roaming, and speaking as a layman rather than a Minister, I have an enormous amount of sympathy with that. On a recent trip to the United States I experienced my own version of bill shock because of the sheer cost of data when abroad. That is also a huge issue in the European Union, and the point has been made time and again, not least by the effective commissioner for digital services, Neelie Kroes, that too many UK citizens who travel to Europe—as increasingly people do not only for leisure but for business—have to get into the habit of turning off their phones. That essential business tool and gateway to the things on which we increasingly depend has to be turned off when going abroad, even just across the channel to France, because of concerns about the price of data.

As someone who in principle is reluctant to intervene in the market, I looked slightly askance at the Commission’s efforts to reduce the prices first of voice roaming and now of data roaming. However, its efforts to reduce the cost of voice roaming have been effective, and in principle the UK is supportive of the directive on data roaming. There are probably a few details that need to be ironed out, but we have urged progress on that directive because we recognise that it presents opportunities that will allow consumers to conduct their business more cheaply and effectively.

The issue is more problematic outside the European Union because we would have to negotiate via the European Union, perhaps as part of the World Telecommunications congress, to provide a solution for global data roaming. That is not something on which the UK can take a unilateral decision for its customers and operators; it would have to be an EU-wide agreement on a global basis. I understand the concern, however, and progress on the data roaming directive this year should begin to make a significant difference to customers.

Photo of Andrew Bingham Andrew Bingham Conservative, High Peak

I will be brief due to the time. Is the Minister aware that, on the fringes of the EU, if someone returns from a Greek island, for example, one minute they might be on a Greek mobile network but the next minute, because of its proximity, they move on to the Turkish network? That happened to me. When they get home and get their mobile phone bill, they find that some calls were quite cheap while others were extortionately expensive. People are perhaps not aware of that issue when they go to the fringes of the EU.

Photo of Ed Vaizey Ed Vaizey The Parliamentary Under-Secretary of State for Culture, Media and Sport

My hon. Friend makes a good point, and countries such as Latvia and Lithuania, which are on the fringes of the European Union, have concerns about how to implement the data roaming directive. I will investigate the issue of roaming across Greek and Turkish networks, and I will write to my hon. Friend to explain whether the European Union is engaging with Turkey on that.

My hon. Friend the Member for Vale of Glamorgan has been a doughty champion of this issue, not only for his constituents but for all those who live in rural areas, in recognising that people must not be excluded from the digital revolution, and that access to fixed and mobile broadband is becoming an ever more important part of people’s businesses and lives. I hope that I have used this opportunity to update my hon. Friend, and I invite his comments on the effectiveness of the mobile infrastructure project, and on our progress on data roaming and the auction, which we hope will proceed with alacrity and minimum delay.

Sitting suspended.