Vodafone will have invested £19bn/€23bn in our network and services between March 2014 and 2016 - the largest and fastest network investment in our 30-year history.
We aim to have the best mobile network in all our markets, be competitive in fixed services and provide the best converged fixed and mobile services to support the growing demand for unified communications.
As an investor, we look for a positive return on our investments. The decisions taken by policy makers on issues ranging from market consolidation to spectrum licences to access to fibre backhaul directly affect Vodafone’s decisions on where and when to invest.
Radio spectrum is the key raw material for our mobile business. The rapid take-up of smartphones and tablets, and the increasing use of video services over mobile, means that mobile network capacity needs to be expanded constantly.
Re-farming existing spectrum to allow the introduction of the latest radio technologies such as LTE is important to help meet this growing demand. But governments and spectrum users need to work together in the future to identify, clear, release and allocate additional bands of globally harmonised spectrum for dedicated use by mobile operators. Frequencies below 1GHz are particularly important to carry nationwide mobile broadband services.
With the identification of the 700 MHz band internationally for mobile broadband services, governments need to start the planning process early, to ensure that consumers across our markets are not delayed in enjoying the benefits of this important global standard.
We believe that:
- Well designed and run spectrum auctions are the most efficient way to allocate new spectrum, and are most effective when multiple bands are auctioned at the same time.
- In setting auction reserve prices, authorities should seek to recover only administration costs, and not allow prices to be influenced by national fiscal ambitions.
- Early, fair and cost-effective spectrum allocation will give companies and their shareholders the confidence to invest in new mobile internet services, which will underpin future economic growth in the countries in which we operate.
- Spectrum licences should be perpetual, or easily renewed well in advance of expiry at moderate cost. Spectrum trading can also help to ensure spectrum can be acquired by those who attach the most value to it.
- Licence exempt or shared spectrum (e.g. wifi) can be a useful supplement to licensed spectrum bands, but is not a substitute. Where a regulator has the choice, licensing spectrum on a dedicated basis will be more efficient than shared access.
- To ensure a fair market, equality between spectrum users is crucial - in terms of pricing and access, and between existing licensees and potential entrants. Ring-fencing, or reserving, spectrum for a new entrant puts existing licensees at a competitive disadvantage and results in a distorted and inefficient market.
- Consumers are best served by multiple network operators competing freely in a market. This can be enhanced through voluntary tower or network sharing, but we are sceptical where governments in some developing markets claim that consumers would be better served by a single wholesale wireless monopoly network.
Additionally, when examining merger proposals, competition authorities should consider the risk of spectrum consolidation adversely impacting competition.
The latest report in our Policy Paper series examines spectrum policy in emerging markets and the impacts on GDP and the impacts on GDP and jobs growth.
Fixed infrastructure and access
As customer demand for ubiquitous data and content grows rapidly over the coming years, the most successful communications providers will be the ones who can provide seamless high speed connectivity at home, at work, at play, and anywhere in between.
This will require the integration of multiple technologies – 3G, 4G, WiFi, cable and fibre – into a single network offering the best, uninterrupted experience – what we call “unified communications”.
As this demand for unified communications and data grows, we are increasing our access to next-generation fixed line infrastructure through a combination of wholesale agreements, self-build programmes and targeted acquisitions. However, access to fibre controlled by fixed line incumbents remains a bottleneck that is impeding competition and causing consumer harm.
In today’s communications sector, fixed infrastructure is critical to enable competition in fixed broadband services, IPTV, and services to business. Competition in mobile is also increasingly linked to competitive conditions in fixed through converged offers and the increased use of mobile data which requires high-bandwidth fibre backhaul.
Europe’s fixed line incumbent operators who started life as state monopolies are well positioned to meet this demand as in most countries they own a mobile network as well as being the dominant next-generation access fixed network provider. In addition, these incumbents are able to use their fibre networks to carry traffic from their mobile base stations back to the core network, a growing need for all mobile operators as 4G/LTE traffic grows in line with consumer demand for high-speed services.
National regulatory authorities are tasked with ensuring that operators can get fair and non-discriminatory access to fibre networks so that consumers can benefit from competition in both the mobile and fixed broadband markets. The European Commission has issued a recommendation on non-discrimination and costing methodologies which national regulatory authorities should take into account. Despite this, very little progress has been made in unblocking this bottleneck and, after more than 20 years of liberalisation, incumbent operators still dominate the cashflow that is generated by the industry.
Research commissioned by Vodafone in 2014 found that wholesale access for mobile backhaul is not always made available, or is extremely expensive, and national regulatory authorities across Europe have adopted disparate regulatory approaches.
As a result, European consumers are being affected by a deterioration of competition. Only a new policy approach that directly addresses the bottlenecks impeding competition and causing consumer harm will result in a competitive and properly functioning market.
The existing regulatory regime needs to be reformed to encourage investment by a variety of market participants, not just incumbents, to ensure sustainable competition and thereby less reliance on regulation over time. This can be achieved with the right mix of regulated access products and a consistent and robust approach to equivalence to ensure non-discriminatory access.
Vodafone is generally supportive of interoperability. Without interoperability, the growth and value of the communications industry would be very different, as would be the customer experience.
However, it must be recognised that interoperability can come with a price. If companies are concerned that they are not able to profit from innovation and scale, the prospect of interoperability might act as a disincentive for companies to create the new services and platforms that will generate economic value. As such, the issue of interoperability must be handled with care by policy makers and regulators.
Going forward, an emerging trend is the separation of network connectivity and services.
The industry needs to ensure that the current interoperability of the main communication services (any-to-any for basic voice, text and messaging services) is not threatened by the next generation of communications service providers who currently operate under a “walled garden” approach.
These walled gardens become the new bottlenecks for customers and policymakers need to consider the use of competition rules that deal with market dominance in this area more seriously.
As more and more of people’s lives become digitalised, it is also essential that competition across the communications value chain is not constrained by the emergence of new barriers to switching. In the context of telephony this has largely been addressed by number portability. For the next generation of communications services and applications, interoperability will mean the digital identity of consumers being transferrable from one platform to another.
We also need to recognise that the communications value chain is now multi-layered and increasing in complexity. It covers handset manufacturers, network equipment vendors, network operators and service/application providers.
Vodafone believes that at each layer there is a need to ensure that customers are able to move freely between the different players. We believe this creates a race for quality and value rather than a race for dominance and abuse.
Communications services have come a long way since the early days of the fixed line phone provided by one national operator.
Since the opening of communications markets, there has been a need for regulators to intervene to ensure dominant operators, such as Europe’s fixed line incumbent companies, are unable to abuse their market power.
The focus of regulatory intervention has been to ensure competition at the retail level by setting the terms of wholesale access where insufficient infrastructure competition is observed. This approach has resulted in retail markets typically being competitive and therefore a reduction in the amount of precautionary “ex ante” regulation. However, this approach has not produced competition across the board and a number of bottlenecks still remain, therefore ex ante regulation is likely to be necessary for a number of years to come.
It should be in the mindset of regulators that strong market intervention is an inherently difficult task and an inappropriate intervention can have serious unintended consequences. This is especially true in a market as dynamic as the communications market where convergence means there is a greater risk of market power in relation to one market being leveraged to an adjacent market. Therefore, Vodafone believes regulators should seek to limit the instances of market power as a primary objective, and regulate market power as a secondary objective.
However, the removal of ex ante regulation is not an independent objective – it should be the product of a concerted policy attempt to eradicate the remaining bottlenecks that prevent competition taking root across the entire industry today. The regulatory approach that is commonly followed at present is not sufficiently ambitious in this regard in that regulation is often perceived as an acceptable long-term solution.
A better objective would be to ensure that all barriers to effective competition are removed (and not just focusing on barriers to entry) rather than engaging in detailed analysis to determine the border between ex ante regulation and ex post competition law. With a more concerted drive towards effective competition and the removal of persistent bottlenecks, the degree of ex ante regulation can be reduced and consumers will be protected by their own collective power rather than the threat of competition law.