COMPETITION

As perhaps should be expected in such a fast-moving industry, it has been a ­tumultuous year for mobile telecoms.
Take mobile ­termination rates.

These are the fees ­operators pay each other for ­terminating calls on their networks. So, for example, if an O2 customer calls a Vodafone customer, the ­customer pays his provider, O2, but Vodafone gets no money. It therefore charges O2 a regulated fee to complete the call on its ­network.

To do so costs around 0.2p per call, but the regulator takes a wealth of other long-term costs into account when setting rates, which are currently around 5p per minute.

Mobile manoeuvres

Mobile phone operator 3, owned by Hong Kong’s Hutchison Whampoa, has been involved in a lengthy battle to change the way these rates are regulated, ­thereby slashing the cost – imperative to a new entrant such as itself that is ­seeking to take market share from far more established players. We speak to Stephen Lerner, general counsel and director of regulatory affairs at 3, about a year of extensive lobbying and taking on the rest of the industry.

The past 12 months have also been extremely busy for Edward Smith, head of legal at O2, as he battled to get Ofcom to adopt an EU directive that allowed so-called refarming. This is where 2G licences can be varied to allow the holders to use frequencies to provide more advanced 3G services such as watching TV or browsing the internet.

The explosion in smartphones means that operators desperately need more frequencies to meet this demand and refarming is, to some in the industry, a logical way of expanding networks. While O2 and Vodafone, which both hold 2G licences, were in favour of refarming, rivals who paid billions to secure exclusive 3G licences were ­concerned it would undermine their investments.

The past 12 months or so has therefore seen a flurry of activity as operators variously threatened legal action, appealed to the Competition Appeal Tribunal (CAT), lobbied interested parties and worked hard to maintain positive publicity.

Ofcom finally announced it would allow refarming in January. But 2011 is unlikely to see any let-up for counsel in the phone ­sector. The biggest event on the horizon is another spectrum auction, the first since 2000’s sale of 3G licences which raised £22bn for the Treasury.

The auction will license the 4G spectrum as well as lower 800MHz ­frequencies, which are being freed up by the switchover from ­analogue to ­digital television. The latter are of interest as they allow signals to travel greater ­distances, vital in rural areas where there remain considerable gaps in ­coverage.

The timetable for the auction had been held up by various disputes and legal threats over the use of 2G licences. Now these have been ­lifted Ed Richards, chief executive of Ofcom, has been able to outline a timescale, which he revealed in a heavily caveated speech in ­November.

With consultations underway, proposed regulations are scheduled to be published throughout this year, with the auction slated to start in the first ­quarter of 2012.

Follow-on questions

Follow-on actions are a recent development in competition law and so remain relatively untested. Often erroneously confused with US-style class actions, they allow for damages claims to be brought before the CAT by ­specified ­bodies on behalf of two or more named individuals for proven breaches of ­competition law, as ruled by a ­relevant regulator such as the Office of Fair ­Trading.

The law came into force when Section 19 of the Enterprise Act 2002 introduced a new clause, 47B, to the Competition Act 1998. The idea behind the legislation is to give consumers the right to redress. A number of actions are in the pipeline, but competition lawyers agree that various issues still need to be ironed out.

These range from confusion about what cases can be launched and when, to the very model itself.

Currently, follow-on actions use an opt-in model whereby claimants must sign up to receive damages. So even if, say, a million people have been ripped off by a company abusing competition laws, if only 1,000 sign up to the action the company only has to pay those
1,000 people.

We speak to Deborah Prince, head of legal at Which?, about the highs and lows of taking on one of the very first follow-on actions – and why she has no plans to go down that route again any time soon.