Why Oftel ruling won't worry mobile companies

Oftel called a press conference on Tuesday to explain the result of a Monopolies and Mergers Commission (MMC) investigation into mobile call charges.

The MMC - following up a request made by Oftel - concluded that between them BT and the nation's two largest mobile network operators charge users too much for calls from BT fixed-line phones to mobiles. From next April, they will have to cut prices by 25 per cent, a move which Oftel claims will save users £1bn over three years.

The current speculation suggests the telcos, dissatisfied with the outcome of the MMC probe, will appeal.

Elaine Axby, senior analyst at telecoms consultancy Schema, echoed the view of several analysts by saying the ruling is "certainly significant for the mobile operators", in addition to being good news for users. But taking the dispute further is far from a certainty.

For a start, Cellnet - which is 60 per cent owned by BT - BT itself and Vodafone all put out positive statements on the day of the Oftel announcement, saying that they welcomed the outcome. Some might say the statements were a 'grin and bear it' reaction on the part of disgruntled corporations, who don't take kindly to a regulator knocking their revenues to the tune of a billion pounds.

However, all three recognise that better value services are likely to be faster growing services. The UK market still has a long way to go before it is saturated and most of that growth will come from price-conscious consumers as the business market levels off.

Also Cellnet and Vodafone are already looking ahead three years or so to the introduction of UMTS (Universal Mobile Telephony System), or third-generation (3G) mobile services, which will force down the price of today's GSM technology. UMTS will enable services that make use of video and high-speed data transfer in addition to voice.

Bidding for and winning 3G licences is a priority for Cellnet and Vodafone, in spite of the billions of pounds of investment needed for the new networks.

Commenting on the battle for 3G licences as players such as United News & Media and possibly Virgin begin to put together bids, Marie Wold, European director of the Telecommunications and Media Institute at Deloitte Research, said: "It's not necessarily a disaster if one of the incumbents doesn't win a licence. But for those operators that do win, what with mobile entering the data age as IP goes wireless, their world will change drastically."

Although it's possible that any of today's four operators could continue to run a successful business using enhanced, second-generation GSM networks, offering 3G services will allow a multi-tiered strategy, with GSM prices almost certainly falling.

Notably, Oftel is insisting on fixed-to-mobile price cuts over a three-year period. "After that time, 3G could have started to change the mobile landscape," Schema's Axby said. "There'll be more competition and more price pressure."

And another reason why the Oftel-imposed cuts aren't likely to be fought can be seen in the statement One2One made last Tuesday.

Tim Samples, One2One's managing director, said: "Calls to mobiles represent just 4 per cent of BT's traffic but generate 11 per cent of their revenues. There is no technical reason why BT should earn three times more for connecting a call to a mobile operator."

Could it be that BT thought it got off lightly?

The issue of Oftel regulating the cost of calls - rather than competition in markets - will rear its head again early next year, when calls from mobile phones come under the spotlight. But wherever that leads, the combination of a vibrant market now and 3G on the horizon means we're unlikely to see too many tears from BT, Cellnet and Vodafone.