Virtual Mobile Network Operators
Why should there be different regulatory regimes for calls made over the fixed network and calls made over the mobile network? On the telephone network SPs can pick up calls from their customers and route them in whatever way they want. This resulted in up to 80% cost savings on many of the international routes. Competition, stimulated by this innovative routing system, has over time brought the overall cost of international calls down by 40%-60%.
In December 1999 the Productivity Commission confirmed the concerns that had been expressing over the previous two years. The ‘cosy triopoly’ had been able to limit price reductions to just 1% between February 1998 and June 1999, while most comparable countries had seen prices slashed along the lines outlined above. By 2000 however, competition had finally made an end of this situation. Telstra announced a range of CDMA initiatives and Optus launched new initiatives that led to the introduction of several Virtual Mobile Network Operator (VMNOs) on its network. However, real progress can only be made once the industry accept different business models aimed at stimulating a wide variety of VMNOs that are able to address the needs of niche markets.
The One.Tel unbundling proposal of 1998
In early 1998, the now defunct mobile SP, One.Tel, led the push for the VMNO model. The industry proposed to the Telecommunications Access Forum (TAF) that long-distance GSM services should be unbundled. This would have allowed the company to set up a true virtual mobile company. In regulatory terms this would mean a declaration of the long-distance mobile originating service. However, nearly two years later in August 1999 the ACCC announced it would not declare the service, leaving the cosy mobile triopoly intact. In the fixed network, competitors can select their own supplier to whom their traffic is routed. In the mobile network the three operators have kept their total end-to-end control over the call.
One.Tel, supported by AAPT and others, proposed to make unbundling possible by asking the TAF to make the so-called ‘routing option service’ a declared service for switched SPs (Virtual Mobile Operators – VMOs). This would allow them to carry the long-distance and international components of mobile calls over the transmission facilities of their own network. Under the current regime, when a person makes a call on a mobile the incumbent carrier takes the full revenue of the whole call, irrespective of whether it contains transmission elements carried through the SP’s network. Often such calls can be delivered far more effectively and inexpensively through what is known as ‘Optimal Routing’.
The proposal was to unbundle the service, whereby the GSM operator carries only the local call component (that is, mobile to base station/switch) and then the remaining portion of the call should be contestable in a similar manner to fixed wire.
Exhibit 1 – Effects of unbundling
A mobile call to London for instance is about $1.50 per minute; by using an override code, One.Tel estimates at that time (1999) that they could reduce this to approximately $0.70 per minute and still enjoy a substantial margin. The same process could be used to undercut Telstra’s and Optus’s domestic long-distance mobile tariffs. If this occurs, not only would the three carriers lose traffic, they would also lose a very profitable bundled segment.
Once unbundling is in place, the next campaign would be for the right to program or own the SIM card so that the mobile phone can be pre-programmed to dial the override code. This could, of course, be carrier-independent.
So far carriers have successfully stopped VMOs from getting off the ground. By 2002 it was estimated that over 50% of the profits from mobile operators came from these highly profitable termination charges. Regulators in Europe are investigating this practice, but so far no action has been taken.
While the unbundling issue has, for the time being, disappeared from the radar, there is no doubt that with an increase of competition the option of VMOs will be revisited as it will become one of the drivers behind the marketing of mobile services.
In the meantime One.Tel got frustrated with this inaction and started to build its own ill-fated network, however buy doing so it started to seed the problems that eventually led to its downfall. It is not possible to be both a VMNO and a network owner at the same time. Both concepts require opposite business models, this is very hard to reconcile within one company.
For more on VMNOs see separate report: Australia – Mobile Communications – Industry Trends and Analysis. For Roaming, Preselection, Interconnect and MNP see separate report: Australia – Mobile – Termination, Roaming, Fixed-to-Mobile Charges. For more details on numbering issues see separate report: Australia – Regulatory Environment – Numbering Issues.
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