On 3 August, Ofcom issued two consultations on its review of mobile number portability (MNP). The first addresses the process by which consumers switch mobile service provider and the second addresses the means by which the mobile operators route ported calls between each other. The consultations have important practical implications for consumers, as well as financial implications for the mobile operators.
Background
MNP is the process by which mobile network subscribers switch service providers while keeping their existing mobile telephone number. In the UK consumers who want to switch are required to contact their service provider and request a Porting Authorisation Code (PAC), which is then passed to the new operator. This is known as ‘donor-led’ porting, as the consumer is required to contact their own network to commence the process. General Condition 18 (GC18), of Ofcom’s General Conditions of Entitlement, obliges mobile operators to provide portability within two working days.
Once a number has been successfully ported, calls to the subscriber are connected by a system of onward routing. This means that calls are first directed to the recipient’s original (donor) service provider, which in turn onward routes the call to the new (recipient) service provider. A charge is levied by the donor service provider for routing the call (the donor conveyance charge).
In November 2007 following a period of consultation, Ofcom issued a decision mandating that by 1 September 2009 operators implement a system of recipient-led porting, which allows porting to occur within two hours. Operators were also required to create a special database to enable the implementation of a system of direct-routing, by which calls to ported numbers would go directly to the appropriate network rather than being onward routed.
In September 2008 following a successful appeal brought by Vodafone, the Competition Appeal Tribunal set aside Ofcom’s proposed amendments to GC18 and remitted the whole MNP consultation back to Ofcom for reconsideration. The Tribunal found that Ofcom had failed in its obligation to conduct its cost benefit analysis to the requisite standard. Moreover, the Tribunal agreed with Vodafone that Ofcom’s decision to impose direct-routing was flawed.
Porting Process
Ofcom notes that the ability of consumers to choose between competing providers and switch between them easily is an ‘essential element’ of the health of the UK mobile market. Ofcom also notes that the UK is almost unique within Europe in having a donor-led system of MNP as most countries now operate recipient-led systems, in which the new service provider leads the process.
Some critics contend that the donor-led nature of the MNP system in the UK is a barrier to switching (and hence competition) in that there are unnecessary delays for the consumer and because mobile networks fight hard during this period of delay to retain the customer (this is known as ‘save activity’). However, in the consumer research conducted by Ofcom, only a small minority of consumers cited concerns about the porting process as a reason for not switching. Moreover, 80% of consumers who had switched and kept their number were reported to be satisfied with the MNP process. Nevertheless, Ofcom notes that a significant minority of consumers can face unwarranted difficulties and delays during the porting process.
At this stage of the consultation process Ofcom’s provisional views are that consumers would benefit from enhanced enforcement of GC18 to address any failure on the part of operators to facilitate porting (such as by failing to issue PAC numbers). In terms of the delays faced by consumers, Ofcom proposes four alternative approaches that could be adopted:
- recipient-led porting in two hours;
- donor-led porting in two hours;
- recipient-led porting by the next working day; and
- donor-led porting by the next working day.
Ofcom’s cost benefit analysis indicates that options i) and ii), above, offer greater benefits for consumers whereas option iv) would provide the greatest net benefit. At this stage, however, Ofcom indicates that it will be seeking further independent evidence and stakeholder engagement to inform its decision on the appropriate approach.
Choice of routing system
Although of less obvious relevance to consumers than the process by which they switch provider, the system by which ported calls are routed between mobile operators is still important. Ofcom suggests that the inefficiencies arising from the system of onward routing costs around £14m per year, potentially rising to £19m per year by 2011 as increasing numbers of consumers switch. Indeed, as the mobile markets become more mature, and more people switch suppliers, the inefficiencies are likely to grow. In contrast, Ofcom conservatively estimates the benefits of a move to direct routing at £26m, which in turn should feed through to consumers in the form of reduced prices.
Despite these apparent net cost advantages across the mobile networks, Ofcom notes that due to the way in which mobile termination rates and the door conveyance charge work for ported numbers, the mobile operators do not have completely aligned incentives to switch to direct routing. Rather, there will be winners and losers in any switch to direct routing.
Ofcom presents three options for change, together with a counterfactual ‘do nothing’ option:
- Do nothing: according to Ofcom a wait-and-see approach risks perpetuating the current inefficiencies in the system and costing further money down the line to fix.
- Support an industry-led initiative to implement direct routing: Ofcom is clearly open to supporting an industry-led initiative, providing that there is clear and unequivocal commitment at the highest level from the five incumbent mobile operators to the implementation of a direct routing solution within three to five years.
- Change routing incentives: this solution would involve shifting the wholesale charges for the routing of ported calls (the donor conveyance charge) from the recipient operator to the operator from which the call originates (this could be a fixed or mobile network). While Ofcom acknowledges this as a conceptually attractive option, it faces a number of practical obstacles, not least that the burden of charges would disproportionately fall on fixed network operators.
- Regulatory intervention to mandate direct routing: Ofcom considers this to be its preferred option in the absence of agreement in the industry to a voluntary approach. Ofcom indicates that it would allow the mobile operators a reasonable timescale to implement direct routing so as to allow them to co-ordinate changes with broader network upgrade plans.
Ofcom has invited comments on each of the above options and in relation to what the appropriate timescale for imposing direct routing should be in the absence of an industry-led approach.
Comment
Given the criticism of Ofcom’s 2007 decision on MNP by the Tribunal and the commercial implications for the mobile operators, there will be a heightened level of scrutiny by stakeholders, particularly in relation to Ofcom’s cost benefit analysis, which received the brunt of the Tribunal’s criticism.
Given this litigation risk it comes as no surprise that Ofcom are playing this with a straight bat. There have been several meetings with the industry and the consultations reflect that fact. For instance, the issue of the process by which consumers port their numbers (donor- or recipient-led) is clearly separated from the means by which ported numbers are routed (onward- or direct-routing). Both consultations can also be seen as ‘pre-consultations’, as details of further work streams and technical investigations are set out. As regards process, Ofcom expresses no particular preference for the four options it presents. As regards the choice of routing system, Ofcom is clearly in favour of direct routing but there is an invitation to the industry to avoid the costs and risk of regulation by working together on an industry-led solution.
Ofcom has invited comments on both consultations by 26 October 2009. Depending on the outcome of the consultation process, changes for consumers can be expected in 2012.
Niamh Grogan, partner, and Neil Davies, associate, SJ Berwin LLP.
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