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  • 1. Vodafone, O2, Orange and T-Mobile Reports on references under section 13 of the Telecommunications Act 1984 on the charges made by Vodafone, O2, Orange and T-Mobile for terminating calls from fixed and mobile networks Volume 2: Chapters 3 to 15
  • 2. Vodafone, O2, Orange and T-Mobile Reports on references under section 13 of the Telecommunications Act 1984 on the charges made by Vodafone, O2, Orange and T-Mobile for terminating calls from fixed and mobile networks Volume 2: Chapters 3 to 15 Presented to the Director General of Telecommunications December 2002
  • 3. © Competition Commission 2003 Web site: www.Competition-Commission.org.uk
  • 4. Volume 2 contents Page Part II—Background and evidence 3 Mobile telephony........................................................................................................3 4 The legal and regulatory framework to the references ........................................... 27 5 The financial position of the MNOs........................................................................ 47 6 Mobile services at the retail and wholesale levels .................................................. 79 7 The cost of calls to mobile phones ........................................................................ 139 8 Ramsey prices and externalities ............................................................................ 203 9 Proposed price cap and its impact......................................................................... 259 10 Views of the DGT ................................................................................................. 303 11 Views of O2 ........................................................................................................... 323 12 Views of Orange.................................................................................................... 345 13 Views of T-Mobile (UK) ...................................................................................... 365 14 Views of Vodafone................................................................................................ 389 15 Views of third parties ........................................................................................... 417 List of signatories .................................................................................................. 449 iii
  • 5. Note by the Office of Telecommunications Certain material has been excluded from this version of the report following a Direction made by the Secretary of State for Trade and Industry to the Director General of Telecommunications acting in accordance with section 14(6) of the Telecommunications Act 1984 as affected by the requirement of the EC Directive on a common framework for general authorisations and individual licences in the field of telecommunications services in respect of the obligation of professional secrecy and certain business secrets. The omissions are indicated by a note in the text or, where space does not permit, by the symbol . iv
  • 6. Part II Background and evidence
  • 7. 3 Mobile telephony Contents Page Introduction................................................................................................................................................. 4 Development of mobile telephony.......................................................................................................... 4 Alternative mobile technologies ............................................................................................................. 5 The basic principles of calling a mobile phone....................................................................................... 5 Interconnection ....................................................................................................................................... 6 GSM handsets and SIM cards................................................................................................................. 7 GSM network architecture.......................................................................................................................... 7 Overview................................................................................................................................................. 7 The radio layer .................................................................................................................................... 9 The mobile switching centre layer ...................................................................................................... 9 The transit layer ................................................................................................................................ 10 The point of interconnection ............................................................................................................. 10 Short messaging switching centre..................................................................................................... 10 Differences between GSM 900 and GSM 1800.................................................................................... 10 Spectrum allocations......................................................................................................................... 12 Packet data ............................................................................................................................................ 12 Voice-over IP .................................................................................................................................... 13 GPRS infrastructure .............................................................................................................................. 13 GSM network services.............................................................................................................................. 14 Routing of outgoing calls...................................................................................................................... 14 Routing of calls to a mobile from another network .............................................................................. 15 Location updates ............................................................................................................................... 16 On-net calls ........................................................................................................................................... 17 Voice-mail ............................................................................................................................................ 17 Roaming................................................................................................................................................ 17 Short messaging service........................................................................................................................ 18 Data calls (including HSCSD) .............................................................................................................. 18 General Packet Radio Service............................................................................................................... 18 Mobile number portability ........................................................................................................................ 18 Call routing and charges ....................................................................................................................... 19 Intelligent networks .............................................................................................................................. 19 Billing systems...................................................................................................................................... 20 Indirect access, independent service providers, virtual operators and virtual networks ........................... 20 Indirect access....................................................................................................................................... 20 Independent service providers .............................................................................................................. 21 Mobile virtual network operators.......................................................................................................... 21 Mobile virtual private networks............................................................................................................ 22 Future developments................................................................................................................................. 23 Enhancements to the GSM standard ..................................................................................................... 23 GSM Evolution ..................................................................................................................................... 23 Universal Mobile Telecommunication System ..................................................................................... 23 2G versus 3G calls ............................................................................................................................ 24 Practical limitations of 3G ................................................................................................................ 25 Bluetooth............................................................................................................................................... 26 Wireless LAN ....................................................................................................................................... 26 3
  • 8. Introduction 3.1. This chapter describes the history of mobile telephony in the UK. It sets out briefly the prin- ciples underlying the operation of mobile networks employing the digital GSM standard and explains the various elements comprising such networks and the services they deliver. It looks at future developments in mobile telephone technology, in particular 3G networks. Development of mobile telephony 3.2. Public mobile telephony was first introduced to the UK in 1985 with the instigation of analogue Total Access Communications System (TACS) networks operated by Vodafone (then Racal-Vodafone) and O2 (then Cellnet). Prior to this BT had operated a ‘radio-phone’ service but its capacity was very limited, coverage was poor and it was very expensive. Several other portable telephone services have been licensed in the UK, notably ‘telepoint’ services such as Rabbit. Telepoint services allowed users to make but not receive calls when they were in areas with coverage. It was the lack of ability to receive calls together with the restricted coverage, slight variations in the technology employed by the different licensees (and hence lack of economies of scale in equipment production) and price that eventually led to the commercial failure of such services. 3.3. The next major step forward after TACS was the introduction into the UK in the early 1990s of GSM when O2 and Vodafone were granted licences using frequencies around 900 MHz. Further GSM licences, but at a different frequency (1800 MHz), were awarded in 1991 to Mercury, Unitel and Microtel, and O2 and Vodafone were later granted some spectrum at 1800 MHz. The Unitel licence was surrendered and Unitel joined with Mercury, now T-Mobile, while Microtel was purchased by Hutchison Whampoa and was renamed Orange. Vodafone began offering GSM services in December 1991; T-Mobile commenced service in September 1993; Orange began offering GSM services in April 1994 and O2 in mid-1994. 3.4. O2 and Vodafone ceased operation of their analogue TACS networks in 2001. This freed up some frequencies at 900 MHz which they were then allowed to reuse for additional GSM services. Table 3.1 indicates the amount of spectrum (in MHz) that each MNO has in the two frequency bands. It is worth noting that the spectrum at 900 MHz allocated to Vodafone and O2 is not in a single contiguous block whereas the 1800 MHz spectrum allocated to each operator is. This lack of contiguity causes some minor additional technical restrictions when planning the network and effectively slightly reduces the total amount of spectrum available. TABLE 3.1 Spectrum allocations by MNO Operator Spectrum MHz Vodafone GSM 900 17.6/8* GSM 1800 5.7 Total 23.3/5 O2 GSM 900 17.6/8* GSM 1800 5.7 Total 23.3/5 T-Mobile GSM 1800 30 Total 30 Orange GSM 1800 30 Total 30 Source: European Radiocommunications Office, Vodafone, O2. *[ Details omitted. See note on page iv. ] 4
  • 9. Alternative mobile technologies 3.5. Other public mobile communication systems available in the UK are: — Mobile Satellite Services (MSS); — Public Access Mobile Radio (PAMR); — pagers; and — mobile data services. 3.6. Since the early 1980s, satellite-delivered mobile telephony services have been supplied by Inmarsat, but such services require large terminals rather than small handsets and are, therefore, not very mobile. More recently a number of mobile satellite operators who provide services to handheld terminals are offering, or are planning to offer, services in the UK. Iridium launched such a service in 1999 but, largely due to the unforeseen growth in GSM coverage and hence GSM’s ability to provide an almost global service, the worldwide coverage benefits that MSS offered were outweighed by its cost and Iridium went into receivership. It has since been rescued (by a group of private investors) and is now providing services largely to users in remote areas and on the seas. 3.7. A number of other mobile satellite operators (including Globalstar, ICO and Thuraya) have launched or are about to launch MSS services, relying on GSM coverage where it is available, and only using the satellite element to fill in where GSM coverage is not available. The cost of such services remains high compared with GSM alternatives and, although available in the UK, MSS is primarily aimed at providing service in countries where GSM coverage is poor. 3.8. A nationwide PAMR service using the digital standard preferred by the European Telecommunications Standards Institute known as TETRA (Terrestrial Trunked Radio) was launched in 1999 by Dolphin Telecommunications Ltd. This provided GSM-like services including voice and data calls, but was designed with specific business users (such as transport, haulage, building and heavy industry companies) in mind. The service was intended to be cheaper than GSM whilst offering additional services such as prioritized emergency calls, the ability to broadcast calls to a number of hand- sets simultaneously and fast call set-up, providing push-to-talk functionality as found on ‘walkie- talkies’.1 Dolphin has since gone into administration and the future of the network is unclear. There are a number of other PAMR services, both regional and national which use analogue technology but the num- ber of subscribers is very small. 3.9. Pagers typically allow short numeric or alphanumeric messages to be sent to a mobile unit, but not from it.2 There were over 1.5 million paging subscribers in the UK as of 1997. Mobile data services are two-way but require specialized equipment to provide a service (as used for tracking Emergency Service vehicles or for portable credit card readers3). Four mobile data networks are in operation in the UK, each covering around 90 per cent of the population. The basic principles of calling a mobile phone 3.10. The fundamental difference between mobile phones and fixed telephones is that mobile phones transmit and receive voice and data calls using radio connections specifically designed to allow the user to move around whereas fixed telephones use connections (either wired or wireless) which are fixed in location. In a mobile network, the radio connections are only between the handset and the nearest base station,4 in the same way that a fixed telephone is connected to the local exchange (or concentrator unit). 3.11. The remainder of a mobile network is then similar to a fixed network. A series of switches and their associated processors support the radio coverage provided by the cells and supply the intelligence 1 However, a revision to the GSM standard, known as Phase 2+, includes many of these features. It is optional whether operators choose to support them. 2 Systems allowing two-way paging have been developed. However, they have been largely unsuccessful in countries where GSM SMS text messaging is widespread. 3 Vodafone operates such a UK mobile data service. 4 To be precise, the connection is with the base station supplying the strongest signal to the mobile handset, subject to the availability of capacity on the cell, which may not necessarily be the nearest. 5
  • 10. for the network. The processors decide the location to which the call should be switched, whether this is just to the next switch in the network or to another fixed or mobile network. The switches direct the calls across the network until they reach their intended destination or a point of interconnection. 3.12. In order for a mobile phone to be able to make or receive a call, it must be within radio cover- age of a base station and registered with the network. The area (or areas in the case where the coverage of a base-station is split into a number of sectors) of radio coverage provided by base stations are known as ‘cells’, so named because the pattern of coverage formed from a number of base stations is cellular (similar to a honeycomb). Interconnection 3.13. The point at which two networks are joined is called the point of interconnection (POI). Any two networks can be connected at a POI, whether a fixed and a mobile network, two mobile networks or two fixed networks. Figure 3.1 illustrates interconnection between a fixed and a mobile network. For a customer of one network to communicate with a customer of another, the two networks must be inter- connected either directly or indirectly. FIGURE 3.1 Illustration of POI Fixed (or Mobile mobile) network network POI Source: CC. 3.14. If no direct interconnect is in place (either because no interconnection agreement has been reached, because the two networks do not have sufficient traffic to merit a permanent interconnection, or because it is commercially more attractive to use alternative means) or existing interconnections are all busy or are in the wrong physical location, the traffic will pass from the source network to BT (or another licensed operator with the appropriate interconnections such as, for example, Cable and Wireless) who will then pass it on to the destination network. BT as the incumbent operator is obliged to offer this service but levies a charge for ‘transiting’ the call (as do other suitably interconnected oper- ators). This is illustrated in Figure 3.2. FIGURE 3.2 Illustration of interconnection via BT transit Fixed network BT Mobile (other than BT) network network POI Source: CC. 3.15. Table 3.2 shows whether full interconnection for voice is in place from and between each of the mobile networks and BT. In addition, many of the MNOs have direct interconnections with other 6
  • 11. fixed operators such as Cable & Wireless and ntl. There are some connections between networks just for the passing of traffic in one direction (for example, from a mobile operator to an international network operator for the provision of international voice calls); however, these are not shown. Historically, the MNOs sent calls to other operators via BT as the level of traffic did not support the need for direct inter- connections, hence the proportion of traffic carried on direct interconnections is small. TABLE 3.2 Existing points of interconnection From: To: O2 T-Mobile Orange Vodafone O2 T-Mobile Figures omitted. Orange See note on page iv. Vodafone BT Yes Yes Yes Yes Source: MNOs. GSM handsets and SIM cards 3.16. A GSM handset is essentially a small digital radio transmitter and receiver (usually shortened to ‘transceiver’). Handsets are purchased and owned by customers but cannot function unless they are registered with and connected to a mobile network. For this purpose, handsets must be fitted with a SIM card. The SIM belongs to the individual network operator and contains details of the network on which the phone is to operate. The SIM can also be used to store telephone numbers and text messages, so that placing the SIM in a different GSM handset will transfer any stored numbers and any stored text messages to the new handset. 3.17. Currently, Orange and T-Mobile ‘lock’ all the GSM handsets sold for use on their networks, while Vodafone and O2 only lock those sold for their prepay services. Locking the handset allows it to be used only on the network for which it has been sold. Orange told us that in its view, the locking of hand- sets facilitated the prevention of both fraud and handset theft, thereby resulting in lower costs for consumers. Handsets can be unlocked by entry of a security code which can be obtained from the appro- priate MNO, subject to an administration fee. Other companies also offer unlocking services, generally at a lower price than that offered by the operators. 3.18. Adaptors for handsets are now available which allow more than one SIM card to be fitted, allowing the user to select the most appropriate network for a call (in order, for example, to select the network with the strongest signal or lowest cost). The selection is typically made at the time the phone is switched on rather than being able to be selected dynamically at any time (for example, prior to making a particular call). The handset can only be connected to one network at any one time, hence anyone want- ing to call the handset will either need to know which network the subscriber has selected or will just have to try calling both numbers in order to locate the mobile user. In practice it is likely that the sub- scriber will select a default network to be used on the majority of occasions, only selecting the alternative in the case where the outbound call is likely to be significantly cheaper (when roaming overseas, for example). GSM network architecture Overview 3.19. In this section, we describe the main features of the UK GSM networks. A GSM network provides a number of services including: — outgoing calls—the ability of a mobile subscriber to make a voice call to another network; — incoming calls—the ability of a mobile subscriber to receive a voice call from another network; — on-net calls—the ability of a mobile subscriber to make or receive a voice call from a subscriber on the same network; 7
  • 12. — voice-mail—a service whereby voice messages can be deposited for the mobile subscriber if the mobile subscriber is unreachable, then retrieved by the mobile subscriber at a later time; — roaming—the ability of a mobile subscriber to make and receive calls and messages on other GSM networks (for example, whilst overseas); — SMS—the ability of a mobile subscriber to send or receive short text messages of up to 160 characters in length; — data calls including high speed circuit switched data (HSCSD)—the ability of a mobile sub- scriber to make or receive a data call, ie make a data connection with another party; and — GPRS—a service whereby mobile subscribers can send and receive packet-switched data.1 3.20. Figure 3.3 illustrates, in a general way, the main components of a GSM mobile network. The network is broken down into several layers, each with its own characteristics and purposes. The indi- vidual components are described below. FIGURE 3.3 Example generic GSM network architecture BSC TSC BTS BSC MSC BSC VLR BTS O HLR t h BSC e MSC TSC r VLR BTS BSC n e t BSC w o MSC r VLR k BTS s BSC BSC TSC POI BSC BTS Radio layer MSC layer Transit layer Source: CC. 1 HSCSD and GPRS are optional services. Not all networks will offer these. 8
  • 13. The radio layer 3.21. The radio layer of the network comprises the base transceiver stations (BTS) and base station controllers (BSC). The BTSs comprise a number of transceivers (TRX—not shown in the diagram) and provide the radio coverage and the BSCs act as concentrators ensuring that calls on the network are passed to the correct BTS. Each TRX provides eight communications channels that can either be used for voice traffic, data traffic or control data. Increasing the capacity of a BTS therefore requires additional TRX to be fitted. BTSs are either connected directly to a BSC, or in some cases may be ‘daisy-chained’ through other BTSs. Insurance against the loss of links may be provided by providing dual links between a BTS and a BSC or by putting a number of BTSs on a loop in and out of a BSC such that if one link fails, the traffic can be routed on the remainder of the loop (not shown in Figure 3.3). 3.22. The region over which a BTS provides coverage is known as a cell. It can cover a radius of anything from a few hundred metres to, in exceptional circumstances, 30 km or more. Very small cells (particularly in-building cells) are often termed ‘pico-cells’, small cells ‘micro-cells’, and large cells ‘macro-cells’, although precise definitions vary between operators. Macro-cells are often split into three 120º sectors, as this furnishes the site with additional capacity at a lower cost than installing three separate BTSs. 3.23. There is a limit to the amount of capacity that can be provided from a single cell site, because of the limited amount of radio spectrum available for the service and technical limitations in the design. For the GSM networks, each transceiver (of which there can be one or more at any given cell site) can provide eight communications channels and, on average, a typical transceiver will use one channel for control signals leaving sufficient capacity for seven traffic channels which can provide seven simul- taneous voice calls or the equivalent data traffic. The maximum number of traffic channels depends on how much radio spectrum is available but is typically around 60 in the UK (ie employing eight trans- ceivers). Hence, it may be possible for a single cell to provide sufficient coverage but be incapable of providing sufficient capacity due to spectrum constraints. In this case, additional BTSs are installed in nearby locations, effectively splitting the original cell into two or more smaller cells. If no suitable additional sites are available, then congestion will occur within the cell at busy times making it impossible to establish new calls. 3.24. Coverage from cells is usually overlapped such that a mobile phone travelling from one cell to another will not lose coverage while the call is handed over to the new cell. In some circumstances coverage from two cells can overlap by as much as 100 per cent. For example, where a macro-cell has been installed to cover a town but where there is an additional capacity requirement in the town centre, a pico-cell may be installed within the macro-cell, not to increase coverage, but to provide additional capacity. The mobile switching centre layer 3.25. The mobile switching centre (MSC) layer comprises a number of MSCs and a series of data- bases known as HLRs the number of which is determined by the number of registered subscribers, and visitor location registers (VLRs) of which there are typically one per MSC. The HLRs are databases that store information concerning the network’s subscribers with each subscriber only being registered on a single HLR.1 The HLR also stores the current location of mobile telephones that are switched on and in coverage so that calls to them can be more quickly and efficiently routed. The MSCs themselves consist of a switch, to route calls around the network, and a computer to search for and process information from the VLRs (in particular when incoming or outgoing calls are requested). 3.26. Connections between BSCs and MSCs are often duplicated to increase resilience but each BSC can only be connected to one MSC. Each MSC is usually connected to at least two transit switching centres (TSCs) or other MSCs, again to provide resilience. 1 Each HLR usually has, associated with it, an Authentication Centre which deals with access, security and the encryption keys required by the MSCs and an Equipment Identity Register which keeps track of the type and serial numbers of mobile handsets being used on the network, and also allows stolen handsets to be barred from use. 9
  • 14. The transit layer 3.27. The transit layer is made up of a number of TSCs1. Each TSC is linked to at least two neigh- bouring TSCs, usually forming a loop or mesh configuration. The role of the transit layer is primarily to carry calls between MSCs but it is also used to carry incoming calls from the POI to the MSCs and out- going calls from the MSCs to the POI. It forms the long-haul backbone of the GSM network. 3.28. Not all networks use a transit layer. Some directly interconnect with other networks at the MSC and have fully interconnected MSCs to transit calls around the network. The decision whether to use a transit layer or to connect to MSCs is a commercial matter and varies between the UK networks. The point of interconnection 3.29. As already discussed in paragraph 3.13, the POI is the point at which the network connects with other networks, be they fixed telecommunications networks (such as BT, CWC or Energis) or other mobile networks. The POI can be on the transit layer (at a TSC) or may be directly at an MSC. It is common for interconnected parties to have two (or more) interconnect points for resilience. Short messaging switching centre 3.30. Connected into various points in the network are short messaging switching centres (SMSC). The number of SMSCs employed is dependent on the amount of SMS traffic on the network. These act as store and forward centres for text messages, sending them across or off the network as appropriate. Sending SMSs to other networks is done via direct, bespoke connections between networks and not via the interconnections used for transferring voice traffic. 3.31. Text messages (SMS) do not occupy any of the network capacity dedicated for voice calls (with the possible exception of some of the transit layer), as they are carried in those elements of the network used for signalling. However, SMS messages are effectively small data messages and as such they do require network resources over and above the SMSC. If the number of SMS messages becomes large, additional network capacity may need to be dedicated to signalling, reducing the overall capacity for voice calls. Differences between GSM 900 and GSM 1800 3.32. Generally speaking, the higher the radio frequency employed, the shorter the transmission range that will be achieved for equivalent parameters (for example, transmitter power, antenna size and height, terrain, etc). Thus GSM cells operating at 900 MHz can cover greater areas than those operating at 1800 MHz. It follows that when initially rolling out a network to provide a particular level of cover- age, more cell sites will be required at 1800 MHz than at 900 MHz. However, these additional cells will give the 1800 MHz network additional initial capacity. 3.33. In addition, penetration inside buildings is generally regarded as more difficult at 1800 MHz than at 900 MHz2 and hence in order to provide equivalent levels of deep, dense urban coverage, more cells are required at 1800 MHz than at 900 MHz.3 3.34. However, as illustrated in Table 3.1, the amount of spectrum available to O2 and Vodafone is less than that available to Orange and T-Mobile. In principle, the more spectrum that is available to an operator, the easier it is to provide additional capacity without recourse to new cell sites; the less spec- trum available, the more difficult it is. Thus, once the required level of coverage is achieved, it is easier for Orange and T-Mobile to provide additional capacity without the need to develop new cell sites than it 1 Terminology for the TSCs differs between operators with some calling TSCs Gateway MSCs (GMSCs). However, the fundamental network designs are based on the GSM standard and topologies are largely the same. 2 A study conducted by the Institut für Nachrichtentechnik und Hochfrequenztechnik of the Technical University Vienna showed that: ‘The penetration loss in small cells showed a much stronger dependence on elevation within the building than previously found. Losses were larger at 1800 MHz than at 900 MHz’. http://www.nt.tuwien.ac.at/nthft/dipl_diss_veroeff/diss94.html. 3 Vodafone told us that because 900 MHz penetrates better through walls, whilst 1800 MHz penetrates better through openings (for example, windows) the two effects cancel each other out and concludes that penetration inside buildings is similar for both frequencies. 10
  • 15. is for O2 and Vodafone.1 Table 3.3 shows the number of cell sites employed by each of the operators as of September 2001. September 2001 has been used as a reference point as this is the date to which the output of Oftel’s modelling refers. TABLE 3.3 Number of cell sites by MNO, as at September 2001 Operator Cell sites employed O2 * T-Mobile Orange Vodafone Source: MNOs. *As at 18 March 2002. 3.35. In the early years of the UK networks’ operations, most phones sold for use operated only in single band, that is to say either 900 MHz or 1800 MHz, as the cost of providing dual-band handsets, ie capable of operating on both bands, was high.2 Over time the cost differential in producing single and dual-band phones has diminished, so most handsets being sold today are capable of operating on both 900 MHz and 1800 MHz. Thus as new handsets are purchased or old ones replaced, the majority3 of sub- scribers on all networks have become equipped with dual-band handsets. 3.36. This is important for a number of reasons. First, there are fewer 1800 MHz operators world- wide than 900 MHz operators. Thus the opportunities for a customer of a GSM 1800 network with only a single-band 1800 MHz phone to use their phone overseas, and the opportunities for GSM 1800 operators to generate revenue from these activities, is more limited than for customers and operators of a GSM 900 network. Using a dual-band handset overcomes these difficulties and gives equal capability to any user. Second, Vodafone and O2 have both 900 and 1800 MHz frequencies (as do many operators in other countries) and thus a dual-band phone needs to be used in order to allow the customers to use the net- work to the full. Dual-band handsets usually switch between the two frequencies automatically, so the caller does not know which frequency is being used. 3.37. Other differences between 900 MHz and 1800 MHz networks are: — Cost of infrastructure: 1800 MHz technology was developed more recently than 900 MHz tech- nology. In addition, whilst 900 MHz technology is used almost universally across the world, there are a more limited number of countries which have licensed operators at 1800 MHz. Orange and T-Mobile were among the first operators in the world to construct 1800 MHz net- works. The cost of the BTSs has historically been greater for 1800 MHz than for 900 MHz, but these differences are now largely insignificant. The rest of the infrastructure (BSC, MSC, TSC etc) is identical for 1800 and 900 MHz networks. — Cost of handsets: As for BTSs, the cost of 1800 MHz handsets has, in the past, been greater than for 900 MHz handsets. These differences are now minimal and, in any event, most handsets now being produced are dual-band. — Operation at high speed: The specifications for GSM 900 and GSM 1800 include an upper ‘speed limit’ for the handset, above which the radio connection is not guaranteed. For GSM 900 this is 250km/h, and for GSM 1800, 125km/h. This constraint is only likely to affect users on high-speed trains or motorists driving faster than the UK road speed limit. — Range of cell coverage: The maximum range achievable in ideal conditions for a GSM 1800 cell is half that of a GSM 900 cell, though coverage is usually limited by terrain and interference rather than the theoretical limits of the system. — Transmitter power of handsets: GSM 1800 handsets have a maximum transmitter power that is half that of GSM 900 handsets, reducing further the level of coverage that can be achieved. 1 However, as stated in paragraph 3.32, the initial capacity of Orange and T-Mobile’s networks will have been higher than that of O2 or Vodafone at the launch of their respective networks. 2 In some parts of the world, notably North America, GSM networks operate at frequencies around 1900 MHz (referred to as GSM 1900). Some handsets (sold in the UK) are capable of operating on 900, 1800 and 1900 MHz and are known as ‘tri-band’ phones. 3 [ ] per cent for Vodafone UK now. 11
  • 16. Spectrum allocations 3.38. The situation with regards to the spectrum allocated to the four UK GSM operators is not, however, as clear-cut as simply 900 MHz versus 1800 MHz. Vodafone and O2 whilst being largely 900 MHz operators have, in reality, spectrum in three separate bands, E-GSM, GSM 900 and GSM 1800, whereas Orange and T-Mobile only have GSM 1800 spectrum. — E-GSM: Extended-GSM (E-GSM) spectrum is at 900 MHz (880–890 MHz paired with 925– 935 MHz) and was used in the UK by Vodafone and O2 for TACS until 2001. Thus it has not been fully available for the provision of GSM services until recently. It is also spectrum which sits outside the normal GSM 900 spectrum allocation. As such, until it started to become avail- able for GSM services (in the UK and elsewhere in Europe), manufacturers did not produce E-GSM compatible handsets. Thus, even when the operators began operating service in the E-GSM band, most subscribers could not access it. This situation is now changing and many of handsets manufactured are E-GSM capable. Both O2 and Vodafone have 5 MHz of E-GSM spectrum. — GSM 900: The GSM 900 spectrum is at 900 MHz (890-915 MHz paired with 935–960 MHz) and has been used by O2 and Vodafone since the inception of their GSM services. Both O2 and Vodafone have 12.6 (or 12.8—see Table 3.1) MHz of GSM 900 spectrum each, in two non- contiguous blocks. — GSM 1800: The GSM 1800 spectrum is at 1800 MHz (1710–1785 MHz paired with 1805– 1880 MHz) and is the only spectrum available to Orange and T-Mobile who each have a single, contiguous block of 30 MHz. O2 and Vodafone each have a single contiguous block of 5.7 MHz at 1800 MHz. As with E-GSM capable handsets, it has only been in the past few years that dual- band 900/1800 MHz phones, and the techniques for operating a dual-band networks, have become available. Until that time, it was not possible for O2 and Vodafone to use their GSM-1800 spectrum for additional capacity as handsets would not have been able to change seamlessly between the 900 and 1800 MHz services. 3.39. Until recently, therefore, Vodafone and O2 had only 12.6/8 MHz each of GSM 900 spectrum that was of use whereas Orange and T-Mobile had 30 MHz of GSM 1800 spectrum. Now, however, O2 and Vodafone have a total of 23.3/5MHz of spectrum, although this is in three non-contiguous blocks. Packet data 3.40. One major change to mobile networks which will enable faster and more effective data ser- vices in the future is the move to packet data. The functionality of packet data is described below but the key features it enables are faster data transfers, better sharing of resources among many users and an instant ‘always-on’ connection which is to say that data can be sent or received immediately without the need to first make a connection. 3.41. Data transfer across the Internet is based upon a packet data protocol known as IP (internet protocol). This means that the data to be transferred is broken into small units known as ‘packets’ which are then sent through one connection, together with packets from other data streams, instead of as a single continuous, contiguous and dedicated stream. Each packet contains information on the intended recipient and on the order it takes in the original data stream. An IP-based network consists of a number of interlinked switches, known as routers. At each switch, the recipient information is read and the data is routed to the next switch en route to the final recipient. The switches route the traffic according to the location of the recipient and the capacity available on the inter-switch links. Hence traffic can be routed in a number of different ways, depending on how busy the various parts of the network are, adding resilience but also offering the possibility that each packet might arrive via a different route and hence in a different order from the one in which it was originally sent. 3.42. An acknowledgement is sent by the recipient for each packet that is received. If the sender fails to receive an acknowledgement for any packet, it will, after a certain time, resend the packet until it either receives an acknowledgement or the whole process has been judged to have taken too long and the 12
  • 17. transfer fails. At the receiving end, the packets are rearranged into the correct order based on information contained within the packet about its original position in the data and the data is reconstructed. This is an efficient way of sharing network resources between non-time-critical data as the total available resource can be shared between a number of users, each only sending or receiving data when they need it. Packets may need to be sent a number of times before they are successfully received, and thus the data transfer can take a significant amount of time to complete. For these reasons care has to be taken when using packet data transfer where connections are required to be instantaneous. 3.43. All UK GSM networks have been modified to deliver packet data services by the implemen- tation of the GPRS, often referred to as 2.5G as it is a stepping stone between 2G (GSM) and 3G ser- vices. GPRS is used for the transmission of data rather than voice services. 3G technology has been designed specifically to support packet-based services, although it can support circuit switched appli- cations too. Voice-over IP 3.44. Any kind of data can be transferred using packet connections, including voice traffic. The inherent efficiencies in the use of IP have led some network operators to use IP as the backbone of their networks to carry voice signals (known as VoIP). Because such connections use dedicated infrastructure, the QoS can be guaranteed, allowing the near real-time transfers that are required for effective voice connections. 3.45. It is also possible for an individual with an Internet connection to send voice messages over the Internet to anywhere in the world whilst incurring only the (typically local) call charges for their connec- tion to the Internet. However, such Internet telephony has yet to make a significant dent in the revenues of telecommunications companies as these connections use the Internet directly and so are often unre- liable. Further, the lack of any guarantee of end-to-end QoS generates delays between sending and receiving speech which can be unacceptably high. This situation is likely to improve somewhat with the advent of widespread broadband Internet access which currently accounts for less than 10 per cent of UK Internet connections. However, until QoS across Internet connections can be assured, such Internet tele- phony is likely to remain of poor quality. GPRS infrastructure 3.46. In order to deliver GPRS, modifications to existing GSM infrastructure together with additional new infrastructure are required. It is worth noting that much of the additional infrastructure that is required is very similar, and in some cases identical, to that which will also be required for the roll-out of 3G services. 3.47. GPRS is effectively an overlay on the existing GSM network which enables it to send and receive packet data. To achieve this, each BSC must have a packet control unit (PCU) installed to allow the transfer of the packet data across the radio layer. A new connection from the BSC to a serving GPRS support node (SGSN) is then required. This transports user data and signalling information between the two. The SGSN monitors the movement and status of the handsets in much the same way as the MSC does for voice data and is responsible for delivering and receiving data from within its area of control. The SGSN connects with the HLRs as required to share the mobility data. Each SGSN is then connected to a gateway GPRS support node (GGSN) which controls the connection between the GPRS network and any external data networks (such as the Internet or corporate intranets) in a similar way to the GMSC for voice calls (see paragraph 3.50). Figure 3.4 shows how the additional GPRS infrastructure is overlaid on the existing GSM infrastructure. 13
  • 18. FIGURE 3.4 GSM network architecture with addition of GPRS services SGSN I n t e BTS SGSN r HLR n e t BSC PCU SGSN GGSN BTS o r C o MSC r VLR p BTS BSC PCU o r a t e I BTS BSC PCU n t r a n e t s BTS Source: CC. 3.48. In order to implement GPRS, modifications and updates to elements of the GSM network are required, including the HLRs, VLRs, BSCs and MSCs. GSM network services 3.49. As already outlined in paragraph 3.19, a GSM network provides a number of services. These services, and the functions performed by a GSM network in order to deliver them, are described in more detail below. Routing of outgoing calls 3.50. When a mobile subscriber makes an outgoing call, the mobile phone sends a message to the nearest BTS1 and passes to it details of the call (the called party’s number etc). The MSC which controls the BTS providing coverage to the mobile is known as the visited MSC (VMSC). When the mobile is first registered with the VMSC, the VMSC receives from the HLR a copy of the customer’s permissions and stores it in the VLR. Upon making the call, the VMSC checks that data to see that the subscriber has 1 More precisely, it contacts the BTS which it senses has the best coverage in its area. This may not necessarily be the nearest. 14
  • 19. permission to make the call.1 Once permission to make the call has been established, a voice connection from the mobile subscriber through a BTS and a BSC to the VMSC is made. The VMSC either passes the call to the transit layer which then routes the call to an appropriate POI or passes it to the appropriate network directly if there is a POI at the VMSC. This is illustrated in Figure 3.5. FIGURE 3.5 Routing of an outgoing call TSC Copy of permissions to MSC (when customer HLR first entered area controlled by MSC) Update to HLR of location of the mobile or BTS BSC VMSC POI VLR Source: CC. 3.51. All outgoing mobile calls follow this procedure, whether to a fixed network or to the same or another mobile network, except that calls to the same network are not passed to the POI, but are passed to the appropriate VMSC for the mobile being called. Routing of calls to a mobile from another network 3.52. The routing of a call to a mobile from another network is illustrated in Figure 3.6. Any incom- ing call from a fixed or another mobile network will pass from the originating network to the nearest (or otherwise predetermined) POI to the originating call as the originating network has no knowledge of the location of the mobile and so cannot pass the call over at a point that is geographically nearer to the actual mobile subscriber. The call is then passed to an MSC, either directly or via the transit layer, dependent on whether the MSCs are directly interconnected at the POI. The MSC to which the call is first passed is known as the GMSC, which will, provided the mobile is switched on and in an area of coverage, identify where the mobile is, and thus establish the identity of the VMSC, by an enquiry to the appropriate HLR. In a substantial number of cases the VMSC will be different from the GMSC. If the VMSC and GMSC are different, the call is passed to the VMSC via the transit layer. If the GMSC and VMSC are the same, the call is dealt with internally by the same MSC. 1 Network operators may bar subscribers from making certain types of call, such as international calls. 15
  • 20. FIGURE 3.6 Routing of a call to a mobile from another network TSC HLR Where is the mobile? or GMSC VLR POI TSC BTS BSC VMSC VLR Source: CC. 3.53. The VMSC then instructs the appropriate BSC and BTS1 to ‘page’ the mobile, ie to broadcast a message telling the mobile that there is a call for it. Once the VMSC receives a response to the page from the mobile, a radio channel to the mobile is established and the telephone rings. Once the user answers the telephone, a voice (or data) channel is established and the call commences. Location updates 3.54. The significant difference between making a call to a fixed telephone and making a call to a mobile phone is the need to locate the mobile phone. If the network knows where the mobile phone is located (in particular, which MSC controls the BTS providing coverage to the phone, the VMSC) an incoming call can be established more quickly and more efficiently. This is achieved by a process known as location update, whereby the mobile phone informs the VMSC, which then informs the appropriate HLR, of its present location. Location update is not essential, as it would be possible to locate the mobile telephone each time that an incoming call arose by paging it across the whole network. However, this would tie up valuable network resources. Whether or not location update is more efficient than paging depends upon how many incoming calls there are and how large the network is. For example, small mobile networks, with only a few MSCs, might not need to perform location updates. 3.55. A mobile phone advises its HLR of its location in one of three possible circumstances: — when it is initially switched on or when it is switched off (mobile phones which have been turned off or are out of radio coverage do not perform location updates); — if it senses that it has moved from one area to another (the network transmits details of the area associated with each BTS, the mobile listens to a control channel on the BTS and if the area it senses is different from the one it previously sensed because it has moved, it informs the net- work). The network designer can control the size of the areas which typically consist of a group of anything from around 20 to around 100 cells. In combined technology networks, these areas will be formed either of groups of GSM 900, GSM 1800 or 3G cells but not a combination of them as the handset can only operate on one technology at once; and 1 In reality a number of cells, typically between 20 and 100, are instructed to page the mobile as it may have moved since it last registered its location. 16
  • 21. — after a preset duration (so that the network knows that it is still operational and has not left the coverage area and that the battery has not gone flat). The network designer can control the dur- ation between such updates but it is typically about 30 minutes. 3.56. Network resources are used in the performance of location updates; in particular the VMSC must update the appropriate HLR. On-net calls 3.57. Mobile-to-mobile calls on the same network (on-net calls) follow the routing used for an out- going call to the point where the VMSC identifies the intended recipient, at which point the routine for incoming calls is followed with the VMSC effectively playing the role of the GMSC. Thus the network resources required to support an on-net call are (with the possible exception of some use of the transit layer) generally slightly less than for a simultaneous incoming and outgoing call. Voice-mail 3.58. Voice-mail services allow callers to mobile subscribers who are unreachable to leave a voice message for the subscriber who can then retrieve it at a later time. Voice-mail services are typically pro- vided on a proprietary, network specific platform connected into the GSM network. An incoming call to an unreachable handset will get as far as the GMSC which will identify the telephone as unreachable. The call will then be routed to the voice-mail platform where a message can be left. The mobile sub- scriber is informed that a message is awaiting them, either by being called by the voice-mail platform the next time they are reachable or by being sent a text message. The mobile subscriber then dials into the voice-mail platform and retrieves the message (this can be done from the mobile and often from any other phone). 3.59. Incoming callers whose call is diverted to the voice-mail platform pay for the call as if it had been routed to the mobile, at the standard rate for calls to that mobile. The mobile subscriber may have to pay to retrieve the message from their mobile handset (currently only one UK MNO offers free voice- mail retrieval for all its customers) and would pay the standard rate for a call to their own mobile if they dialled into their voice-mail from another phone. Roaming 3.60. The functionality which allows a mobile to make and receive calls in an area controlled on its own network by an MSC which is not the one with whose HLR it is registered, also allows mobiles to use an MSC of an overseas network. Such use is known as roaming and can take place between networks with roaming agreements and suitably interconnected HLRs. 3.61. Apart from interconnected HLRs, the other condition for successful roaming is that the handset must operate on the same standard and frequency band as the network on to which the mobile wishes to roam. For example, a GSM 900 MHz handset cannot roam on to a GSM 1800 MHz network and vice versa. There is no technical reason why roaming should not take place between UK operators (for both 2G and 3G) but UK operators have not chosen to allow other UK operators’ customers to do so.1 3.62. Whilst subscribers are roaming overseas they pay for the additional cost of delivering the call from their home country to the foreign country in which they are situated as there is no way for the call- ing party to know that the mobile is overseas (and currently no way to charge differently for the call). This is effectively a form of RPP whereby the party receiving the call is responsible for paying for some of the cost of the call. 1 In China, for example, the incumbent national operator has allowed subscribers of its competitor to roam on to its network until such time as the coverage of the competitor is sufficient (in a given area) to not require additional coverage. A similar situation is expected to occur in the UK whereby Hutchison 3G subscribers will use O2’s GSM network in areas where Hutchison does not have 3G coverage. 17
  • 22. Short messaging service 3.63. SMS allows mobile phone users to send text messages of up to 160 characters to each other. The messages are sent to and from mobiles using the signalling channel of the GSM network, rather than occupying any voice channels (though if SMS traffic becomes large, some capacity may need to be trans- ferred from voice to SMS). The signalling channel is used to send instructions and data to and from mobiles (such as location updates and paging for incoming calls). SMSs therefore tie up capacity in the network that is shared with functions used in connection with voice calls, whilst not actually occupying any of the capacity required to carry voice calls. 3.64. Recently, additional (typically commercial) SMS services are being added on to networks, largely using proprietary systems. These services offer sending and receipt of email or delivery of snip- pets of information (such as football scores, stock prices or advertising material) to mobile users or allow them to interact with services or other users (such as text ‘flirting’ whereby a central facility allows anonymous messages to be sent between users). Data calls (including HSCSD) 3.65. Standard data calls over GSM use circuit switched data. This means that a call is established in exactly the same way as for a voice call, but instead of voice traffic, a continuous stream of data is transmitted between the two ends—a data ‘circuit’ is established. 3.66. The radio layer of the GSM standard splits each radio channel up into eight time slots. A voice call occupies one time slot as does a standard data call. Each time slot can carry up to 14.4 kilo-bits per second (kbps) of user data, though for standard data calls, additional error correction uses up some of this capacity giving a throughput of 9.6 kbps. The HSCSD standard allows data calls to occupy two (or more) time slots and thus provide faster data connections. As the number of time slots used increases, the complexity required in the network and handset to deal with the transmissions increases significantly and typically no more than three or four time slots are used at any one time. This gives a maximum data rate 57.6 kbps, similar to conventional dial-up Internet modems. Orange is the only UK operator to have implemented HCSCD. It offers data speeds up to 28.8 kbps but special GSM handsets are required in order to use the service. General Packet Radio Service 3.67. GPRS is a modification to GSM networks to enable them to deliver packet-switched, instead of circuit-switched, data, and thus to deliver Internet-type services in a potentially more effective and efficient way than using circuit-switched connections. GPRS is often referred to as 2.5G as it is a step- ping-stone in functionality between 2G and 3G technologies. One of the major advantages of GPRS is that, whilst in coverage, a user is always connected so information can be sent or received without having to establish a connection each time. Connection speeds depend on the amount of capacity available on any given cell, but can theoretically extend up to 40 kbps (assuming that four time-slots were made avail- able to the service). All UK MNOs currently offer GPRS services. 3.68. As with HSCSD, subscribers require a special handset in order to use GPRS. Mobile number portability 3.69. The fact that subscribers historically had to change their telephone number if they wished to transfer from one network operator to another was considered by the DGT to be a major obstacle to competition in the market for retail mobile services. Accordingly, he sought to introduce telephone num- ber portability, whereby subscribers could retain their number if they changed networks. As a con- sequence, the mobile operators’ licences were amended, requiring the introduction of MNP by 1 January 1999. 18
  • 23. Call routing and charges 3.70. A proprietary technical means of implementing MNP, which results in calls and SMS text messages to numbers which have moved to other networks being routed via both the original and recipient operators’ networks, has been developed for use in the UK. This system relies on the original network (ie the network on which the mobile user’s number was originally registered) acting as an intermediary and routing the call onto the recipient network (ie the network on which the mobile user is now registered). 3.71. In terms of the current UK system, the charges paid by subscribers calling a ported mobile sub- scriber are as follows: — Calls to a subscriber mobile network A are charged according to the tariffs for calling network A. — This subscriber now moves to network B but keeps the same number by porting it across to net- work B. People calling the subscriber from mobile network A or B are charged according to the tariffs for calling network B. Callers from all other networks are charged according to the tariffs for calling network A as only networks A and B are aware of the change. — If the subscriber now moves to mobile network C, but again keeps the same number, the result- ing charges are as if the subscriber had moved directly from network A to network C. 3.72. In terms of the current UK system, the fees received by the relevant MNOs for calls made to a ported mobile subscriber are as follows: — For calls to a subscriber of mobile network A, network A receives its standard termination charge for the call or its charge for on-net calls for calls made by subscribers of network A. — This subscriber now moves to network B but keeps the same number by porting it across to net- work B. Network B receives its standard termination charge for calls originated on network A or its charge for on-net calls for calls made by subscribers of network B. For calls from all other networks, network B receives the termination charge for calls to network A minus a small transit fee which is retained by network A. — If the subscriber now moves to mobile network C, but again keeps the same number, the result- ing flow of payments is as if the subscriber had moved directly from network A to network C. 3.73. However, a ported subscriber is sometimes given a temporary new number on the recipient network, which can also be called by any party. This does not affect callers from the original or recipient network whose call charges already reflect the subscriber being on the recipient network, but for all other callers, it offers the opportunity to select one of two networks on which to call the user and thus two different tariffs. There is therefore some scope, for a limited period, for incoming callers to ported mobile subscribers to select one of two tariffs in order to minimize the cost of their call, albeit at the cost to the caller of having to remember two numbers. Intelligent networks 3.74. An alternative solution to that employed in the UK requires the introduction of Intelligent Networks (IN). INs represent a new generation of telephony routing technology, building on the intro- duction of digital switches in the 1980s. INs allow switches in large networks to be controlled from one (or more) central points using data and processing power that is available at that point. This has the advantages of, inter alia, allowing control of the network from a central point, removing the need to upgrade software on all switches when new services are to be introduced, improved performance and resilience, as well as offering a range of new services that can be hosted on a central computer system. A variety of potential solutions exist for the implementation of number portability based on IN technology, most of which involve the interrogation of a central database containing details of ported customers, and subsequent rerouting of calls to ported numbers under the control of the central point. 3.75. However, an IN solution would tackle only the call routing part of the problem. It would not address SMS text messages or the changes needed to billing systems to enable calls to subscribers who had changed network to be charged at the appropriate rate, or the issue of informing customers that the price of a call may be different from what they would expect on the basis of the prefix. 19
  • 24. 3.76. Current regulation requires that wherever possible the prefix dialled (07xxx) gives a broad indication of the service and tariff (for example, that the call is to a mobile network and thus of the related charge band). However, the regulation does not require the prefix to map one-to-one on to a specific tariff. The regulation is thus not an obstacle to allowing operators to charge different rates for calls to individual mobile numbers, as long as the resulting charges were within the broad range expected for the service. 3.77. Similarly, the innovations required to enable some more novel solutions for the pricing of calls to mobile handsets are not hampered by the regulation. For example, it would be possible for a user to select to have incoming calls charged at a lower rate in return for the subscriber footing the bill for some of the call. Billing systems 3.78. Another key component in the ability of mobile (and fixed) operators to deliver differentiated services and tariffs is the billing system. For each call made on any given network, a Call Detail Record (CDR) is generated by both the network from which the calls was made and the network which the call was terminated. The CDR contains information on the number called, the number from which the call was made, the duration of the call, the time the call was initiated, and can store other information such as if certain network features (for example, call-back) were used. This raw information is then processed by the billing system which applies the appropriate tariff for each call before producing the retail or whole- sale bill. 3.79. At present, tariffs are applied based on the prefix of the number called (for example, 07xxx). However, should a database with the appropriate tariff for each individual number be made available (for example, together with the central database required to implement an IN solution), it would be possible to apply a different tariff for each number called (for example, 07xxx xxxxxx). If it were possible to contain, within the CDR, information on the call itself, such as whether the recipient or sender keyed in any additional codes, it may also be possible to bill for each individual call on a one-by-one basis. 3.80. A combination of new billing systems and IN platforms offer the opportunity for new services and technologies to be employed to deliver calls to mobile handsets. We sought the views of interested industry parties as to what such solutions may be feasible. The results of our consultation are sum- marized in the table in Appendix 3.1. Indirect access, independent service providers, virtual operators and virtual networks Indirect access 3.81. Both O2 and Vodafone have a licence obligation to provide indirect access whereby sub- scribers have the facility to choose an alternative (and possibly cheaper) operator to deliver calls; T- Mobile and Orange do not. However, in practice all of the UK MNOs offer de facto indirect access to users of mobile phones for outgoing calls, generally by the mobile subscriber dialling a national-rate (for example, 0870 or 0114), local-rate (for example, 0845) or freephone1 (for example, 0800) telephone number to route calls towards third party operators. This enables mobile subscribers to make cheaper international calls and potentially, cheaper calls to other mobile networks. Indirect access operators pur- chase spare national and international call capacity at bulk, wholesale rates and offer calls to their cus- tomers at prices much lower than those typically offered by incumbent fixed network operators. 3.82. Such indirect access operators, however, whilst offering reciprocal services providing calls to mobile telephones typically do not offer significant reductions in call charges for calls to mobiles as they are subject to the same termination charges as all other operators and thus to not have opportunities to lower the charges in the same manner as they do for national and international calls. 1 Many UK mobile tariffs charge for calls to freephone numbers and charge for calls to national- and local-rate numbers either separately or as part of inclusive call minutes. 20
  • 25. Independent service providers 3.83. When Vodafone and O2 were initially established, their licences did not allow them to retail their services directly to subscribers. Instead, they were forced to sell their services through independent service providers (ISP). These ISPs purchased standard tariff packages from the operator at a discount, the discount being based on the volume of customers they acquired, and sold these on either at face value or slightly repackaged in an attempt to increase their attractiveness and profit. 3.84. T-Mobile and Orange’s licences allowed them to sell services directly to subscribers and Vodafone and O2’s licences were modified in 1994 to allow them to sell direct as well. However, ISPs still continue to exist working on the same basis as before. Some have now been purchased by individual MNOs. Mobile virtual network operators 3.85. One option for providing differentiated call charges to mobile subscribers is through third party companies acting as a MVNO, a concept which comes in a variety of forms. One variety, often referred to as a ‘classic MVNO’, replicates the functions of a virtual network operator for fixed operation, and would own and operate a complete network apart from the radio spectrum and base stations. Currently, only one such MVNO, operating in Denmark, exists in the world. Another, more common version of an MVNO, is one who makes a wholesale bulk airtime purchase (rather than a purchase of standard tariff packages as with ISPs) and rebrands the service, with everything from customer support to billing being provided by the donor mobile operator. MVNOs in the UK being operated or due to be launched in the near future are listed in Table 3.4. This list is not exhaustive. TABLE 3.4 MVNOs Underlying Ownership* Network name operator Affinity Telecom QPR (Unknown) Channel 5 Tiny Computers Liverpool FC [ ]† (Unknown) [ ] Carphone Warehouse Fresh T-Mobile Centrica British Gas Communications Vodafone [ ]† (Unknown) (Unknown) Energis Energis Mobile Orange [ ]† (Unknown) (Unknown) Kingston Communications (Unknown) O2 ntl ntl: home mobile Orange [ ]† (Unknown) (Unknown) Sainsbury’s Sainsbury’s One O2 [ ]† (Unknown) [ ] Virgin Virgin Mobile T-Mobile Source: CC. *Ownership excluding MNO involvement. †Planned but not yet operational. 3.86. None of these would conform to the definition of a classic MVNO and most are examples of a rebranding, with the company concerned purchasing wholesale call minutes from the network operator and selling them on at a margin. In many cases even the billing is handled by the donor network operator. 3.87. With the situation as it stands in the UK at present, there is limited flexibility for MVNOs to offer differentiated incoming call charges. To do this, they would need to be assigned their own number range by Oftel. This could then be billed at a different rate from that of the operator on whose network their calls were being carried. This would be easier if the MVNO were closer to the classic model and had its own MSC and could thus receive its own incoming call traffic directly but with the cooperation of an MNO it may be possible to implement such a solution without resorting to the need to receive its own incoming traffic. 21
  • 26. Mobile virtual private networks 3.88. An increasing, but currently small, number of large business users are seeking to procure a single, combined fixed and mobile telecommunications package from one supplier which is integrated with their internal telephone system. In such instances, mobile subscribers can be called by internal users as if they are extensions on the company’s private exchange and, in some cases, mobile users can use internal extension numbers to make calls within the company. Such integrated networks, including a mobile element, are termed MVPNs. FIGURE 3.7 MVPNs and GSM gateways GSM gateway Mobile PABX PSTN network MVPN How MVPN solutions bypass the PSTN and thus the need to charge the ‘standard’ Source: CC. termination rate 3.89. For a fixed operator to offer calls to mobiles as part of its MVPN service, it has to connect to the mobile networks via their interconnection point (or via an interconnected operator) which entails them paying the standard termination rate for the mobile operator. However, if a mobile operator were to offer an MVPN it could connect via a ‘private wire’ connection, that is to say a private connection directly between the customer’s private exchange and the mobile network (ie a mobile equivalent of the Virtual Private Network offered by fixed operators). Such connections only pass private and not public traffic, since the users form part of a corporate closed user group, and thus are not classed as inter- connections. The MNOs can, therefore, offer more competitive termination rates than available to the FNOs as they are not restricted by the legislation affecting interconnection. The direct connection, how- ever, may in itself be a costly item and thus MVPNs of this nature are only cost-effective for customers with large numbers of mobile subscribers. 3.90. One alternative that can be employed by both fixed and mobile operators is known as a ‘GSM Gateway’. This comprises a GSM phone connected directly into the customer’s exchange. Figure 3.7 illustrates the difference between an MVPN and a GSM gateway. Calls to mobiles on the network on which the mobile subscriber has a subscription are routed via the GSM Gateway and thus treated as on- net calls which at present are priced more cheaply than the termination rate. However, there are a number of disadvantages with this method including: — Any Calling Line Identification information is lost (the calling party’s number will not be passed on to the receiving party). Thus the receiving party cannot identify, or return, the call without answering it. — If a number of GSM gateways are located near one cell site (along with other mobile users in the same area), this can put a large load on nearby cells, creating network congestion, and may reduce quality of service. — At present, the use of GSM Gateways in the UK is illegal under the Wireless Telegraphy Act 1949 on the grounds that the licences granted to the mobile operators only allow communication 22
  • 27. to mobile stations. As a GSM Gateway is, by its nature, fixed, it falls outside the definition of mobile station and is thus not licensable. The Radiocommunications Agency has issued a con- sultation paper1 on the issue, addressing the regulatory issues, identifying possible options and seeking views on any proposals to amend the statutory provisions. Future developments Enhancements to the GSM standard 3.91. The GSM standard has been updated with new features a number of times, but it has been up to individual operators to decide which new features to implement. We have already discussed HSCSD and GPRS. GPRS offers functionality similar to that of 3G networks in so far as it is an always-on, packet- based data service albeit with significantly slower data throughput. GPRS is often regarded as the step- ping-stone between 2G GSM networks and 3G and is referred to as 2.5G. GSM Evolution 3.92. A further development of the GSM standard is Enhanced Data rates for GSM Evolution (EDGE). This modifies the protocol used over the radio channel so as to provide additional capacity and hence to enable data to be transmitted more quickly, theoretically up to 384 kbps—similar to 3G tech- nologies in typical conditions. In order to upgrade to EDGE, new equipment would be required at all cell sites. However, there would not be a need, on the part of the operators, for the purchase of additional radio spectrum as EDGE uses the same spectrum as is currently employed for standard GSM services. There does not appear to be a move by any of the MNOs to implement EDGE in the UK at present. Universal Mobile Telecommunication System 3.93. The rapid uptake of mobile phone services, and perceived demand for faster data services led to the development a new standard, UMTS, which is commonly referred to as 3G technology. When 3G networks begin to be rolled out across the UK, their coverage in the early days will not be national, but will instead form pockets, most likely in and around major conurbations. When not in these areas of coverage, it is expected that 3G calls will automatically fall back on the existing GSM coverage to pro- vide a service, using GSM and GPRS to provide voice and data connectivity respectively. Indeed this could happen one or more times during a call. As a user moves around in and out of an area of 3G cover- age, the call will be passed between the 3G and GSM networks without the user being aware of it. As the level of 3G coverage rises, there will come a time when it is possible to carry the majority of calls solely on the 3G network. However, even in this situation operators may still decide to carry the traffic gener- ated by 3G subscribers on their GSM network if, for example, the 3G network is heavily congested in a given area. 3.94. The main advantage of 3G will be that it will offer much faster data transmission speeds than GSM, theoretically up to 2 mega (million) bits per second (Mbps). This will allow high bandwidth data services including multimedia services such as real time video and broadband access to the Internet. UMTS also has the potential to offer other advantages such as wider international roaming (despite GSM’s widespread presence, other mobile communications technologies are used in Japan, the Americas and certain other parts of the world which are incompatible with GSM handsets). In the UK, UMTS has been allocated spectrum between 1,900 and 2,200 MHz. 3.95. The UK was one of the first countries in Europe to offer licences for UMTS. They were awarded by auction during 2000. Five licences were issued which went to the four incumbent mobile operators plus a new entrant, a consortium led by TIW whose licence was subsequently taken over by 1 Public Wireless Networks—Exemption of User Stations: A consultation document, Radiocommunications Agency, November 2002. 23
  • 28. consortium member Hutchison. The sums raised for the licences were significant as shown in Table 3.5. Licence A was not available for incumbent operators, and had national roaming rights, allowing access to Vodafone or O2’s 2G infrastructure.1 TABLE 3.5 Fees paid for UMTS licences Paired Unpaired Fee paid Licence spectrum spectrum Winner £m A 2 x 15 MHz 5 MHz TIW 4,384.7 B 2 x 15 MHz Vodafone 5,964.0 C 2 x 10 MHz 5 MHz BT O2 4,030.1 D 2 x 10 MHz 5 MHz T-Mobile 4,003.6 E 2 x 10 MHz 5 MHz Orange 4,095.0 Total 22,477.4 Source: Radiocommunications Agency. 3.96. The paired spectrum is the core of the allocation, as it is the spectrum which allows bi- directional traffic (ie to and from the mobile) in the standard way using frequency division duplexing (FDD). FDD allows a different frequency to be used for transmission from and to the mobile respectively allowing data to be sent and received simultaneously. The unpaired spectrum can also be used for bi- directional traffic but must employ time division duplexing (TDD) in which both the mobile and the network transmit on the same frequency but at different times, which is more complex to implement than FDD. It can be seen from the prices paid for the spectrum licences (and from the way in which the auction was played out) that the operators valued additional paired FDD spectrum much more highly than unpaired TDD spectrum. In fact it would be consistent with Table 3.5 to suggest that the incumbents valued 5 MHz of paired spectrum at just under £2 billion and the unpaired spectrum at close to zero. 3.97. Although 3G technology is designed to allow data connections at up to 2 Mbps, in practice 384 kbps is a more typical upper range. The limit is partly determined by the mobility of the handset: the faster the movement of the handset the slower the data connection that can be supported. Thus a user on a high-speed train or fast moving vehicle will receive a lower speed connection than a pedestrian or a stationary user. It also depends on the number of users on the cell and their data demands. Although 3G is capable of providing both packet-switched and circuit-switched connections in later releases of the 3G standard, circuit-switched connections will be phased out in favour of packet-switched voice connec- tions. 2G versus 3G calls 3.98. Although the technology of 3G is different from that of 2 or 2.5G, there are many similarities. Given the success of the GSM standard, it is no surprise that the network architecture of the first phase implementations of 3G networks bears a close resemblance to that of GSM networks or indeed that some of the elements of the network are almost identical. The MSC required to handle voice calls in a GSM network is almost identical to an MSC handling 3G traffic, to the extent that it can be one and the same thing. The infrastructure put in place to support GPRS (SGSN and GGSN) will also form an integral part of the 3G networks, providing the routing for packet data. 3.99. In addition, much of the infrastructure put in place to handle the intra-network traffic (the lines connecting the MSCs, BSCs, GGSNs, SGSNs and PCUs) for GSM, both for 2G and 2.5G, can be used for carrying 3G traffic and it is efficient for a GSM operator to use the infrastructure in this way. Thus a certain amount of the existing GSM infrastructure will additionally be used by the 3G network, subject to the availability of sufficient capacity. Owing to the limitations of current network architecture, this will be less so during the initial roll-out when more elements of the network will be specific to one tech- nology or the other than at a later stage. 3.100. The use of MSCs for both 2G and 3G services is significant. Because it is expected that 3G handsets will be dual-technology, capable of operating on GSM and 3G, an incoming call can be routed to the mobile via the appropriate network by the MSC, optimizing capacity availability on the two net- 1 Following commercial negotiations, the winner of licence A, now Hutchison 3G, has elected to form a roaming agreement with O2. 24
  • 29. works. It is possible that some services will only be delivered via a specific technology; video telephony, for example, requires more bandwidth than can be provided by 2G and this will be a 3G-only service. Thus, for voice calls, the parties to the call would rarely know which technology the call would be routed over, and indeed it is possible that a call will move between 2G and 3G networks as it progresses, dependent upon coverage and capacity decisions. There is a practical problem for the MNOs, therefore, in determining whether a given voice call is a 2G call, a 3G call or some combination of the two, should they need to do so. 3.101. Currently, due to practical handset design issues, a mobile handset can only operate in one frequency band at any one time (whether it be on GSM 900, GSM 1800 or 3G). Whilst a handset is switched on and in coverage (and during a call) it periodically updates the network as to its status. The VLR stores details of the status of the mobile, in particular its location (ie the cell or group of cells it is operating in) and thus the technology on which it is currently operating can be determined. Thus, at the point at which an incoming call is established, the MSC will be able to record on which technology a given handset is currently operating. This information can be stored in the CDR for each call; so it is theoretically possible to record, on a call-by-call basis, on which technology each call is established. This information could be used to provide statistics on the proportion of incoming calls that were initially established on 3G versus those initially established on 2G which, assuming that the establishment of voice calls is similar in proportion to the number of minutes of voice calls carried on the respective net- works, could be used as a proxy for the proportion of 3G versus 2G traffic. 3.102. In addition there are various network monitoring tools available from manufacturers such as Tektronix and Innoace that can collect data concerning the progress of a call by connecting into various points in the network (for example, MSC, BSC, GGSN). The data recorded can include complete details of all the cells to which any given call is routed, thereby providing a complete log of the cells and tech- nologies over which a call was delivered. Such equipment is also capable of generating the CDRs necess- ary to enable billing between operators so that the call could be rated (that is to say, the charge between operators for the call could be calculated) according to the proportion of 2G and 3G network usage. Such equipment is currently used throughout the industry largely for the purposes of network quality moni- toring; but its use for full commercial billing purposes has not been tested. 3.103. If no such tools or techniques are available to the MNOs, then should they wish to estimate the proportion of traffic on 3G as opposed to 2G, there are several possible proxies that might be able to be used singly or combined to produce a reasonable approximation including: — the proportion of the network’s customers who have 3G-enabled handsets; — the proportion of call traffic generated by customers with 3G-enabled handsets; — the proportion of the population with 3G coverage; — the proportion of data traffic handled by the 2.5G and 3G networks (assuming that this is separately recorded); and — the level of utilization of the 3G cell sites. Practical limitations of 3G 3.104. There is a great degree of uncertainty surrounding the applications that 3G networks will be able to serve. The high-speed data which 3G can provide is capable of offering a wide range of services, similar to those that people with broadband Internet access currently enjoy. However, there are also some limiting factors: — The bandwidth available in any given cell must be shared between all the users in that cell. Thus although 3G networks may be capable of delivering high-speed data the capability for each user to use a large amount of bandwidth begins to reduce as the number of users rises. — The connection to each user is on a one-to-one basis. Thus, applications which are fundamentally broadcast in nature (such as simultaneously sending a short video clip of a football team scoring a goal to all the team’s supporters) will use up much of the available network bandwidth, limiting the maximum number of subscribers that can receive such a message. 25
  • 30. — Coverage, at least in the early years, will be restricted; outside these pockets of coverage service is expected to be delivered by GSM, meaning that high-speed functionality will not be present. 3.105. In addition, for many of the applications proposed for 3G networks (such as the sending of video messages) there will need to be a critical mass of subscribers who wish to use the service in order to drive traffic. Driving take-up of these services will mean ensuring that upgrading to 3G handsets when renewals are due becomes the desirable norm and that prices are sufficiently low to make it attractive to do so. Thus, there is a strong incentive for an operator to encourage the roll-out of 3G compatible hand- sets if there is to be sufficient traffic on the network to make it commercially viable. Bluetooth 3.106. An increasing number of mobile handsets are being equipped with Bluetooth. Bluetooth is a short-range (typically 10 metres or less) wireless data protocol using licence-free spectrum designed to allow communication between a wide variety of devices. For example, Bluetooth can act as a link between a mobile, a PDA or laptop computer, a digital camera, or any similar device and, being wireless, negates the need for the two to be in visual contact as with earlier Infrared systems. 3.107. With the addition of Bluetooth to mobile handsets it becomes possible for handsets within close proximity of each other to communicate directly rather than via the GSM (or 3G) network. At pre- sent applications using this feature include the ability to page nearby mobiles and identify the users within range, then send text messages to them without incurring SMS charges. Wireless LAN 3.108. The term Wireless LAN encompasses a number of different technologies (such as 802.11 and WiFi), each of which enables computers to communicate with networks and peripherals in their immediate proximity in much the same manner as Bluetooth. Wireless LAN technologies also uses licence-free spectrum but they have a greater potential range and throughput than Bluetooth. A number of telecommunications network operators have expressed an interest in offering commercial services using Wireless LAN technology at hot-spots where users with laptop computers may congregate (such as airport departure lounges or coffee bars, for example). Users in these areas would be able to connect to the Internet at high speeds (in excess of those available on 3G networks) and the operator would collect revenue via subscriptions or on-the-spot payment methods (for example, credit card or over-the-counter vouchers). 3.109. Such services could provide faster Internet connections than 3G, and, as there is no need to establish wide-area coverage, the investment and unit costs may be cheaper too. However, coverage and mobility will be very limited. Some 3G operators are considering using Wireless LAN technology to provide high-speed Internet access in hot-spots to provide some capacity relief for their 3G networks. At present in the UK, only BT has announced plans to roll out commercial Wireless LAN services. 26

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