Response by Simon Pike to the call for evidence on 'The Future of Regulation' in UK by the National Infrastructure Commission: https://www.nic.org.uk/publications/future-of-regulation-study-call-for-evidence/

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The Future of Regulation
Call for Evidence by the National Infrastructure Commission
Response by Simon Pike C.Eng MIET
1 Introduction
I am grateful for the opportunity to respond to the Call for Evidence by NIC on the future of
regulation in the UK. It is important to take a long term view on this important topic, so that changes
in the broad regulatory framework can anticipate developments in the economic environment, rather
than being forced by developments that have already taken place.
Ofcom has a number of distinct responsibilities in the broad field of telecoms, including:
‐ Regulation of telecoms
‐ Management of the radio spectrum
‐ Regulation of broadcast content
This response focuses on Ofcom’s responsibilities for regulation of telecoms (especially mobile
telecoms) and its management of radio spectrum.
I have more than thirty years’ experience in the telecoms and broadcast sectors, with periods
working for a mobile operator, equipment vendors, regulators and Government. For sixteen years, I
was Chief Engineer, Spectrum and Regulatory for Vodafone Group, where I worked in partnership
with colleagues in Group Public Policy and the regulatory departments of the operating companies in
UK and overseas, and I represented Vodafone in UK and international meetings. This has enabled me
to compare the approaches taken by different regulators and Governments around the world.
2 The ‘landscape’ of Telecoms in the coming decades
The National Infrastructure Commission has a long term perspective, covering the next thirty years.
Within this timeframe, the telecoms sector will become almost unrecognisable from what it is today.
The value chain will be very different, with many new players, and probably some of today’s major
players will have disappeared. The consumption of media content will be almost entirely ’on
demand’, either through explicit consumer choice or personalised streaming. The consumer demand
for broadband data will have been satisfied1
, except in remote areas, and there will be an efficient
market with multiple providers using fibre‐to‐the‐home or FTTH (with wavelength division
multiplexing providing the equivalent of local loop unbundling), wireless networks and cable (which
will become a competitive provider of FTTH). There will probably be more than four operators of
1
For discussion on future demand for broadband bit rate, see my responses to:
NIC consultation on Connected future (5G); Compiled responses; https://www.nic.org.uk/wp‐
content/uploads/5G‐Call‐for‐Evidence‐All‐Responses.pdf (starting on page 445)
House of Lords Select Committee on Communications inquiry into Superfast Broadband; Oral and written
evidence, May 2012; https://www.parliament.uk/documents/lords‐
committees/communications/Superfastbroadband/SuperfastBroadbandEvidence.pdf (starting on page 602)
Wireless Technology
Spectrum Policy

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commercial wireless networks with largely nationwide coverage2
, though only some will offer
services directly to consumers and others will specialise in certain industry or business sectors
(‘verticals’). The ‘shape’ of the wireless sector is largely determined by access to radio spectrum, and
will therefore be driven by past and future decisions of Ofcom.
In contrast, the structures of electricity, gas and water sectors will not have changed substantially,
with one connection to a household and one distribution network. Competition will still largely be
through suppliers distributing the same product (electricity, gas or water) through this one network,
though purchasing or producing it in different ways with different cost bases.
3 Responses to questions
Question 1: Where has the economic regulation of water, energy or telecoms systematically failed or
succeeded to:
a. facilitate future investment needs;
b. promote competition and innovation; and
c. meet the needs of both current and future consumers; and
What do you see as the most important improvements that could be made to the UK’s system of
economic regulation?
Duties of Ofcom
The principal duties of OFCOM, as defined in Section 3 of the Communications Act 2003, are:
‐ to further the interests of citizens in relation to communications matters
‐ to further the interests of consumers in relevant markets, where appropriate by promoting
competition.
Ofcom seems to have interpreted these duties in terms of the immediate interests of citizens and
consumers, with a strong focus on retail prices. However, this has often come at the expense of the
longer‐term interests of consumers, or for the needs of business. An example of this is advanced
manufacturing (often called Industry 4.0); Ofcom has not made any spectrum available with technical
conditions suitable for this application, unlike Germany and Asian countries.
Correcting this imbalance towards consumers does not require the amendment of this primary
legislation – it could be achieved through the Statement of Strategic Priorities that was provided for
under the Digital Economy Act 2017. However, the draft of the first Statement3
also focuses on the
interests of consumers and the infrastructure to serve them. I hope that the final Statement will be
more balanced between the interests of consumers and business.
Ofcom’s approach to regulatory decisions
In recent years, Ofcom has become more cautious, and occasionally even timid, in its regulatory
decisions that impact on major telecoms players. One likely reason for this is the low threshold for
legal challenge against Ofcom’s decisions. In some cases, there is a suspicion that decisions are
2
By this I mean companies that offer services across the UK but these may not require full geographic coverage,
depending on the industry or business sector.
3
https://www.gov.uk/government/consultations/public‐consultation‐on‐the‐statement‐of‐strategic‐priorities

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challenged in order to delay their implementation, rather than any in expectation that they will be
overturned. This is compounded by the long time taken by the Competition Appeal Tribunal to
conclude cases, even apparently straightforward ones.
One consequence of this caution is the reams of supporting documentation that accompanies many
Ofcom consultations, such as technical and economic studies. Often, the documentation for an
Ofcom consultation will be ten or more times the length of the equivalent consultation in other EU
countries. As well as the cost of commissioning these studies (whether from external consultants or
by Ofcom staff), the time needed to undertake the studies and compile the documentation slows the
decision‐making process.
The NIC study should therefore consider whether a higher threshold for appeals would improve the
regulatory process, and whether the proceedings of the Competition Appeal Tribunal can be
streamlined.
The focus on price
UK regulators have focussed strongly on retail prices for services. In some cases, retail or wholesale
prices have been regulated directly (e.g. roaming charges, call termination rates). However, the
strong focus on price and on price comparison websites has encouraged consumers also to focus on
price, and the associated parameters that can be easily understood such as data limits in bundles and
headline data rates. The focus on price has reduced margins to operators; the focus on the associated
parameters has forced operators to invest in gaining immediate competitive advantages in them,
rather than for the long term.
Question 5: How has competition impacted on investment, innovation and outcomes for consumers
across energy, water and telecoms since privatisation?
See question 1.
However, in telecoms and especially in spectrum management, it is also important to consider the
impact on business.
Question 6: How has regulation affected the level of innovation in energy, water and telecoms,
compared to these utilities in other countries and/or other comparable industries?
Ofcom seems to guard its independence, and maintains a formal hands‐off relationship with both
Government and stakeholders. In contrast, it is apparent from international meetings that the
telecoms regulator and Government of many countries work in partnership, and they involve industry
stakeholders more in the national delegations.
A recent example of this is the Radio Spectrum Committee – a consultative committee of Member
States to the Commission on radio spectrum. At its most recent meeting on 13th
March, nine Member
States had more than one delegate. For eight of these, the delegation included representatives of
both the telecoms regulator and the responsible Government department (Czech Republic, Germany,
Ireland, France, Italy, Netherlands, Slovakia, Sweden); the two UK delegates were both from Ofcom
(plus a third Ofcom employee representing CEPT).

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The formal hands‐off relationship extends widely beyond participation in meetings. Ofcom finds it
difficult to make any decision without first consulting, even in cases when there is a consensus among
stakeholders, it is required to make that decision under EU law, or it is of minor importance. This
slows down the pace of innovation.
Question 10: What is the case for or against a multi‐utility regulator covering energy, digital and
water?
This question is presumably prompted by multi‐utility regulators in other EU countries – for example
BNetzA in Germany. However, these regulators generally are not also responsible for regulation of
broadcast and media content.
There is an increasing convergence between the telecoms and media sectors; cable networks
providing broadband services, broadband providers differentiating through exclusive media content,
or global digital companies entering the telecoms ecosystem through media platforms. In contrast,
the increasing competition in telecoms access networks is not mirrored in the energy and water
sectors.
The synergies between regulation of telecoms and media regulation are increasing over time,
whereas the synergies between regulation of telecoms and other utilities are diminishing. Regulation
of all utilities (including post), spectrum and media is probably too broad a remit for a single
regulator.
Therefore, now is not the time to make fundamental changes in the structure or remit of Ofcom.
Question 11: Is the traditional role of economic regulation, to mimic the outcome of a competitive
market, sufficient to ensure future investment and to meet the needs of current and future
consumers, and if not, how might this role need to change?
No. The deployment of 5G is a clear example where mimicking a competitive market has not led to
future investment and the fulfilment of UK Government policy objectives.
It is widely reported that the deployment of 5G in Europe, including UK, lags behind the USA and Asia
(at least, ‘true 5G’, as opposed to the evolution of 4G/LTE). However, it is the stated ambition of the
Government for UK to be a leader in 5G. The reason for this dichotomy is economic regulation, and
especially regulation that prioritises low customer prices, with resulting low margins for operators. In
such a market, the rational economic behaviour of mobile operators is to wait until the potential
market for 5G is clear and the technology is proven.
The margins in the mobile telecoms sector are lower in the UK than most other markets. As a result,
multi‐national telecoms businesses will tend to prioritise investments in those markets for
investment, where the return on that investment will be higher.
The reasons behind the leadership of USA and Asia in 5G are different, but both are relevant to this
NIC study.
In USA, the ARPU (average revenue per user) is substantially higher than in UK. There are many
reasons for this, but one is that there is less regulation of prices. This has enabled operators to
market services more as a premium product, rather than a regulated utility. (however, caution is
needed, because some early 5G deployments are for fixed wireless access for broadband, to address
competitive issues for fixed broadband that are specific to the US market).

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In Japan and Korea, there is much stronger partnership between regulator, industry and Government
– and between the Government agencies responsible for telecoms policy and industrial strategy. This
enables operators to take a longer term view on investment. (China is not directly relevant to this
analysis, because the operators are owned by the Government, although there is clearly a large
element of industrial policy behind its 5G deployment plans).
Question 12: What should be the boundary between government setting policy and strategic direction
and independent regulation in these sectors? Do the existing duties and functions of regulators need
to be adjusted to reflect this?
There has been a period when Government has not provided a strategic direction to Ofcom – roughly
from when the responsibility for telecoms was transferred from BEIS to DCMS to when it recognised
this by adding “Digital” to the departmental title (roughly the same time as the Digital Economy Act
came into law). As discussed in responses to other questions, Ofcom has therefore focused on the
interests of citizens and consumers in line with its duties under the Communications Act, and this has
sometimes been to the detriment of business.
The Government Statement of Strategic Priorities, enabled by the Digital Economy Act, makes it
possible for Government to give more balance to the interests of citizens and consumers and
business. However, the draft of the first Statement3
suggests that the Government will not take this
opportunity. The default minimum interval of five years4
between Statements is too long, given the
pace of developments in telecoms.
Question 13: Has there been a lack of clarity over strategic goals? What is the cause of this and what
has been the impact on investment?
In the early years of Ofcom, it produced a number of documents describing broad and forward‐
looking strategies, such as the Spectrum Framework Review. More recently, the reviews have
become narrower in scope, and often driven by immediate regulatory issues. As a result, the strategic
objectives across the breadth of Ofcom’s responsibilities have lost clarity. This results in individual
regulatory decisions being taken in isolation, and a lack of certainty for stakeholders to make long‐
term investment decisions. An example of this is the piecemeal release of spectrum in the 3.4‐4.2GHz
band (see Section 4 of this response for a suggestion for a case study on this topic).
Question 14: Are the government’s principles for economic regulation – accountability, focus,
predictability, coherence, adaptability and efficiency – fit for purpose; and if not, how should they
change?
It is hard to disagree with any of these principles, but I would add three more:
‐ Transparency: The rationale for regulators’ decisions should be visible to stakeholders, but
should not be hidden in a ‘fog’ of technical studies (as is sometimes the case for Ofcom
consultations). There is a correlation between transparency and brevity.
‐ Engagement with stakeholders: Regulators should engage widely with stakeholders and
experts during the development of policy, and not just consult on final proposals.
‐ Consideration of long‐term impact: The focus of regulators in UK on the interests of citizens
and consumers, and therefore on retail prices, has often squeezed margins to the extent that
long‐term investment has been impaired.
4
Section 2A (7) of the Communications Act 2003, as amended by the Digital Economy Act 2017.

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4 Suggestions for Case Studies
Ofcom’s approach to making available the 3.4 – 4.2GHz band for mobile services, and especially for
5G, would illustrate many of the points in this response. This has been divided into four separate
processes:
‐ Award of 3.4‐3.6GHz band
‐ Liberalisation of UK Broadband’s licence for 3.6GHz spectrum
‐ Award of 3.6‐3.8GHz band
‐ Spectrum sharing in the 3.8‐4.2GHz band
These proceedings have been progressed largely independently. This has resulted in the spectrum
being fragmented (contiguous spectrum is important for 5G services), apart from UK Broadband (a
subsidiary of Three), which gained its spectrum for 5G as a windfall through liberalisation of legacy
licences. The technical conditions for spectrum sharing in the 3.8‐4.2GHz band, described as ‘Enabling
opportunities for innovation’ by Ofcom, are configured to address two specific use cases on which
Ofcom has been extensively lobbied; there appears to have been little consideration of other future
more innovative use cases, such as Industry 4.0.
The relevant consultations and other documents include:
‐ Consultation; Award of the 2.3 and 3.4 GHz spectrum bands
‐ Consultation; Improving consumer access to mobile services at 3.6 GHz to 3.8 GHz
‐ Consultation; Award of the 700 MHz and 3.6‐3.8 GHz spectrum bands
‐ Consultation; Coverage obligations in the 700 MHz and 3.6‐3.8 GHz spectrum award ‐
Ofcom’s approach to verifying compliance
‐ Consultation; Variation of UK Broadband’s spectrum access licence for 3.6 GHz spectrum
‐ Consultation; Annual Licence Fees for UK Broadband’s 3.4 GHz and 3.6 GHz spectrum
‐ Call for inputs; 3.8 GHz to 4.2 GHz band: Opportunities for Innovation (2016)
‐ Consultation; Enabling opportunities for innovation (Dec 2018)
‐ Discussion document; Enabling 5G in the UK (March 2019)
The failure of the DCMS TransPennine initiative, which was intended to trial technologies to provide
broadband services to rail passengers on the TransPennine route, would be a good case study on the
role of Government in the regulatory and economic framework to promote innovation in telecoms.