Research Notes

Is the mobile services market facing massive regulation?

– and if so, what advantages would that give…?

The mobile industry has always been a market characterised by comprehensive regulation from the authorities. This regulation has however not been continued at the same level on the mobile services market – even after many more players have entered the mobile services market. Today there are a number of frightening examples of misuse of e.g. Premium SMS, but the question is whether regulation is the answer, or whether self-regulation is preferable?

Many European countries have a tight Telecom regulation that on the one hand limits the operator’s choices, but on the other hand is also an attempt at limiting the former telecom incumbents, so they do not completely dominate the market. Telecom regulation is especially targeted at:· Minimum subscription periods
· Termination fee
· The possibility of wholesale access to operators’ networks

Many European mobile operators are governed by a limited subscription period for new customers and in some European countries, subscription periods are not allowed at all (e.g. on the GSM market in Finland). In Belgium it is not legal to sell goods under the purchase price and this includes mobile handsets. These laws mean that in Belgium and Finland, operators cannot subsidise GSM handsets.

In most European countries the authorities determine a number of termination fees. The authorities believe that the regulation of termination fees is a necessity to ensure reasonable competition on the market, so that an operator with a large customer base cannot misuse their dominating position to have a disproportionately large share of competing operators revenue.

In many European countries operators are obliged to accept service providers and MVNOs on their network an reasonable terms. A few operators have been unwilling to share their network capacity with service providers and MVNOs, as allowing them access would enable the possibility of establishing discount mobile companies and their no-frills concepts.

But this strict Telecom regulation has not been transferred on the same level to the mobile services market. In Europe where revenue sharing models are in use, there are number of examples where content providers like Jamba  have intentionally misused revenue sharing models and especially the possibility of developing services based on subscriptions has been debated a great deal. Some examples of misuse are:

· A number of cases where SMS has been used for SPAM.
· A number of cases where mobile customers have received bills for services they were not aware that they had used.
· A number of cases where customers have received bills for services, where the price had not been specified and where the invoice was therefore significantly higher than the customer could have expected.
· A number of cases where users have received a great number of expensive SMS messages that were difficult to unsubscribe from.

As Strand Consult describes in our new report – ”How to get success in the 3. Generation VAS market” – the events above make it important for market players to agree on a set of rules that will prohibit cheating and confidence tricks amongst content providers, as the market will otherwise attract unwanted players. A set of rules will be especially important on an open-garden market, as cheating and deception from just one market player will affect all the other players on the market. But it is especially important for operators to agree on a set of rules for the development and delivery of mobile services, as mobile users will most often identify the services with the operators, or in other words the users will perceive the operator as the service provider – even if the operators only function is to deliver the service to the end user and the operator does not market or brand the service in the revenue sharing models. The operators ought to therefore show their strength and lead the way. The operators have the possibility to be the guarantor that future services will function satisfactorily and not violate ethical rules.

Especially SPAM and virus can become a large problem on the mobile market in the same way it has become on the Internet and indeed the problem can be worse for mobile users than for Internet users. This is because the mobile handset is perceived as a very personal object. As new possibilities for sending and receiving messages over mobile networks emerge, they will be utilised, unless operators take advantage of having full control over their mobile networks. In this way the operator has the possibility to effectively filter out unwanted messages and implement other security solutions like antivirus and firewalls directly on the network, so a virus never make it out to the end-users handsets.

It is a natural question to ask oneself, whether the authorities ought to legislate on the mobile services area. Basically legislation ought not to be necessary, because all market players in the mobile value chain have a natural interest in a healthy market, where the consumers are confident and without “Internet conditions”. The most natural market development would therefore be through self-regulation – that would ensure that market players take responsibility. We would prefer to see self regulation, rather than regulation.

the 3. Generation Value Added Service Market

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