18 - 24 May 2000

Business Breakfast organised by The Malta Business Weekly and Le Meridien Phoenicia

Vodafone welcomes the liberalisation of telecoms

by Anthony Manduca

Vodafone is eagerly awaiting the liberalisation of the telecoms sector, according to Vodafone Malta managing director Joe Grioli. Mr Grioli was the guest speaker at the latest business breakfast organised by the Le Meridien Phoenicia and The Malta Business Weekly. Mr Grioli, who spoke on "Why Vodafone welcomes the liberalisation of telecoms" began his speech by pointing out that he never favoured an exclusive privilege "where one player dictates the rules of the game". He said he loves to win and to win one has to have a competitor.

Mr Grioli said that Vodafone international operates in a competitive environment in 26 countries around the world. It is also one of the 10 largest companies in the world. It is now prepared to take on any challenges.

He said Vodafone has around 50 million subscribers around the world and it derives great pleasure from serving them. "It has the best product, the best service and the right price," he said.

Mr Grioli insisted competition did not mean war with Maltacom. A good businessman, he said, respects his competitors. "The coming scenario in Malta will be one which reflects the scenario all over the world, where tariffs are lowered in favour of customer retention programmes, from which the consumer benefits."

Mr Grioli said that we have lived in a very strange environment these past 10 years and he is thankful that things are finally changing. He said Vodafone, or Telecell as it was then, won the licence after a competitive bid in 1989. It was given an exclusive licence for 20 years but 20 per cent of the shareholding of the new company was to be held by Telemalta on behalf of the government.

Mr Grioli said Telemalta was never in favour of a liberalised market partly because a monopoly situation was the only kind of market it knew and partly because it had been overloaded with costs which it could not sustain in a liberalised and competitive market.

The market penetration rate in Malta is still low compared to other countries. Penetration rate is below 20 per cent, while in many European countries it is over 50 per cent. Malta will soon see an explosion in the number of mobile phone users, Mr Grioli said.

Mr Grioli said the industry prediction is that penetration levels will go over the 100 per cent mark once e-commerce is introduced on mobiles. "E-commerce will revolutionise our lives. We will use our mobile phones to pay our bills, to trade, to protect our homes and ourselves and to seek information," he said.

Vodafone's managing director said that back in 1989, people said the company would not last and university professors in the faculty of economics had predicted Telecell would close down in six months.

Mr Grioli said that one must remember that up to 1998 Telemalta was the telecommunications regulator and the telecommunications operator at the same time. "Telemalta dictated the products Telecell could offer and the price it could offer its products at. Telecell, later Vodafone, had a Maltacom shareholder sitting on its board, at the same time that this shareholder was making plans to come out and compete with it. This shareholder or his parent company was also the regulator and decided what products Vodafone could offer and what it could not offer, but the public perception was that it was Telecell which was depriving the public of an enhanced service," he said.

Mr Grioli then announced that Vodafone will launch SMS service in a few weeks' time, WAPS in summer and GPRS before the end of the year. He said that in time, Vodafone will have its own international gateway and it will compete with Maltacom on giving the consumer the right to choose. "It will be the customer who will win through all this," he added.

He explained that Malta cannot have a regulatory office with a budget of Lm30,000 a year. The regulator's office needs to be properly funded and must not consider Maltacom as being part of government.

"As long as the government of Malta holds 60 per cent of Maltacom's shareholding, the telecommunications regulator will always have direct or indirect, conscious or unconscious pressures to take decisions that favour government and Maltacom," he said.

If Malta is to move ahead to get to the level of other countries, it cannot wait five months for an answer to an application to reduce prices.

Mr Grioli said Vodafone has had a number of meetings with the government regarding privatisation. A general agreement seems to have been reached, but the new Draft Telecommunications Regulations which have been published, contain a number of terms which are not clear and some which are contradictory or contentious. Vodafone wants some clarifications.

As it sees it, part of these regulations need to be rewritten in a way to minimise misunderstandings and future disputes over interpretation. Mr Grioli said that the regulations seem to have been written by lawyers intent on providing future work for lawyers.

Mr Grioli admitted that the past weeks have seen Vodafone suffering from a level of line congestion. This was inevitable, he said, while apologising. "There were 10,000 new mobile subscribers in April alone. Subscribers come from all over the island and it takes time to get used to their patterns. "Before this sudden influx, Vodafone could cope with the load because mobile users kept mainly to the business areas and used the mobile at business times. Now, mobile users are more leisure-seekers and they use the mobiles at different time patterns," he said.

Mr Grioli said it was true that some subscribers will not benefit from the average 25 per cent decrease in prices. He said Vodafone has not got the main decrease it asked for which was an all-day rate for Vodafone to Vodafone calls of 10 cents per minute. "This is very normal elsewhere in the world, as in Tim to Tim in Italy, or Orange to Orange in the UK," he said. Vodafone has appealed against this negative decision by the regulator and it is anxiously waiting for the decision by the Telecommunications Appeals Board.

When the floor was opened to questions, Mr Grioli was asked about convergence between mobile telecommunications and data. He urged people to watch out for an announcement by CNBC on Monday on the future of mobile internet. Mr Grioli said that Vodafone is very eager to cooperate with Internet Service Providers and that Maltacom will not be able to block out anybody now. "Vodafone will not block anybody, and it is ready to cooperate with all. It will also have its own portal," he explained.

Another question regarded the pricing structure. Mr Grioli said that one key regulation included the word "ideally" but there are no ideal issues when a regulation is laid down. It is not clear whether Vodafone will now have to ask for the regulator's permission to reduce prices. This is one point about which it is seeking clarification.

"Unfortunately, here in Malta we politicise everything, including the price structures. The free market should put prices at a competition level but one cannot decide on a pricing structure just by looking at profits. Vodafone will compete on prices but also on the efficiency of service. When deciding on pricing structures, the regulator must also consider such issues as the company's reinvestment plans," he said.

UMTS will be brought in by 2002, he said. Vodafone is not against Malta getting the third operator even if in Luxembourg, for example, the EU has laid down certain parameters on which the regulator can base his decision. But he is against a free for all as this will only lead to people offering a poor service. "We are not importing sausages here," he said. Vodafone spent Lm24m on infrastructure. If a third operator is brought in, this will inevitably lead to a reduction in service all around.

Another consideration is technological excellence. The size of Malta is a major deterrent, he said. For example, Vodafone has the same billing core system as that used by Tim in Italy. But Tim has 0.25 million consumers while Vodafone has just 50,000 subscribers. It is also true, he said, that Vodafone is not as labour-intensive as Maltacom: the labour content is just two per cent.

One very important consideration is the fact that there is a visible shift in the spending patterns of people, especially subscribers. "When, in a few years' time, it will be possible to follow your favourite team's football game on your mobile, many people would spend more to be able to get this service. It is the market and the shifting pattern of consumers which will determine the developments and services offered," he said.

Mr Grioli was asked about compensation. He said that in 1989, Telecell had been given the licence on condition that Telemalta was given a 20 per cent shareholding. Now its monopoly has been cut short. Is it part of the deal that this shareholding held by Maltacom to be sold back to Vodafone, he was asked. He said Maltacom is not obliged to sell its shareholding to Vodafone, but can sell it to a third party, and get the price paid by the market.

John de Giorgio, the managing director of Shireburn, asked Mr Grioli about the migration of phone numbers, namely the ability for consumers to hold on to their numbers, even when shifting from one operator to another. Mr Grioli said this has just been introduced in the UK, but the industry had lived for years without it. Vodafone intends to compete on service and this service will eventually be introduced.

Mr Grioli said that Vodafone is not interested in having a fixed line. What it is interested in is linking mobile phones to data transmission. "The future is mobile and some countries are already moving in the direction of having more mobile phones than fixed lines."

This in turn creates huge problems for Vodafone. When, for example, 38,000 people go to Gozo for the weekend, he said, as they do four weekends a year, that creates huge problems for Vodafone. If Vodafone were to invest in a structure in Gozo to cope with the extra numbers of these four weekends, it would not break even.

A fixed line operator does not have these kind of problems, Mr Grioli said. The introduction of E-talk has made matters worse: it is impossible for Vodafone to establish a pattern of where people are roaming around and establish the structures to cope with them. With E-talk, Vodafone does not know who its subscribers are: they are subscribers with no identity. It is only by studying the historical patterns, after they happen, that the company can come to know its subscribers and cope with them.