On Wednesday Orange announced a simple new single tariff range for all its new contract users. Although there are some benefits to both consumers and Orange of tariff simplification, the main impact appears to be to increase the price of calls for off-peak users, which is a sensible strategy for Orange and consistent with other tariff increases we have seen recently. Orange may lose customers because of this, but it has helpfully given four weeks warning of the change to the other operators, who may react with changes of their own.

Weak economic growth is usually blamed, but we believe that other forms of communication are substituting for fixed voice calls. Substitution of fixed line calls by calls from mobile phones is increasingly less important. By contrast, our conclusion is that Internet-based communication (email and instant messaging) has recently become a far more important source of competition to fixed line voice calls.

Sky's continued excellent performance has attracted favourable comment in the weeks since its half yearly results. But much of the commentary missed some critical points. The analysts did not question Sky's assertions that it was successfully targeting high value customers. Actually, the last half-year saw a fall in the numbers taking the top-priced package. Similarly, few commentators noticed that despite the favourable comments in the results announcement, interactive revenues actually fell last quarter. The steepest rate of decline was seen in betting, which a year ago was going to be application that formed the core of Sky's interactive ARPU. Similarly nobody seemed to have noticed that Sky's overall share of TV viewing declined in the quarter, despite the addition of two hundred thousand new subscribers.

According to the Financial Times (27/03/2002), the European Commission is planning ‘to clamp down on the cost of calling mobiles’ and issue ‘tough new rules’, which ‘would make it easier for national telecoms regulators to force mobile phone companies to reduce excessive call termination charges’. According to our research, this is an exaggerated assessment: the likeliest outcome would be a Commission recommendation on ‘best practice’ guidelines, rather than new rules. Our research also shows that the pressures from NRAs on MNOs to lower mobile termination charges are highly uneven in the top three markets: they are most acute in the UK (predictably, given the pro-consumer orientation of Oftel), less significant but nevertheless present in Italy, and non-existent in Germany. Thus, if the UK Competition Commission endorses Oftel’s proposed charge cap in its forthcoming ruling, we can expect the four leading UK MNOs to lose about £880 million in revenues for the 2002-2006 period, with the annual reduction in 2002-2003 estimated at about £265 million.