Vodafone: distribution agreements for pre-pay mobile phone vouchers

No. 5/04/2002

The Federation of Wholesale Distributors complained to the Director General of Telecommunications (the 'Director') that because the final price to the consumer for pre-pay mobile phone vouchers is fixed at the face value, there is effectively resale price maintenance by companies such as Vodafone Ltd ('Vodafone'). Following an initial examination of the complaint the Director considered that there were reasonable grounds for suspecting that Vodafone was infringing the prohibition on anti-competitive agreements set out in section 2(1) of the Competition Act 1998 (the 'Chapter I prohibition') by virtue of its participation in distribution agreements with a number of distributors to fix the retail prices of pre-pay mobile phone vouchers.   

Vodafone argued that the prohibition in Section 2(1) of the Act does not apply because the Agreements are drafted in such a way as to ensure compliance with its Telecommunications Act licence requirement in respect of price publication. Condition 58.3 of Vodafone's licence granted under Section 7 of Telecommunications Act 1984, requires Vodafone to 'provide…services…at the charges, terms and conditions so published, and shall not depart therefrom…'

The Director considers that Condition 58.3 does require Vodafone to maintain the resale prices of vouchers to end users, and that to the extent that this Condition applies, the prohibition in Section 2(1) of the Act is disapplied under Paragraph 5(1) of Schedule 3 of the Act (general exclusion for compliance with a legal requirement).

Vodafone has two forms of standard distributor agreement: the standard distributor agreement as drafted pre-2000 (the 'pre-2000 Agreements') and the standard distributor agreement as drafted post-2000 (the 'post-2000 Agreements').

The Director has decided that the post-2000 Agreements are narrowly drafted only to ensure compliance with Condition 58.3, as they require that the customer pays the price printed on the face of the voucher. Accordingly, to the extent that this Condition applies, the Chapter I prohibition is disapplied under paragraph 5(1) of Schedule 3 of the Act.

On 5 April 2002 the Director decided to remove the determination that Vodafone has market influence under Condition 56 of its licence, which has disapplied the price publication requirement in Condition 58. Therefore, from that date the exclusion to the Section 2(1) prohibition under Paragraph 5(1) of Schedule 3 of the Act no longer applies. 

However, Vodafone has already expressly confirmed to its distributors that it will not enforce the clauses in existing contracts relating to resale pricing of vouchers. Vodafone has also given an undertaking to the Director that by 30 April 2002 it will have written to its distributors giving three months' notice under their existing contracts of its intention to terminate the Agreements, with a view to replacing them with new distributor agreements that do not require vouchers to be sold at face value.

In the light of both the requirements of Condition 58 and the undertakings given by Vodafone, the Director has decided to close this case.

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