Major business users claim that mobile termination rates (MTRs) are keeping the cost of delivering the 0800 via mobile phones and SMS text services artificially high.

ASB Bank Director of Technology Russell Jones and Automobile Association CIO Doug Wilson are convinced that high MTRs – the fee Vodafone and Telecom charge each other to terminate calls on their networks – are the reason for the high price of providing their customers with mobile 0800 and SMStexting services.

Jones says that despite 10% of calls to the ASB Bank’s 0800 numbers being from a mobile phone, it represents more than 30% of the total cost of the entire 0800 service. “You can deduce from this that an 0800 call is in the order of three times more expensive for us than the combination of national and local calls,”he says.

The AA receives 750,000 calls each year to its 0800 AA Service line; 52% are from mobile phones, which accounts for 55% of calling minutes, and 82% of the cost.

“As you can see, mobile calls represent a disproportionate part of our overall toll-free costs,” says Wilson. “In a competitive toll-free market I have no doubt that even a small change in the termination rate will have to be passed onto the customer.”

The ASB is about to reinstate the automated 0800 fastphone service, which enables a customer to access their bank balance and transfer funds between accounts using their mobile phone. But both Jones and the ASB’s General Manager for Online and Information Services, Peter Muggleston, are bracing themselves for the extra cost the bankwill incur.

“The problem is you have excessive technology costs, but it’s possibly a more efficient channel for customers,” says Muggleston. “So you’re trading off the customer experience of them actually needing to wait to speak to a human being for a task that potentially could, or should, be automated.”

The bank has been told by account managers at both Telecom and Vodafone that they can’t be offered a cheaper rate than the MTR – according to Telecom currently around 24c a minute for an 0800 number – despite the high volume of calls they are likely to process. Muggleston says neither telco will budge on the price.

“The usual answer that you’re given is ‘we’re constrained by, choose one of the above: the Commerce Act, the law, the regulator’ – they just come out with a different thing every time you talk to them about it,” says Muggleston.

Vodafone regulatory manager Richard York says as it costs more to operate a mobile network, users should expect to pay more for cellphone than for landline calls.

“It is not unreasonable that the cost of calls might be three times as expensive via mobile, given it is recognised internationally that it costs more to terminate traffic over a mobile network than a fixed network.” he says.

York says there is a distinction between MTRs and Mobile Origination Charges (MOC). The MOC is applicable in the 0800 service because it is the price telcos charge to originate a call from their mobile network.In practice though, Vodafone sets the same rate for both MTRs and MOCs.

According to York no one in New Zealand has actually measured the cost of terminating calls from another network in this country. The cost concept referred to in these debates is a “theoretical construct created by the regulator”.

Vodafone has always maintained there is no guarantee a regulated MTR service will result in lower fees for users. For example, it claims in Australia Telstra has only passed on 25% of the savings it’s made because of a reduction in MTRs. But in the case of 0800 numbers Doug Wilson says he believes that there is enough competition in the New Zealand retail market to ensure those savings are passed on.

Telecom spokesperson Katherine Murphy disputes there has been no reduction in the price the telco charges for 0800 services.

“Our 0800 pricing is competitive and our customers have enjoyed the benefit of reduced pricing in recent years. Since the start of the 2007/2008 financial year our national 0800 pricing has reduced by over 18%,” she says.

If the 0800 service from mobile phones seems overpriced, it’s the cost that both companies and their customers are charged if they provide an SMS service which really gets them riled. At the TUANZ Telecommunications Day in May, Wilson stood up and told the CEOs of Telecom and Vodafone their text services were overpriced. Telecom CEO Paul Reynolds replied that if there was an issue with text pricing they could come and see him, but at the time of Telecommunications Review going to print, neither company had heard from either telco.

“We escalated the issue after the TUANZ Day,” says Jones. “Three weeks later and we’re waiting to hear back through the account manager.”

Muggleston says texts to and from companies and other organisations are classified as a Premium SMS service, which means they fall outside the consumer text bundles, such as 2000 texts for $10 a month.

In practice this means that a consumer texting AA or ASB is charged 20 cents to text the organisation, and they are in turn charged 20 cents to send a reply.

As Jones points out, that’s 40c a transaction, and in the customer’s mind it’s the same as a bank fee – a perception he says is further reinforced by the fact that most mobile users can text for little or no cost.

“How can an 18-year-old send 2000 texts and it costs them $10 a month, whereas it costs us $400 to do the same thing?” he asks.

“People are allowed to charge the price that the market will hold for their services. But the reality here is that the price is unrelated to the cost, and that’s the thing that irks.”

The MTR for SMS messages is estimated by the Commerce Commission to be 9.5 cents.

Vodafone’s Richard York says that in general SMS is not regulated in other countries – the only country in Europe that does this is France, where the termination rate is around seven NZ cents. “Vodafone has offered to gradually reduce its SMS termination rates to this level to the Commerce Commission in voluntary offers made earlier this year,” York says.

In reality, York says there is a “wash in the market”; that is, the termination fees they pay Telecom are roughly the same as the fees they receive.

So why not go for bill-and-keep – that is, zero MTRs?

York says that if there were no MTRs on SMS services, and it cost nothing to send a text, it could increase the risk of text spam. He points out that on the internet sending email is free and over 90% of email traffic is spam.

Why did TUANZ members gain the impression that texts are free? York says the CEOs were probably alluding to the fact that the price for consumers to send and receive texts has been significantly reduced. “Text isn’t free; people pay a charge – for instance, a Vodafone customer pays $6 a month to send unlimited texts to another Vodafone mobile under the BestMate plan.”

But if the Vodafone customer texts the bank, this cost falls outside this kind of retail offer.

York says the way that pricing is determined for different customers is a retail decision, not a regulatory one.

Asked what it costs to provide the service, York says Vodafone doesn’t know how much it is using a regulatory model to send a text message over their network, and even if they did have that information, he wouldn’t say because it is commercially sensitive.

Telecom says MTRs don’t apply on bulk SMS services because there is no interconnect between Telecom and Vodafone. “The pricing of bulk SMS is a commercially set proposition,” says Murphy.

The ASB currently provides a text service to its customers – it has 25,000 customers signed up and there are around 25,000 transactions a month. It’s a small uptake when compared to the bank’s online service, which processes four million transactions a month. Jones and Muggleston believe that price is the reason more customers don’t use the text service.

Both the ASB and the AA would use the text service – their systems are ramped up and ready to go – many thousands of times over, if the telcos would bring the cost of SMS down.

Wilson says the AA would like to provide a text service to its customers, but as 10 cents is the lowest cost at which the telcos will offer the service to the AA, it’s too prohibitive. The organisation has done the sums and could offer a text service at 5-6 cents.

Jones says the ASB offers text alerts – messages that tell customers when their account is overdrawn, when an account is due to be paid, or when your account goes over a certain limit – but it’s a hard sell.

“We don’t have a particularly good story as a selling point – set yourself up with a whole lot of alerts, get five alerts a day and pay $1!”Muggleston says if the text messages were a revenue-gaining exercise he could understand the telcos expecting a share of it, but the ASB balks at having to pay what it sees as excessive charges, for delivering a service to its “shared customer”.

The Commerce Commission is currently investigating MTRs and is due to release a draft report this month. It will make a final recommendation to the government by the end of the year.