The Commerce Commission is recommending that ICT Minister Steven Joyce reject Vodafone's and Telecom's undertakings and regulate Mobile Termination Rates.

This is a reversal of the Commission’s recommendation in February that MTRs not be regulated. That recommendation was a split decision with Telecommunications Commissioner Ross Patterson against regulation.

So what changed his mind? It was Vodafone’s Talk Add-on product, introduced in April which provides discounts to on-net customers, and which appears to take unfair advantage of the so-called barriers to competition that MTRs create.

Minister Joyce asked the Commission to reconsider its recommendation against regulation in light of the introduction of this new plan. It was a move widely seen by the industry as paving the way for regulation.

“The on-net retail pricing component of Vodafone’s new Talk Add-on plan, offered since the final MTAS report, perpetuates the barrier to expansion that the final undertakings, if accepted by the Minister, were designed to remove,” said Patterson in a statement this morning.

“While lower retail prices are generally good for consumers, the competition concern which arises in relation to the Talk Add-on plan is the combination of low on-net retail prices and above-cost wholesale mobile termination rates which creates a barrier to efficient expansion by a new entrant. In light of such developments, the Commission’s preliminary view is that if cost-based mobile termination rates were put in place, then all mobile operators would be able to vigorously compete in the retail market and provide consumers with competitive and innovative calling products."

“Our preliminary view is that the introduction of Vodafone’s Talk Add-on plan is evidence that the assumptions made by Commissioner Gowan Pickering and me in the Commission’s final report, in respect of Vodafone’s future behaviour, have been undermined. As a consequence, the conclusion that ‘the competition concerns identified by the Commission would be addressed in a timely manner byacceptance of the final undertakings’, which was based on those assumptions, cannot stand.”

Submission on the Commission's draft reconsideration report are due by on 19 May 2010.