Mobile termination rates

What are mobile termination rates? Mobile termination rates are the wholesale prices charged by a mobile network operator for providing services to customers from other network operators. On 4 August, The Commerce Commission announced its indicative process for determining mobile termination rates, following the announcement by the Minister for Communications and Information Technology, Stephen Joyce, that he has accepted the Commission’s recommendation to amend the Telecommunications Act 2001, to allow the regulation of mobile termination access services. The Minister’s decision is expected to take effect in mid-to late September 2010.

“Regulation of mobile termination rates will not mean benefits to customers overall. Firstly, prices were coming down anyway. The difference between termination rates under regulation and the alternative – an enforceable undertaking to cut prices under the Telecommunications Act – is very small. The undertakings had a rate of six cents in 2013, for example, compared with 4.4 cents under the Commission’s regulatory proposal. Not only is there not much difference in these rates, but the undertakings would actually have meant faster reductions: lower rates would have cut in from October this year, at least six months earlier than regulation.

Secondly, a 1.6 cent difference in wholesale prices will not make a big difference to competition. On fixed-to-mobile prices, we expect fixed calling providers to be a major beneficiary of mobile termination rate cuts. Evidence from Australia is that Telstra kept around 80% of the reductions by not reducing retail fixed-to-mobile prices as termination rates were cut.

On mobile prices, I note that even Eric Hertz, CEO of 2degrees, has been quoted saying it is not possible to guess what impact cutting termination rates will have on mobile calling rates. Certainly we have not seen 2degrees commit to cutting its retail prices if termination rates are regulated. In fact, 2degrees already has a special deal with Vodafone that gives it lower MTR prices; one of many deals we have done with 2degrees that have assisted its market entry.

Regulation is now an increasingly pointless distraction. The mobile sector is the most competitive part of the telecommunications market, with three competing networks and at least ten other retail operators. But we are now going to spend many more months arguing the details of a regulation that, in my view, just will not make a big difference to competition.”

Hayden Glass, General Manager of Public Policy, Vodafone

“TelstraClear’s position on this issue is simple: The Commerce Commission must now determine the regulated price and we encourage it to make these decisions rapidly.

While most other international jurisdictions resolved this issue long ago, the protracted debate, obfuscation and delay in New Zealand has meant ordinary Kiwis have had to pay, and continue to pay, the price of inflated termination rates.

Vodafone and Telecom have constantly suggested that the benefits of the regulation of termination rates are not passed through to end users. TelstraClear does not agree with them – either in principle or commercial reality. We have demonstrated to the Commission that the benefits of regulation are passed through to consumers.

In the fixed line market cost-based regulation of termination rates has been in place since 2002. This has freed up the fixed market so all parties can fairly compete to the benefit of consumers. The Commission’s annual monitoring has consistently shown the benefits from a competitive fixed market. It is time the mobile market was exposed to the same level of competition.”Chris Abbott, Regulatory Group Manager, TelstraClear

“Well, that’s a perspective propagated by incumbent mobile networks all round the world. The larger the mobile network, the greater the benefit of high MTRs and the more protection they get from competition. Protecting large organisations from competition rarely results in lower prices for consumers and the evidence from around the world is very clear, lower mobile termination rates result in lower retail prices for fixed and mobile customers, greater levels of use and much higher levels of competition.

It was only a few years ago, back in 2002, that mobile termination rates were 38c and fixed-to-mobile call rates were sky high at around $1.00 per minute as a result. Now wholesale is around 14-15c and retail prices are closer to 30c if you know where to get them. It is possible under MTR regulation that Telecom might increase its retail prices for calls to mobiles but surely everyone would leave and join Callplus, Telstraclear, Airnet or anyone else who has incentives to pass value on to customers and win market share.

Furthermore, Telecom is currently able to offer highly favourable rates for calls made from its fixed line customers to its own mobiles that can’t be matched by one of its fixed line competitors when MTRs are high. Vodafone has a similar offer. It makes it very difficult for another fixed line provider to offer competitive prices if they are forced to pay wholesale fees higher than those being offered at the retail level by a fixed / mobile provider.

If fixed line customers do not get better value from their providers for calls to mobile networks then there may be wider problems with fixed line competition but let’s be clear, without lower MTRs competition will struggle to take hold and the dominance of the big mobile networks will continue to mean that New Zealand has some of the highest prices and lowest usage of mobiles in the developed world.

Lower prices may not be guaranteed with lower MTRs but high prices are virtually guaranteed without lower MTRs. Every country in the OECD, except for Mexico, regulates MTRs to cost and have done for around a decade. In fact, European operators are all moving to a lower cost assessment still, as regulators there have recognised the value of efficient competition. New Zealand incumbents have managed to stave off regulation quite long enough.

Efficient competition in networked industries relies on effective access regulation. Every other developed country has recognised that MTRs must be cost based and those countries are being well served by their telecommunications providers and well served by their regulators. New Zealand is now in a position where it can catch up and consumers across the industry will be the beneficiaries by being able to use their mobile phones more, at a lower cost, and not have to worry about whom they are calling.”

Eric Hertz, Chief Executive Officer, 2degrees Mobile

“We are pleased with the decision to regulate. We all know that New Zealanders have faced a raw deal for too long. Ultimately regulation will lead to better deals for both mobile and fixed line customers, and see New Zealanders paying a fair price for a fair service, rather being held to ransom by two industry players. Clearly Orcon is a new player in the mobile market, and we are establishing our niche, but to be able to do so with a regulated MTR is a weight off our shoulders.”

Taryn Hamilton, Head of Sales and Marketing, Orcon