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Vodafone slams termination costs decision

Thursday 5th May 2011

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Vodafone has hit out at the Commerce Commission's decision to slash mobile termination costs, saying it will be bad for investment in the telecommunications sector.

The company considers the prices set by the commission to be "significantly below cost", and said it was likely to seek a review.

The commission today said it expected lower charges for mobile phone calls and text messages after deciding "significant" cuts should be made in wholesale termination rates - the costs charged by a mobile network operator for providing services to customers from other network operators.

Telecommunications Commissioner Ross Patterson said the changes were intended to address significant competition problems in the wholesale mobile market.

Those problems had resulted in high retail prices, particularly for prepay customers, as well as a low number of mobile calls, and high rates of people switching networks, compared to other countries.

The commission was concerned about the extent to which the price of calls and text messages between people on different networks were significantly higher than calls and text messages between people on the same network, Patterson said.

"These price differences create significant barriers for the new entry and growth of small mobile operators in the mobile market."

Termination rates for calls will drop to less than 4c by next April, with further reductions until 2014. Termination rates for text messages will drop to 0.06c from tomorrow.

In its decision, the commission said prevailing mobile termination rates in this country were as high as 17.22c a minute for voice termination, with the charge for text 9.5c. Those were significantly above its estimate of forward-looking cost-based rates.

Vodafone said the commission had taken arbitrary benchmark rates which were far below cost. The 4c a minute voice rate looked extreme compared to termination rates of 10c in Australia at 11c in Europe.

It was half the rate indicated by an estimate of cost in this country which had been provided to the commission, while the cost for text, which was unregulated in most countries, had been set at a cost which was around a third of Vodafone's best estimate of cost.

Vodafone general manager corporate affairs Tom Chignell says below-cost pricing was bad for investment in the telecommunications sector and would, in the long term, have an impact on competition by dampening innovation and technology differentiation.

"Competition in the New Zealand mobile market is very healthy. There are three strong mobile operators and 11 brands. 2degrees' remarkable success is testament to this."

2degrees chief executive Eric Hertz said cuts in the wholesale fees operators charged each other were fundamental to price competition for consumers.

The headwinds of high termination rates from competitors had been strong since 2degrees launched in August 2009.

He advised people to think twice before signing long term mobile contracts, saying mobile pricing was headed down.

Labour called on the phone companies to immediately lower retail prices to reflect the commission's decision.

Communications and information technology minister Steven Joyce said he was confident the commission had reached a balanced and reasonable decision.



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