Vodafone fears regulation will mean transfer of wealth

Tuesday 8th February 2011

Vodafone fears Commerce Commission proposals, which include slashing mobile termination rates, risk a "huge" transfer of wealth from the mobile market into the fixed market, primarily Telecom.

Mobile termination rates are the wholesale charges mobile phone companies charge for terminating calls or texts from other fixed or mobile networks.

The commission published its draft proposal for so-called mobile termination access services just before Christmas, with submissions due by yesterday.

Based on a benchmark group of countries, the commission proposed that for fixed-to-mobile and mobile-to-mobile voice calls the mobile termination rate should drop to 4.68 cents per minute from this April, and decline further to 3.91c by April 2014.

That was a "substantial and immediate" cut, justified by the unique market conditions in this country, the commission said.

It was necessary to remove a long-standing and growing barrier to efficient expansion by a small mobile network operator.

The commission's preliminary view for text messages would mean no mobile termination rate.

In its submission, Vodafone said the most likely outcome of the commission's draft proposal was that fixed operators would benefit from lower wholesale mobile termination costs, and mobile operators would lose significant revenue, with customer benefits uncertain.

There was no guarantee Telecom or other fixed-line operators would reduce their retail prices when mobile termination rates were cut, Vodafone general manager of public policy Hayden Glass said.

Vodafone wanted to see monitoring of retail fixed-line pricing as fixed-to-mobile termination rates came down to ensure price reductions were getting through to customers.

It also proposed mobile-to-mobile rates be cut to cost immediately, from 17.7c per minute in the 2010/11 year to 7.4c in 2011/12.

For fixed-to-mobile, Vodafone proposed a three year "glide path" to bring termination rates down to cost, which it said was in line with standard regulatory practice internationally. By 2014/15 termination rates for both fixed and mobile calls would be 5.5c.

For text, Vodafone proposed a 1c termination charge, saying a zero-priced interconnection risked encouraging spam.

Two Degrees Mobile said in its submission that it supported many of the commission's preliminary conclusions, most notably the proposal for text messages and the immediate implementation of lower access prices.

But it disagreed with the commission's conclusion that with lower mobile termination rates, distortions created by on-net and off-net price differentials would be competed away.

On-net essentially means calls and messages within the same network, while off-net refers to calls and texts between networks.

Two Degrees said the two main networks relied on anti-competitive pricing strategies to trap existing customers on-net.

A non-discrimination condition needed to be imposed preventing large networks from charging different retail prices based on the network being called, Two Degrees said.

Telecom said it supported the pricing principles selected by the commission, but considered there were errors in the benchmarks used to calculate the proposed voice termination rates.

It proposed a one-year glide path for voice mobile termination rates, from around 18c per minute now, to an initial pricing principle of 8.14c, or at the very least, 5.21c by April 2012.

Telecom also said some mechanism was needed to address the potential for text spam and the incentives on parties to congest other networks.

NZPA

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