TUANZ calls on ComCom to reject termination undertakings

TUANZ is urging the Commerce Commission to reject undertakings provided by Vodafone and Telecom on mobile termination rates, saying the incumbent operators "must not be allowed to use voluntary undertakings to lock in several years of profit margins that are way over directly related marginal cost".

In a submission to the Commerce Commission (pdf), TUANZ says draft undertakings from the incumbent operators and new entrant NZ Communications are incompatible to a degree that could only be resolved by a complete withdrawal and resubmission of radically different undertakings by some or all of them.

"In our view, the Commission could not accept NZ Communications proposal for a zero MTAS termination rate, ie. Bill and Keep (BAK) system, without rejecting the draft undertakings of both Telecom and Vodafone, since the implications of BAK affect the whole commercial structure of cellular mobile services," the submission says.

The row is over fees paid by mobile operators for terminating calls on their networks. Broadly, Telecom and Vodafone want to agree to a rate, while NZ Communications wants a different regime where there are effectively no termination rates charged between operators

TUANZ says the global regulatory environment is in a state of flux and there are few models for New Zealand to follow. However, a possible move to bill and keep is under serious consideration in some regions.

TUANZ argues that the offers in the draft undertakings of Telecom and of Vodafone "fall far short of an acceptable response to the Commission’s objective to foster the competitive delivery of telecommunication services in New Zealand".

It also argues the cost of operating 3G networks is well below those of 2G networks, so accepting the undertakings will lock in profit as New Zealand moves increasingly towards 3G this year.

"Other consultants submit that the real marginal cost of call termination is already close to zero," TUANZ argues.

"If the internal costing of on-net termination can justify the extremely low or zero pricing of on-net calls offered by MNOs (mobile network operators), then additional marginal cost for off-net termination seems to consist mainly of billing and accounting charges plus discriminatory price margins that can be imposed in a monopoly environment of termination to a unique network device."

TUANZ recommends the Commission regulate termination by making it a designated service under Schedule 3 of the Telecommunications Act, "with a pricing principle providing a steep glide path to zero termination rates".

This, it says, would establish a transition timetable to bill and keep while allowing time for adjustments in carrier relationships and retail packaging.

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