Termination row reignites as Vodafone and TUANZ clash

Vodafone say ComCom's model is flawed. TUANZ says Vodafone is confusing the issue

The mobile termination regulation row isn't showing any sign of going away as Vodafone and the Telecommunications Users' Association laid into each other again today.

It started with a release from Vodafone, asking whether fixed line providers would have to pass on savings in mobile termination rates once these are regulated. Vodafone argues that if this does not happen, users will be the losers.

In response, TUANZ characterises the mobile giant's argument as equivalent to saying if Vodafone doesn't take users' money, somebody else will.

TUANZ wants to deal with MTRs first and then deal with anybody who doesn't pass through the reduced costs later, TUANZ CEO Ernie Newman says, adding that he doesn't believe this will be necessary because TUANZ has more faith in the market and competition than Vodafone.

Newman's statement comes in response to a posting by Vodafone's PR man Paul Brislen.

On a Geekzone thread, Brislen says the Commerce Commission has one cost-benefit model that looks only at fixed to mobile pricing — not at mobile to mobile or TXT rates.

The model assumes pass through to consumers will start at 85 percent and rise to 100 percent in 2015.

"No rationale is given for this number - it's just in the model," he says.

If you replace 85 percent with 65 percent, the pass through rate in the UK, the model balances out, he says. But, if you replace 85 percent with anything less, it will cost more to regulate than it will gain.

"The average pass through rate in the UK is 65 percent. In Europe it's 50 percent. In Australia, Telstra has a pass through rate of just 16.6 percent, Brislen says, echoing a press release issued this morning.

"What do the fixed line operators do with the extra money? They pocket it. Telstra has earned an estimated $700m in five years of rate reductions and in that time has put the price of making a call to a mobile up."

Brislen says under its agreement with the government it and Telecom have pased on 100 percent of agreed MTR reductions, while other fixed line telcos have passed on an average of just 30 percent.

"If you put 30 percent in the Commission's model, the cost of regulation balloons out to $195 million over a five-year period with no gain for consumers at all," he says.

That 30 percent figure comes from research from Auckland based analyst Covec. Covec analysed pass through rates from Orcon, woosh, CallPlus and Worldxchange to conclude “a reasonable assumption for FTM (fixed to mobile) pass-through under regulation is around 40 percent”.

The report was prepared for Vodafone. In response, TUANZ called Vodafone's release a "diversionary scare tactic".

“Vodafone is effectively saying that if the Commerce Commission and government go soft on regulating the extortionate charges Vodafone is imposing on calls they receive from other networks, they in turn will graciously agree to pass these partial savings on to consumers,"says Newman.

“Vodafone seems to be calling for a form of voluntary retail price control.

“TUANZ does not seek price control in retail telecommunications markets — and most certainly not at the cost of letting the dominant mobile operators fend off competition by continuing to charge up to ten times the real cost of receiving calls into their networks."

TUANZ says the correct way to deal with competition in network industries is to identify entry barriers and bottlenecks, deal with these through orthodox regulation, and allow the competitive retail market to find the best prices for users.

“There is already significant competition for fixed line services across most of New Zealand and the prospect of more to come," Newman says. "TUANZ has no doubt whatsoever that if Vodafone fails to drop retail prices to reflect reduced MTRs, other phone companies will quickly set a lead and force Vodafone’s hand.”

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