Mobile termination: ComCom opts for regulation

Regulator recommends undertakings from mobile operators be rejected

The Commerce Commission has recommended mobile termination undertakings from mobile operators Vodafone, Telecom and 2 Degrees be rejected and that mobile termination prices should be regulated.

It also announced that it intends to commence a Schedule 3 investigation into whether regulation of the national mobile roaming service should be extended to include price.

In a much awaited draft report, the commission found that mobile termination charges are currently "significantly above cost". The commission, therefore, recommends regulation of the wholesale rates that telecommunications companies charge each other, rather than the price that consumers directly pay for mobile services.

Telecommunications Users' Association (TUANZ) boss Ernie Newman welcomed the report, saying he is "100% happy" and the result was predictable.

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

“Where wholesale services are priced at cost, consumers are expected to benefit from the resulting increase in competition, which in turn should lead to lower retail prices,” said Commerce Commissioner Anita Mazzoleni (pictured).

“In the mobile market, these above cost wholesale mobile termination charges are therefore likely to limit the ability of a new entrant mobile phone company to compete,” said Ms Mazzoleni.

Newman says the key thing now is for the government to accelerate the process.

"Mobile termination is one of the few things in telecommunications the previous government got wrong," he says. "It's a chance for this government to get New Zealand into line with standard regulatory practice."

Telecom's share price fell nine cents on the news.

The commission estimates the retail cost of calling a mobile from a fixed line could be significantly lower as a result of regulation, she says. It also anticipates there would be benefits to consumers in the mobile market as a result of moving to wholesale charges that are cost-based.

Based on overseas benchmarks, the commission estimates cost-based termination rates in 2009 should be 7.2 cents per minute for mobile voice calls and 0.95 cents per text, with these rates reducing to 3.8 cents per minute for mobile voice calls and 0.5 cents per text by 2015.

These rates significantly below current wholesale prices in New Zealand of 15 cents per minute for mobile voice calls, and also significantly below the prices recently offered by Telecom and Vodafone in their undertakings, Mazzoleni says.

Submissions are due by 27 July 2009 and Telecom, Vodafone and 2 Degrees have been invited to submit revised undertakings.

On mobile roaming, the commission says that in the past, it has used mobile termination rates as a proxy for mobile roaming rates. It now considers prices contained in commercial roaming agreements may also be significantly above cost.

At the same time it flagged a number of other concerns regarding national roaming and the mobile market, including the ability of future potential market entrants to negotiate competitive agreements in a timely manner, which suggest that an investigation may be appropriate.

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