Youth won’t move ‘off net’, says 2degrees CEO

The mobile termination rates row continues

Comments from speakers, panellists and the audience at the Telecommunications Day conference held in Wellington this month, reveal mobile termination rates continue to be a major concern.

A study conducted for new mobile telco 2degrees, also known as NZ Communications, shows users in one desirable customer category – intelligent, young people – are still hesitant to move “off-net” for their calls.

According to the survey results, 97% of secondary school and university students in the Auckland region use Vodafone and 97% of their voice traffic and 96% of texts are confined to the Vodafone network. In Dunedin 85% use Telecom phones with 81% of their voice calls and 90% of their texts travelling from one Telecom phone to another.

Student users are clearly hesitant to make “off-net” calls, so are not prepared to swap providers, because it will mean losing touch with their friends says 2degrees CEO Mike Reynolds. This can only be bad news for a new entrant to the market, he says.

2degrees plans to launch its mobile services in August.

The wholesale termination rate, the rate for off-net calls, is 20 times the retail on-net rate, says Reynolds. This is clear evidence that rates have nothing to do with the actual cost of terminating a call, he claims.

“Otherwise, how could you deliver something on your own network for one-twentieth of what you’re charging someone else to deliver?”

The cost of termination is virtually nothing, he says, so all the charge goes to the bottom line. In many countries termination rate is a non-issue.

Depending on the criteria used for the comparisons, local rates can look reasonable. For a three-minute call, New Zealand charges are about halfway down a table of European rates, according to a chart Reynolds showed. However, this is misleading, he says, since in most European countries charges are levied by the second while charges here are rounded up to the nearest minute, he says. There is a lot of payment for time not used.

When that difference is factored in, New Zealand comes out with the second highest charges against the European basket of countries, beaten only by Bulgaria. Considering the most common duration of a call is about 20 seconds; the rounding effect is in practice even more severe than simple averaging would indicate, he claims.

Furthermore, the European Commission is now putting pressure on European countries to charge rates that reflect only the cost of providing termination. If this is taken up, there will be a lurch downwards, leaving New Zealand even more of a glaring exception.

“The termination rate issue is absolutely the most important issue in getting to real competition,” Reynolds says.

In his presentation Vodafone CEO Russell Stanners responded that end-user costs are coming down by about 18% a year, with further effective falls represented by special deals such as $10 texting and flat rates per month for calling nominated people – such as Vodafone’s BestMate scheme.

“Clearly we’re competing on price,” he says; “we’re lowering the price and you’re responding by increasing usage.”

The other Reynolds, Telecom CEO Paul Reynolds, avoided directly confronting termination rates, preferring to talk about Telecom’s investment in broadband cabinetisation.

The three-minute factor

Vodafone spokesman Paul Brislen says 2degrees’ termination data is incorrect.Releasing Vodafone’s own data (see chart), he says New Zealand telcos charge minutes plus seconds for termination. In Europe, he says, some countries charge a flag fall, some charge second plus second, some charge 30 seconds plus second and some charge minute plus second.

To equalise this, he says, the European Regulators Group, takes the price for a three-minute call and divides that by three to “make the rate accurate across the board”, Brislen says.

He adds that there is no correlation between the cost of service to customers (the black line in the chart above) and mobile termination rates (the bars), pointing to Denmark which has the lowest prices but relatively high termination rates as an example.

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Tags Vodafonetelecom2degreesmobile terminationNetworking & Telecomms IDmtrs

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