Higher mobile charges "creative economic thinking"

Telecom and Vodafone both oppose changes to regime, saying it will cost users more in the long run

Higher mobile charges "not likely": TelstraClear

TelstraClear has dismissed Telecom and Vodafone's submissions on mobile call termination rates, which threaten to increase end-user charges if terminate rates are cut, as "creative economic thinking".

Grant Forsyth, TelstraClear's manager of regulatory and industry affairs, made the comment after last week's three-day mobile termination rates conference in Wellington. The conference, organised by the Commerce Commission, discussed submissions on the issue.

Telecom and Vodafone object to the commission's draft determination, which recommends that mobile termination rates be slashed from the 27 cents to 16 cents. The present high rates are the result of limited competition in the market, the commission says. Vodafone and Telecom deny this, saying New Zealand enjoys a "two-sided" competitive market, and this has led to lower charges for customers.

However, Forsyth denied the mobile market was competitive. Telecom and Vodafone have merely got some economists to come up with the right equations to support the idea that New Zealand has a "two-sided market" in mobile telecommunications, he says. But this is not so. Economists hired by TelstraClear argue that the New Zealand mobile market is, in fact, a monopoly market, says Forsyth.

Both Telecom and Vodafone's New Zealand submissions are similar to submissions they have made to regulators in the UK and in Australia, Forsyth says. And these overseas regulators rejected the suggestion that lower mobile termination rates would lead to increased end-user call charges, says Forsyth.

Telecom and Vodafone, the two mobile phone providers in New Zealand, are strongly resisting attempts by the commission to cut termination rates. Both stated in their submissions that lower termination rates would not only lead to higher end-user charges customers, but would also threaten the rollout of 3G networks.

The Commerce Commission's draft determination has a Australian precedent. In June 2004, the Australian Competition and Consumer Commission recommended that mobile termination rates be slashed from 21c to 12c in 2007. In stark contrast to Telecom's view here, Telecom's Australian subsidiary, AAPT, welcomed the ACCC decision.

TelstraClear felt "a little alone" at the conference, says Forsyth, as none of the other telcos opposed Telecom and Vodafone's submissions - despite "screaming for years about high termination rates."

He dismissed Telecom and Vodafone's comment that lower termination rates would hamper the rollout of their 3G networks as "scaremongering". However, the commission's recommendation that rates be cut will not affect TelstraClear's plans to enter the mobile market, says Forsyth, although he declined to reveal details about telco's plans.

Telecom's general manager of government and industry relations, Bruce Parkes, says slashing mobile termination rates would make it uneconomical to connect "low-end" customers who don't spend much money. TelstraClear's economists could not refute this argument, says Parkes, who added that Telecom "would not sell services at a loss".

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Tags telecommunications commission

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