3’s Termination Appeal

3 have lodged an appeal with the Competition Appeal Tribunal against Ofcom’s new termination rate caps, complaining that the changes would threaten its capability to turn a profit.
Mobile termination rates represent 15 per cent of network’s revenue in the UK market, about £2.5bn to the sector per year.

Ofcom’s new caps are cutting 3’s termination rates to 5.9 pence per minute gradually over four years, by April 2010, a total cut of about 45%.

3 boss, Kevin Russell, accused Ofcom of making an “absurd” and anti-competitive decision which would end up with 3 subsidising the bigger, established networks.

The big four more or less break even on termination rates, with the money they make counterbalanced by the money they pay out.

However, 3 have a smaller subscriber base, and therefore payout more than they receive, with £50m paid out last year. With the new cuts this could rise to £100m.

“What you end up with is this illogical and absurd situation where you have a new entrant . . . actually cross-subsidising significant amounts of money to established mobile incumbents,” said Russell.

Losses in the UK meant Hutchison Wampoa missed its guidance that 3 would break even last year, and are now on track to break even by the first half of this year, six months later than predicted. Ofcom’s decision could jeopardise their road to profitability.

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