Last week Ofcom set out proposals to cut mobile termination rates, the costs mobile operators charge other telecoms companies for carrying their traffic over their networks. Ofcom argues that this will lead to cheaper calls for consumers and much of the press coverage has suggested that operators have been overcharging thanks to these costs.
However, Nick Blades, UK head of regulatory affairs at O2, remarked: “Ofcom’s current proposals on mobile termination rates are deeply flawed. If implemented, it won’t just be the communications industry that would be under fire; the proposals would negatively impact the country’s 50-plus million mobile phone users and also threaten the Government’s vision of a Digital Britain. Clearly, we can't just sit by and let this happen. But come what may, O2 will remain 100% committed to ensuring that we maintain the quality of service our customers expect.”
Ben Taylor from Vodafone UK corporate communications, agreed: "A cut of this magnitude deters future investment, makes it less likely that the UK will continue to lead in mobile communications and is at odds with the Government's vision of a Digital Britain.”
Blades stated that Ofcom sets these charges, not the operators. “What we are seeing is a calculation made by Ofcom in 2007 being updated with a new calculation it’s made in 2010, based on updated information. We do not agree with the basis of this new calculation. The UK is the most competitive mobile market in Europe with margins well below all other EU countries. There is no evidence of excessive profit taking or overcharging by any operator based here. So what is all the fuss about?
“Well, quite bizarrely, after nearly a decade of regulating these charges and allowing us to recover a small percentage of the money we invest in our network, Ofcom has decided to remove this network cost allocation from its calculation. Yet clearly we’re still incurring the costs of investing in our network. So the real question is, if we’re not making excessive profits, where do we claw these costs back from?” questioned Blades
A T-Mobile spokesperson commented: “We believe the proposed rate reduction goes far beyond what is reasonable, and, if administered, can only be bad for the mobile industry.
“Whilst we will review the consultation document to fully understand Ofcom’s reasoning and underlying policy positions, we will also check to ensure comprehensive commercial considerations for both mobile broadband availability and consumer pricing have been made, before responding formally to them.
“The UK is recognised as one of the most competitive mobile markets in Europe, and consequently maintains the low retail pricing currently seen. Termination rates are required to offset the investment associated with maintaining and improving the mobile network of today, but also crucially form a large part of the funding required to meet the ambitions of the Government’s Digital Britain proposals on mobile broadband, including 4G rollouts,” said the T-Mobile spokesperson.
Tom Alexander, CEO at Orange UK, noted: “Orange acknowledges this announcement from Ofcom, and will review the proposals, including the nature of the wholesale remedy, carefully. Our ambition to be a recognised player in home entertainment over fixed line broadband remains. We believe that what is outlined will enable new entrants to emerge more easily, inevitably leading to greater choice and value for consumers, as well as potentially providing a catalyst for further innovation within the industry."
However, an Orange UK spokesperson added: “This is a backward step for Britain. If these measures are put in place they will stifle innovation. Any incoming government should be mindful of what these ill-considered proposals mean for the future of their country.”
The Orange spokesperson continued: "Consumers now get better value than ever before from their mobiles, and that value will continue to increase. However, if these proposals come into force, the way our consumers currently buy, use and enjoy their mobiles may be forced to radically change. Handsets may no longer be subsidised, you may have to pay to receive calls and the rollout of Digital Britain and other network investment may be stalled considerably. These proposals are a lose-lose situation for the British consumer.”
As MTR form a major part of UK regulation process, Orange noted it understands Ofcom’s obligation to review on a regular basis. However, whilst Orange is both disappointed and shocked at Ofcom’s ruling, the operator commented that it is clear from Ofcom’s latest proposals that it has largely ignored operator concerns.
“Ofcom has applied minimal analysis on the likely impact and realistic effects of the rate reduction for the consumer, and longer term Digital Britain ambitions,” said the spokesperson. “The proposed rate reduction goes far beyond what is reasonable, and, if administered, can only lead to undermine the entire mobile industry, and a backward step for the entire mobile industry. Whilst we will review the consultation document to fully understand Ofcom’s reasoning and underlying policy positions, we will also check to ensure comprehensive commercial considerations for both mobile broadband availability and consumer pricing have been made, before responding formally to them.
"The UK is recognised as one of the most competitive mobile markets in Europe, and consequently maintains the low retail pricing currently seen,” added the Orange spokesperson. “Termination rates are required to offset the investment associated with maintaining and improving the mobile network of today, but also crucially form a large part of the funding required to meet the ambitions of the Government’s Digital Britain proposals on mobile broadband, including 4G rollouts. Reducing our ability to invest in these will force us to adapt our marketing models, (especially on pre-paid or low usage segment where many customers are using their phone mainly to receive calls) as we will need to recoup this level of cost from elsewhere, thus having a major negative impact on the pricing expected by our customers,” they warned.
O2’s Blades continued: “To say that Ofcom’s proposal will lead to cheaper calls for UK consumers is both simplistic and misleading. We are a business and, as our European CEO Matthew Key commented in The Times, ‘if our business model changes we have to do something to compensate’. We have spent over £10 billion on our mobile network to date. And with surging demand for data and the requirements of next generation networks, we have earmarked hundreds of millions of pounds more to invest.
“If we cannot recoup some of this investment through mobile termination rates, we have two choices,” said Blades. “Either we raise prices in other areas, such as Pay & Go or data, and cut handset subsidies, or we cut back on our investment, risking the rollout of next generation networks or preventing new services from being rolled out in rural areas.
“None of these options is attractive to us but they point to how consumers may ultimately suffer through Ofcom’s proposals. We will be contributing fully to Ofcom’s consultation process to get our points across. And, come what may, we will remain 100% committed to ensuring that we maintain the quality of service our customers expect,” concluded Blades.