Ofcom to Slash Mobile Operator Transfer Costs by 80%

Industry regulator Ofcom has announced that it will cut prices that U.K. mobile operators charge to transfer calls from other networks by 80% over the next four years in a move they say will benefit consumers and promote competition.

Ofcom will place a cap on mobile termination rates – the charges that mobile operators make to other operators to connect calls to their networks – for the four national mobile network operators, Vodafone, Everything Everywhere, 3UK and O2. The cap will come into effect on April 1 and the rates will fall annually until 2015.

Ofcom is following in the footsteps of other national regulators across Europe who have already implemented cuts to mobile termination rates. The 80% decline over four years set out by Ofcom is a lower rate of decline than Germany, Belgium or the Netherlands, where rates are falling by around 50% this year alone.

Cutting termination rates removes a perceived cash cow from large mobile operators, which were benefiting from the charges at the expense of smaller entrants and fixed-line operators.

The European Commission, which set out its recommendations on cutting rates in 2009, said lower rates should incentivise investment in other areas. The commission said the proposed reductions across Europe could shave EUR4 billion off mobile operators’ revenue between 2009 and 2012.

But Ofcom said mobile termination rates, which apply only to voice calls and not data traffic, will become a less significant element of mobile operators’ revenue over the four year period as data usage increases. The volume of data traffic over mobile networks more than doubled in the last year, and now accounts for the majority of traffic over mobile networks, the regulator said.

Ofcom, which first flagged the changes in April 2010, said the lower rates will lead to cheaper landline services as landline operators will have to pay less to pass calls on to mobiles, and will be able to pass those savings on to customers. The regulator said lower termination rates will also promote greater competition in the mobile market as operators will have greater pricing flexibility.

BT has welcomed Ofcom’s announcement, saying:

Ofcom has set rates at a level somewhat higher than those in its recommendation last April and the reduction glide path is more gradual than we had hoped for. However, BT intends to pass on the new rate to customers as soon as possible. We are also looking to introduce an all-inclusive package that will include calls from landlines to mobiles and we will make a further announcement on this in due course.

John Petter, managing director Consumer, BT Retail, said: “Ofcom has made some worthwhile reductions in mobile termination rates, which will benefit customers in the near future. Our focus is now on developing an all-inclusive package that will enable people to call mobiles from their landlines at no extra cost, with no fear of ’bill shock’. This will be incredibly good news for BT’s customers.

“I want to thank everyone who got behind the Terminate the Rate (www.terminatetherate.org) campaign. Your efforts have helped bring us to this point, which will signal a major, beneficial change in the form of lower prices for telephone users and greater competition.”

Ovum analyst Matthew Howett commented, “Ofcom has decided to get tough on the amount operators charge each other for connecting calls because this represents a price floor in terms of the retail price that is paid by consumers. Consumers are set to be the main beneficiary, and will notice the cost of calling from a BT fixed-line to a mobile will fall dramatically over the next four years.

“This will allow fixed-line operators such as BT to bundle minutes to mobiles within their call packages, which up until now has been prohibitive given the cost. Those that will feel the most pain will be the mobile network operators. These charges account for a significant proportion of their revenues (as much as 15%), and they may look to raise subscription charges to offset this.

“The regime after 2015 has yet to be determined, but having the cost of terminating a call in the mobile network at a level similar to in the fixed network will enable operators to choose from a range of alternative charging mechanisms – such as bill and keep, where call termination is priced at zero. Capacity-based interconnect could be another option, which becomes a lot more relevant in a world where data is king and the minute is no longer a relevant cost driver.”

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