Ofcom brings down call termination rates

UK communications regulator Ofcom was busy on Tuesday morning, levelling the prices at which mobile operators can charge each other for connecting calls.

New charge controls will come into play through a series of phases taking place from next month. The move will limit the amount that mobile network operators are able to charge other operators for connecting calls on their mobile networks.

Ofcom expects an average annual reduction in wholesale charges of £400-500m over the next four years, savings which are expected to be passed on to consumers.

For the first time, mobile voice call termination charge controls will apply to Hutchison Whampoa’s UK 3G operator, 3 UK, as well as O2, Orange, T-Mobile and Vodafone.

3 will be subject to charge controls of £0.059 per minute, a reduction of around 45 per cent from previous charges.

Meanwhile, the average wholesale charges of Vodafone, O2, Orange and T-Mobile will be reduced to £0.051 per minute, for connecting calls on both 2G and 3G networks.

For Orange and T-Mobile this represents a reduction of around 20 per cent; and for Vodafone and O2 a reduction of around 10 per cent.

“Charge controls therefore remain necessary to protect consumers from unduly high prices,” the regulator said in a statement.

Stefano Nicoletti, principal analyst for regulatory practice at Ovum, said that although UK rates are amongst the lowest in Europe, the proposed cuts represent only a modest drop in termination rates when we consider they will apply over a period of three to four years.

“Despite the technology and market maturity of mobile networks and despite years of regulation, the cost of terminating calls on mobile networks in Europe is still substantially higher than on fixed networks,” Nicoletti said.

The analyst notes that UK rates are also substantially higher than in other parts of the world. In the US, where the RPP (receiving party pays) system applies at retail level, mobile rates are set at same as fixed rates at $0.09.

Although US customers pay to receive calls, minute usage statistics are far above those in Europe. “Economists are now developing the view that a move to lower wholesale charges might be welfare enhancing.”

The reduction in termination rates has also been interpreted as Ofcom’s acknowledgement that the correct price for the 3G licence to incorporate in the model that determines mobile rates should be based on 2006/2007 prices rather than inflated, pre dot com crash, 2000/2001 prices.”