2degrees: We need rate cuts to hold prices

2Degrees chief executive Eric Hertz. Photo / Richard Robinson

Mobile termination rates must come down today if 2degrees is to maintain, let alone drop, its prices, the carrier says.

The telco said it began pricing in expected termination rate cuts from August last year and could not afford to continue offering its calling and text packages if rates were not slashed.

Last month chief executive Eric Hertz told the Herald prices would not be reduced straight after the cuts.

This ran contrary to statements in December, when he said 2degrees could afford to cut prices if rates were lowered.

Termination rates are the fees telecommunication companies charge one another for the termination of a call or text message originating from a rival network. So if a Telecom customer calls a Vodafone mobile, Vodafone charges Telecom the fee.

2degrees said it began offering more competitive calls and text bundles after Communications Minister Steven Joyce said last August that termination rates would be regulated.

"At 2degrees we knew that regulation was coming in back then, even though we didn't know exactly [what rates would be cut to]," said 2degrees chief operating officer Bill McCabe.

"We factored in that rates would be coming down significantly."

In response to questions on whether the company had been loss-leading, McCabe said 2degrees was in a no-win situation. "If we hadn't done anything about [the anticipated rate cuts] to date, you would've had us the other way and said 'The rates are coming down, what are you doing?"' he said.

In March 2degrees announced it had gained more than 580,000 customers since launching in August 2009.

The mobile carrier attributed its customer numbers to "simple plans that offer more for their money".

But these plans are unsustainable if rates stay where they are and McCabe confirmed 2degrees could not continue to offer them without MTR cuts.

The Commerce Commission is set to announce its final decision on termination rates this morning.

A draft decision from it in December suggested rate cuts of about 10c a minute, from 14c to 4.68c, with text message fees cut from 9.5c to 0.16c.