Cellphone call rules could slash telcos' earnings

By PAUL BRISLEN

Mobile phone operators Telecom and Vodafone are set to take a huge cut in earnings if a draft ruling from the Commerce Commission makes it into law.

The commission has issued its draft determination into cellphone call termination rates and concluded that limited competition in the market means local call rates are too high.

The determination has outlined regulation of termination rates - the fees that companies such as Vodafone charge other providers to connect to its network.

Osmond Borthwick, the commission's network access group manager, said it had taken two separate approaches to cutting costs.

"The first is strictly on economic terms and should produce a saving of $27 million over a five-year period.

"The second uses a consumer welfare approach that suggests more competition will result from the regulation and the net benefits are between $185 million and $217 million over five years."

Borthwick said any regulation would begin in 2006 and cover the period leading up to 2010.

According to the report, the impact on Telecom and Vodafone would be considerable.

"In the year to June 2004, Telecom reported fixed-to-mobile revenue of $295 million."

That is an average price of 43.1c a minute.

This compares with 11.8c a minute for national tolls and 26.8c for international toll calls.

Vodafone has not reported its earnings from cellphone termination rates.

But in Australia, the company is estimated to have lost up to 20 per cent of its revenue after regulation was introduced in June.

The Australian Competition and Consumer Commission said mobile termination rates should fall from 21Ac a minute to 12Ac by January 2007.

In New Zealand, the commission estimates call termination rates across the industry are about 28c a minute, and should be chopped to 16c, a fall of 43 per cent.

Telecom's share price slipped 3c to $5.84 on the New Zealand exchange yesterday.