Cost of calls to mobiles may plunge

By PETER GRIFFIN, IT editor

The price of calls made to mobile phones may tumble next year as a result of the Commerce Commission's investigation into network charges.

In the commission's sights are "mobile termination rates" - what Telecom, Vodafone and TelstraClear charge one another to complete calls on their networks.

The rates make up a sizeable portion of the charges phone users pay when calling one of the country's 2.8 million mobile phones from their fixed-line phone.

The Government has been under mounting pressure to investigate the operators as comparative surveys show New Zealand has some of the highest mobile termination rates in the world and US lobby groups call for cuts to ease trade and competition.

From each call made to a mobile network, between 27c and 30c a minute goes to the mobile operator receiving the call. A standard home-to-mobile call with Telecom costs 71c a minute.

The investigation, which is likely to take the rest of the year to complete, is a win for the Telecommunications Users Association which last year urged the commission to step in.

TUANZ chief executive Ernie Newman said there was "a lot of fat" in the rates charged by Vodafone and Telecom and if the two did not negotiate their prices down quickly, cuts would be forced on them.

"Inevitably, the regulator will find the charges are excessive and bring them down. Once regulators get into this, the trend is they reduce rates by about half," he said.

Telecom and Vodafone renegotiated mobile termination rates late last year and are understood to have reduced them slightly.

But the drop failed to satisfy the commission, which looked at the agreement between the carriers in deciding whether to intervene.

TelstraClear, Telecom's main competitor in the fixed line world, welcomed the probe.

Its chief executive, Rosemary Howard, said her company made very little money out of calls to mobiles because the mobile termination charge was such a big part of the end price.

A fixed-line to mobile call from the TelstraClear network cost around 30c a minute and the overall charge to the consumer was as low as 45c a minute.

"There's no question it's the single most expensive component of the price charged to customers," said Howard.

"You'll find wholesale termination prices have changed very little in New Zealand and significantly overseas."

The two mobile operators who will be feeling the heat of the commission's spotlight - Vodafone and Telecom - were yesterday indignant at the prospect of a price probe.

Vodafone's public policy manager, Roger Ellis, said Vodafone's mobile termination charges had dropped 33 per cent in the past five years.

But the prices fixed-line operators charged their customers for making calls to mobiles had not decreased as much.

"The question is around the price consumers are paying. Vodafone has no control over that," he said.

Telecom's head of regulatory affairs, Bruce Parkes, said the inquiry was unnecessary.

"There's no evidence of excessive profits being earned. It's an unfortunate fact that regulators across the world want to regulate successful industries."

On the face of it, Vodafone and Telecom can well afford rate reductions. In the year to March last year, Vodafone had revenue of $841.4 million and a $90 million profit.

Telecom's mobile division had revenue of $778 million in the year to last June and earned $138 million on this part of the business.

But the two operators claim such profitability is needed to reinvest in their networks.

Vodafone is at present settling a $400 million deal with Finnish mobile equipment vendor Nokia to construct a third-generation mobile network. Telecom spent $250 million building its 027 network.

Calling a mobile

* Vodafone and Telecom charge between 27c and 30c per minute for calls received on their mobile networks.

* Telecom charges 49c (off-peak) or 99c (peak) or 71c (anytime) to call a mobile from a residential fixed line.

* TelstraClear charges 45c (off-peak) 85c (peak) or 71c (anytime) to call a mobile from a residential fixed line.

* Mobile termination rates account for between 30 per cent and 60 per cent of the per-minute cost of calling a mobile.

* The Commerce Commission will investigate whether the rates are too high and may impose price controls. The investigation is expected to be complete by the end of the year.