Mobile users urged to demand a better deal and 'vote with your wallet'

Telecommunications Commissioner Ross Patterson Photo / Mark Mitchell

Cellphone users across the country are being urged to 'vote with their wallet' and demand a better deal from their mobile providers, after the Commerce Commission announced this morning it was slashing mobile termination rates.

The Commerce Commission said termination rates for text messages will drop to 0.06 cents from tomorrow, while rates for calls will drop to less than 4 cents by April next year.

Termination rates (MTRs) are the fees telecommunication companies charge one another for the termination of a call or text message originating from a rival network.

Despite calls from consumer groups, Vodafone, Telecom and 2degrees have all indicated their retail prices will not come down as a direct result of cuts.

"No one, including 2degrees, is saying that lower mobile termination rates will mean lower mobile calling prices," Vodafone said today.

Lobby group Tuanz said telcos respond to one pressure above all else - money.

"I would encourage everybody to start ringing their providers and say 'okay well I see you are no longer paying the same rate for your text messages, what's in it for me'," Tuanz chief executive Paul Brislen said.

"If they won't give you anything, I would seriously consider moving - vote with your wallet," he told Radio New Zealand.

"Telcos are coin operated - if you want them to change their behaviour you have to affect their bottom line."

2degrees has already said it won't be reducing its pricing, because it built the price drop into its retail pricing when the regulation announcement was made last year.

The company said it needed rates to be cut today for it to maintain its calling and texting packages.

Vodafone has consistently argued the rate cuts would damage the industry and offer no benefit to consumers, and today said it would seek a review of the pricing.

Below-cost pricing was bad for investment in the telecommunications sector and would in the long term, impact competition, Vodafone's general manager of corporate affairs, Tom Chignell said.

The 4 cent per minute voice rate in New Zealand looked extreme in comparison to current termination rates in Australia at 10c and 11c in Europe, the company said.

Telecom initially defended high termination rates, and maintained that if cuts were to come into effect, they should be introduced gradually to allow time for the industry to adjust.

Both Vodafone and Telecom attempted to fight off regulation by volunteering rate cuts last year, albeit less than what the commission shaved off today.

Telecommunications Commissioner Ross Patterson said the changes were intended to address significant competition problems in the wholesale mobile market.

This had resulted in high retail prices - particularly for prepay customers - a low number of mobile calls and high rates of people switching networks, compared to other countries, he said.

"However, we continue to be concerned about the extent to which the price of calls and text messages between people on different networks are significantly higher than calls and text messages between people on the same network."

These price differences created "significant barriers" for the new entry and growth of small mobile operators in the mobile market, said Patterson.

Brislen said the commission had also addressed "the thorny problem" of on-net pricing differential.

If Vodafone had in excess of 70 per cent market share in Auckland (for example) and a massive differential in terms of on-net/off-net pricing, it becomes doubly difficult for a new entrant to win customers.

"Not only do they have to offer a competitive price point, but somehow they have to compensate customers for the loss of incoming calls as people decline to ring or TXT because of the massive increase in price for doing so."

"TUANZ has fought long and hard over this issue and is very pleased with the outcome, if a little exhausted by it," said Brislen.

He said today's move was "a golden opportunity for the mobile players to address the issue of on-net/off-net pricing differential and if they don't take up the challenge they'll face further regulatory intervention."

Meanwhile the commission said if mobile companies do not address differences between on-net and off-net prices, it could review its decision under section 30R of the telecommunications act.

"[We will] monitor the market very closely after the [decision] has come into effect and assess trends on a monthly basis to determine whether cost-based MTRs are addressing the competition concerns the commission has considered," the MTR report said.

On-net are calls kept within a mobile network and off-net are calls across different networks (and incur termination fees).

It is also unclear whether fixed-line operators will pass on the cost-savings to customers.

The road to rates cuts

The battle over MTRs began in 2004 when the commission investigated the fees following complaints that a lack of competition in the market lead to unreasonably high fixed to mobile charges.

After much debate, discussion and outcry from Vodafone and Telecom the commission released a final report in April 2006 to the then Communications Minister David Cunliffe.

The decision on MTRs was passed to the Minister of Economic Development, Trevor Mallard, who turned down the proposal after the MED advised regulation was not necessary.

Following this, the commission launched another investigation in 2008, looking into fixed to mobile, mobile to mobile, and SMS (texting) termination rates.

The investigation was sparked by concerns that MTRs were well above cost and that on-net discounting created barriers to competition in the mobile market.

The commission released a final report to Joyce in February 2010, recommending that voluntary fee cuts suggested by Telecom and Vodafone be accepted.

However, Joyce asked the Commission to reconsider the recommendation after the launch of an on-net deal from Vodafone and following a second investigation, the Commission recommended MTRs be regulated.

This recommendation was accepted by Joyce last August and since September the commission has looked into what amount rates should be set to.