Rate cut aims to dial up competition

2degrees, whose television ads are fronted by Rhys Darby, applauds the termination rate cuts as 'a great day for New Zealand mobile consumers'. Photo / Supplied

The Commerce Commission took a hard line with the mobile market yesterday, slashing mobile termination rates in half overnight.

In a long anticipated but expected decision, the regulator culled calling rates from 14c to 7.8c per minute and scheduled further cuts over the next three years.

By April 2012, the fees will be under 4c and drop as low as 3.5c by 2014.

SMS (texting) rates were cut from 9.5c to 0.06c per message.

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

It also applies when a call is made from a fixed-line to a mobile phone or if a text is sent to a rival network.

The sharp reduction in rates is aimed to stimulate competition within the industry.

"These changes are intended to address significant competition problems in the wholesale mobile market which have 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," said Telecommunications Commissioner Ross Patterson.

Patterson said the commission would also consider further action if the price gap between on-net calls (those between customers on the same network) and off-net calls (between rival networks) did not fall.

Vodafone slammed the cuts as extreme.

Public policy manager Hayden Glass said it was likely the company would push for a review of the decision.

Glass would not speculate on whether the company would take the commission to court over the issue. "Our view is that the rate at 4c is below where we might expect costs to come out. Our estimate is that it would take $300 million in revenue out of the mobile sector and its hard to believe there could be such an enormous impact on the sector without negative impacts on investment in competition," he said.

Forsyth Barr's Guy Hallwright said the decision could see Vodafone's earnings slip by tens of millions of dollars.

"It depends a lot on what happens with mobile prices and elasticity. There's all sorts of moving parts but it's certainly going to be significant," he said.

Telecom had already factored in the reduction rates in its forecasts and the company seemed to take yesterday's decision on the chin.

"The mobile market in New Zealand today is more exciting and competitive than it's ever been, and customers have greater choice of prices, products and services," said Telecom retail chief executive Alan Gourdie.

2degrees, on the other hand, was jubilant at news of the cuts.

"It's a great day for New Zealand mobile consumers," said chief executive Eric Hertz.

Hertz said the company would have liked to see the rate cut to 4c straight away, but was still pleased with the outcome.

Despite campaigning vigorously that cuts in termination rates will mean lower prices, 2degrees will not be lowering their calling and texting prices immediately.

Both Vodafone and Telecom indicated they will not be lowering prices as a direct result of the rate reduction.

GOING DOWN

Commerce Commission ruling on mobile termination rates

Yesterday 14c (per minute)

Today 7.48c

1 October: 5.88c

1 April 2012: 3.97c

1 April 2013: 3.72c

1 April 2014: 3.56c