Telcos prepare to take termination-rates battle to minister

The telcos are gearing up to take their battle on mobile termination rates to the Minister of Communications, having had commercial deals knocked back by the Commerce Commission.

Although the commission recommended last week the minister should regulate the charge mobile operators levy to end calls on their networks - so-called mobile termination rates - history suggests the Government may yet accept a commercial deal.

In 2007, then-Minister for Economic Development Trevor Mallard accepted voluntary offers from Telecom and Vodafone, despite the Commerce Commission recommending regulation.

Vodafone said the undertakings tabled by the telcos would generate lower termination rates sooner than the regulatory process.

"The difference between the regulated rate and the undertaking is likely to be minimal at best."

The Commerce Commission revisited its decision against regulation when Vodafone released its "Talk" plan which offered 200 minutes on its network and to landlines for $12 a month, equivalent to 6c a minute if customers used up all their allocation.

Vodafone withdrew the plan when the Communications and IT Minister Steven Joyce requested the commission reconsider its original decision in light of the new deal.

In its recommendation to the minister last week, the commission expressed concern that even though consumers might benefit from such plans in the short term, the long-term impact would be to limit competition.

When the commission began its investigation into mobile termination rates two years ago it was concerned operators could stymie competition by:

* Charging termination rates far in excess of actual costs, creating a barrier for new entrants.

* Cutting prices for calls on a telco's own network, thereby reducing a new entrant's ability to attract customers.

* Refusing to terminate calls from rivals on its network.

Telecom spokesman Mark Watts said the company was surprised the commission reversed its first decision and rejected the commercial deals put forward by it and Vodafone, given the Talk plan had been withdrawn.

"The threat of regulation had that consequence so why keep moving towards regulation?

"Vodafone modified their behaviour. The offering is not there any more."

Vodafone and Telecom have a deal negotiated with the Labour Government which would see termination rates fall to 12c a minute for calls to Telecom's network and 14c a minute to Vodafone by March 31, 2012.

Asked to table their best offer last year, the two rivals proposed rates which dropped to 6c a minute by 2014.

But the commission calculates regulated termination rates could be about 4c a minute by 2014.

In 2008, the commission estimated 20 per cent of the $2.3 billion in mobile revenues received the previous year were for mobile termination charges.

Vodafone claims reducing termination rates would cost the company up to a net $80 million a year for the next five years, with Telecom estimating the impact at $50 million.