Telecom to cut cellphone fees

David Cunliffe

Telecom is meeting the threat of price regulation by shaving its cellphone charges.

The company is cutting its wholesale termination rates - what mobile providers charge fixed-line providers to end calls on their networks - to 24c a minute from 26c as of September 1.

Those savings will be passed on to consumers, Telecom said.

Although the standard cost of calling a Telecom mobile from a landline is 71c a minute, the average charge is about 41c once the company's various plans are taken into account.

The cut is part of a larger deal offered by Telecom to lower its rates by 30 per cent if the Government opts to forgo regulation of termination charges. The cuts will come incrementally, with a final rate of 18c a minute on April 1, 2009.

Costs to consumers will see a corresponding decline over that time, Telecom said.

Telecom's head of regulatory affairs, Bruce Parkes, said the offer had several advantages over regulation, including a faster lowering of prices.

Most of the company's wholesale customers were under contract until the end of next year, which meant a regulated rate would not take effect for at least 18 months.

Communications Minister David Cunliffe last week rejected Telecommunications Commissioner Douglas Webb's June 8 proposal to regulate the rate down to 15c a minute.

Although Mr Cunliffe agreed that the rates were too high - compared with other OECD countries - he disagreed with Mr Webb's suggestion that regulation should differentiate between calls on older second-generation (2G) networks and newer 3G networks.

He also asked Mr Webb to consider commercial offers made by Telecom and Vodafone as alternatives to regulation.

Vodafone declined to make its offer public.

A regulated rate cut to 15c will take effect immediately, but it will probably cover only 2G, Mr Parkes said. Another benefit of Telecom's offer was that it would apply to calls ending on its 3G network as well.

"Given that we would certainly see third-generation calls rapidly becoming a significant part of the call volumes ... you don't have to work too hard in terms of the proportion of traffic that's on 3G to see that what we're putting forward is a really good offer," Mr Parkes said.

Reaction from industry observers was mixed. One source said on the face of it, the company's offer looked good, but "there is a history of Telecom coming up with deals like this at the point of a gun, and then two months later when the fine print hits the table they don't look nearly as enticing as they did at the time".

Martin Wylie, chief executive of No. 3 fixed-line provider CallPlus, said the offer was "too little, too late".

He said Australia's regulator, the ACCC, wanted to reduce termination costs to 12c per minute in January 2007, regardless of whether the call ended on a 2G or 3G network.

CallPlus said if Telecom's offer were accepted, New Zealanders would continue to overpay for calls to mobiles by $80 million a year.