Watchdog demands big cuts in mobile costs

The Commerce Commission says phone companies need to slash the cost they charge rivals to access their mobile networks, potentially saving phone users hundreds of dollars a year.

The commission has knocked back plans by phone companies to gradually reduce mobile termination rates, saying the fees will still be too high.

In a letter to the mobile telcos - Telecom, Vodafone and potential entrant NZ Communications - Commerce Commission chairwoman Paula Rebstock said the rates the companies propose charging each other for calls from a landline or another mobile network were higher than international benchmarks.

The commission has suggested a rate of 7c a minute for mobile-to-mobile and landline-to-mobile calls, and 1c a text message.

This is much lower than Vodafone and Telecom's plans. Vodafone is proposing to gradually trim its rate for voice calls from 15c a minute to 11c a minute, and ease its rate for text messages from 9.5c to 7c. Telecom is offering to reduce its voice call rate of 16c a minute to 10c a minute and introduce a flat rate of 3.5c a text.

"Based on these preliminary benchmarks, the commission expects that any revised undertakings will need to offer significantly lower mobile termination rates before the commission could consider recommending that the minister accept them," said Rebstock.

An investigation into termination charges began last year, prompted by a decision that the difference in cost between calling a mobile on the same network compared with a competitor's network was due to termination rates set above cost.

It also said the termination rates made it difficult for a new entrant to attract customers from an existing operator offering cheap calling within its network.

The commission sought commercial undertakings from the phone companies as an alternative to regulation.

Vodafone spokesman Paul Brislen said the company was disappointed with the approach taken by the commission, in particular the decision to suggest a 90 per cent cut in the termination rate for text messages.

"Mobile termination rates have got nothing to do with competitors in the market," said Brislen.

Telecom and Vodafone already have an agreement in place signed with the former Minister of Economic Development Trevor Mallard in 2007.

Telecom chief executive Paul Reynolds said the industry players made a good job of negotiating a commercial agreement.

"We had regulatory intervention a year ago. We agreed an outcome and a glidepath. We agreed a position that was world class and we ride the merry-go-round again," he said.

But Telecommunications Users Association (TUANZ) head Ernie Newman said not only were termination rates too high but it would also take too long to bring them down.

"Given the extent of the over-charging, such a glide path is entirely inappropriate," said Newman.

TUANZ calculates phone users could save $300 a year if cuts to termination rates were passed on.

NZ Communications spokesperson Tex Edwards said the decision by the commission was timely and illustrated the importance of the work of the Commerce Commission.

Deutsche Bank analyst Sameer Chopra estimates Telecom pays Vodafone $85 million a year in mobile termination charges.

He said approximately 780 million fixed-to-mobile calls and more than a billion mobile-to-mobile calls were made by Telecom customers each year.

Chopra said if the proposed reduction in termination rates was legislated Telecom could pay $50 million a year less, bringing the amount it pays to Vodafone down to about $38 million.

The Commission has given the mobile companies four weeks to respond to its findings and submit revised undertakings.

THE TERMINATORS

* Mobile termination rates are the wholesale fees phone companies charge each other to receive calls on their mobile network.

* Consumer group TUANZ calculates phone users could save $300 a year if cuts to termination rates were passed on.

* Consumers could save $1300 in extra charges over the time period Vodafone and Telecom propose for reducing the rates, according to TUANZ calculations.