Watchdog doubts cost reason for mobile rates

Telecommunications Commissioner Douglas Webb has dismissed rationales from Telecom and Vodafone for this country's high mobile phone calling rates.

"The market dynamic between Telecom and Vodafone seems to be focused more on brand differentiation than on the type of product innovation and pricing levels we would expect to see if the market was effectively competitive," said Webb, who will investigate the lack of competition between the two companies.

Telecom and Vodafone have argued that costs here were higher because it was more expensive to build mobile phone networks in a sparsely populated country.

But Webb told the Telecommunications Users Association conference in Wellington yesterday that there was little direct evidence to support that claim. "Unsurprisingly, mobile markets with only two players typically have higher prices than those with three or more competitors."

The Government's telecommunications regulation package, announced three weeks ago, primarily dealt with broadband issues but also signalled an intention to investigate high mobile costs and barriers to new entrants.

Webb said the commission would investigate these barriers and look at whether the cause was a high saturation rate - there are 3.8 million mobile subscribers (more than 90 per cent of the country) - or whether potential entrants feared anti-competitive behaviour by Telecom and Vodafone.

The Government also outlined in its regulation plan the intention to give more powers to the Telecommunications Commissioner, including the ability to initiate investigations.

Now, the commission generally must wait until a complaint is made on an issue by a market player before it can investigate.

Webb welcomed the new approach and said the present "negotiate then arbitrate" model was flawed.

"We are moving from a light-handed regulatory approach to one where there is a much firmer hand on the shoulder, sometimes in the middle of the back."

Webb also suggested that more regulation of telecommunications firms was likely, because "regulatory models are not static, they require change".