Peter Griffin: Mobile phone charges raise spectre of regulation

COMMENT

Growing rumblings can be heard from consumer advocate groups and mobile subscribers about the cost of calls from land lines to the Telecom and Vodafone mobile networks.

The chief concern is that fixed-to-mobile pricing is overpriced by global standards.

Some even mention mobile pricing and regulation in the same sentence, believing the so-far unscathed mobile industry needs to have the regulatory once-over that has been inflicted on the fixed world - mainly on Telecom.

At the heart of this simmering argument is the price of "mobile termination" or what TelstraClear and Telecom pay Vodafone and Telecom Mobile to hand over a call. For Telecom to Telecom Mobile traffic, the argument is academic because Telecom ends up paying itself.

But mobile termination pricing is a topical issue because Telecom and Vodafone sit on an expired contract and are in the midst of renegotiating their pricing.

The termination price is one of the biggest fixed costs for TelstraClear and Telecom to consider in setting the price they charge subscribers for calling a mobile from a land line. At the moment the price sits at around 30c per minute whether the call is going to Vodafone or Telecom Mobile.

Although the fixed carriers are obviously keen to get termination charges down, there's a perception among some in the carrier industry that Vodafone won't budge on pricing and is taking a hard line in its negotiations - a claim Vodafone rejects. A few industry executives have confided to me that they think mobile pricing is on the high side. Not that any of them feel incredibly compelled to do anything about it.

Vodafone argues that the mobile termination charge comprises "less than one-third" of the retail price charged by Telecom and TelstraClear.

That's true if you take a bog-standard retail price that literally no one is subjected to. The true retail price for the fixed line operators averages out much lower when calling deals are considered, making the mobile termination fee appear hefty.

In the case of Telecom, the average retail price for a Telecom fixed line subscriber calling a mobile has dropped from 48.3c per minute in 2000 to 45.4c today. Hardly a giant leap south, but at 30c, the termination rate is a huge cost component. TelstraClear faces similar economics.

In reality, both mobile termination charges and retail prices have dropped over the past few years, but only modestly. Fixed-to-mobile calls are still the component burning a hole in the phone bill of the average business and home user.

This is largely down to the mobile players who keep termination rates high to subsidise the rest of their business.

Locally, the Telecommunications Users Association points to research by the OECD which puts New Zealand as the fourth-most expensive country for medium-end mobile users.

"In fact, medium-end users (75 calls a month) here pay more than high-end users in 13 OECD countries. For low-end users (25 calls a month), New Zealand ranks 21st out of 30," wrote Greg Adams in the association's magazine, Topics.

Vodafone counters with a relatively narrow survey of mobile pricing by the Centre for Research in Network Economics and Communications at the University of Auckland. That research examines operators in just six countries - New Zealand, Australia, England, Ireland, Finland and the US - and finds New Zealand mobile pricing compares favourably.

Fixed-to-mobile pricing is undoubtedly too high, but so far hasn't dulled our enthusiasm for calling mobiles.

But there's a new worry creeping in - that once silver-haired telecoms regulator Douglas Webb hands his case for unbundling the local loop to the Government, he'll next turn his eye to fixed to mobile termination charges.

The last thing Telecom Mobile and Vodafone want is to be slapped with a regulated price for mobile termination.

Mobile operators overseas have been forced to accept this type of arrangement, which often involves caps being placed on termination charges using a RPI (retail price index) minus X per cent formula.

This links mobile termination rates to a weighted average retail price of the overall mobile package.

This year Britain's Competition Commission did exactly this - introducing a cap on mobile termination charges for operators with a 20 per cent or more market share such as O2 and Vodafone. The RPI-X type price cap takes the form of a 15 per cent reduction which will reduce further gradually until 2006. Consumers are expected to save £190 million ($505 million) each year to 2006 in call charges.

The question Webb would have to ask himself is: do the network operators have sufficient market power to justify regulation of fixed-to-mobile termination rates? The answer has to be yes.

With the market split between Vodafone (53 per cent) and the rest to Telecom, New Zealand seems a good candidate for similar price-capping.

In recent months the cosy duopoly that had emerged between the two in the mobile market has begun to destabilise as the operators prove they can move dramatically on price when it suits them. If they can move on mobile-to-mobile pricing and texting they can move on termination payments as well.

New Zealand mobile users are also getting stung when they roam overseas, something rammed home to me after returning home from Europe to a $400 bill from Vodafone for a relatively modest amount of airtime. The lesson there - when travelling, stick to text-messaging and email.

So what will really change the cosy duopoly that has developed in New Zealand? The threat of enforced lower termination charges and the introduction of number portability would be a good start. Then we will have more competitive fixed-line to mobile calling and the flexibility to follow better deals to rival networks.

Number portability, as mandated by the Federal Communications Commission, finally arrived in the US yesterday and some 50 million people are expected to jump ship to another carrier.

Such a move is in train here but long overdue.

In the meantime, New Zealand's carriers need to get real and start negotiating termination pricing downward before the lobbying of Tuanz and a growing band of disgruntled consumers sets the regulatory wrecking ball swinging.

* Email Peter Griffin