Calls for SMS termination rates to be regulated

Australia's mobile telecommunications companies broadly agree that the Australian Competition and Consumer Commission (ACCC) should continue to set the rate that mobile network operators are allowed to charge other telcos for calls to their networks, but have split on whether the rate for SMS messages should also be regulated.

The competition watchdog is currently reviewing whether the Mobile Terminating Access Services (MTAS) needs to remain a declared service where the ACCC sets the price to ensure that the larger telcos do not overcharge the smaller telcos. The current declaration was extended in 2009, but is due to expire in June 2014.

In submissions to the inquiry posted on the ACCC's website yesterday, Telstra, Optus, Vodafone, Macquarie Telecom, AAPT, iiNet, and the Competitive Carriers Coalition all agreed that the MTAS is an effective means of ensuring competition in the mobile network market.

Optus said in its submission that since the 2009 declaration, Telstra's market share has increased to 65 percent, acquiring 70 percent of all new customers since 2010, and most of the customers who left Vodafone. The continued declaration would help promote more competition in the retail mobile market, and prevent Telstra from exerting its dominance of the market by upping the charges for customers from other telcos to call Telstra.

While the price of the MTAS has been reduced over the years, most of Telstra's competitors also complained about the company's failure to pass the reduced fixed to mobile cost on to customers. Vodafone calculated that Telstra has pocketed around AU$1.4 billion since 2004 for the cost for fixed-line customers to call mobile phones.

Where the telcos seemed to part ways was in discussion over what other services should potentially be declared. The ACCC had asked the industry whether SMS and MMS services should also have the costs regulated. Telstra said it would be inappropriate for SMS and MMS to be declared, because it is a growing market with no sign of market failure.

"Commercial arrangements between industry parties are long-standing and continue to work well. End users have a wide choice of plans, many of which offer unlimited SMS and MMS as part of the included value."

Vodafone sided with Telstra, stating that there is a symmetry in the SMS market as customers send texts back and forth to each other.

"These features mean mobile operators have limited ability and very little incentive to exploit any market power associated with SMS termination."

But Optus said it would like to see the SMS termination rate declared. Optus said that while SMS has grown since 2009, it has now slowed because of over-the-top services, such as iMessage and WhatsApp. The rate that the telcos charge each other for SMS termination has also not changed in over a decade, Optus said, meaning it is more expensive for telcos to send SMSes than it is to connect a call.

"The voice MTAS rate is now a fraction of the SMS termination rate. Given that SMS uses significantly fewer network resources than voice services, this is an indication of monopoly pricing."

Macquarie Telecom also agreed that SMS rates are far too high.

"It is now evident that while commercially agreed rates for the MTAS have fallen ... commercial wholesale rates for SMS and MMS have not fallen. Macquarie considers that the wholesale rates for these services are grossly excessive," the company said.

"Accordingly, Macquarie considers there is merit in the ACCC having oversight of the SMS and MMS, and supports these services being covered by the MTAS service description, as this would be conducive to reducing the level of wholesale charges with a flow-on impact on retail charges."

iiNet, which resells Optus' mobile services, also sided with Optus and Macquarie in calling for SMS to be declared.