Calls to mobiles to become cheaper after Ofcom rate cut

Ofcom announced Thursday that it is to dramatically cut mobile termination rates, the charges that operators make to each other to receive calls from each others' customers.

The telecoms regulator said mobile termination rates (MTRs) would be set at the actual cost to the operator of its customers receiving, or 'terminating', a call. As operators will no longer be able to charge a premium for this function, MTRs will fall from their current level of 4.3p per minute (or 4.6p for the operator 3) to just half a penny per minute for all operators in March 2015.

In cutting MTRs, Ofcom has followed guidance from the European Commission, which said the rates should be set at cost where there was no compelling reason to do otherwise. Cutting MTRs is a move that benefits smaller, newer mobile operators more than it does larger players, who rely on MTRs for a large proportion of their profits.

However, the cuts will not necessarily mean lower call costs for all consumers and businesses. "You would expect a customer-friendly approach to pricing applied by competitive pressure," a spokeswoman for Ofcom told ZDNet UK on Thursday. However, she warned that some customers might lose out. "It's a bit of swings and roundabouts. Some consumers might find prices go up."

The spokeswoman said the main benefit will be seen by operators, who will gain more flexibility in designing their tariffs. She added that customers could in turn gain greater choice. The regulator had feared, while investigating the matter last year, that low-usage customers — who tend to have the lowest incomes — might be hit the worst.

BT, which campaigned alongside the mobile operator 3 for the reduction in MTRs, said it would react by reducing its prices. It added that it may offer a greater choice of flat-rate packages as a result.

"Reductions in mobile termination rates are good for businesses and consumers alike and BT will make sure its customers see the benefit with cheaper calls to mobiles, including fixed price all-you-can-eat packages," the company said in a statement. The telco is itself able to charge a premium over cost price for terminating calls on its fixed network.

The mobile operator Orange reacted angrily to Ofcom's announcement, calling it  a "backward step for Britain".

"If these proposals come into force, the way our consumers currently buy, use and enjoy their mobiles may be forced to radically change," Orange said in a statement on Thursday. "Handsets may no longer be subsidised, you may have to pay to receive calls and the rollout of Digital Britain and other network investment may be stalled considerably."

MTRs have fallen considerably since Orange and T-Mobile entered the market in the early 1990s. In 1995, some operators were able to charge 27p per minute in termination charges. This has been reduced by continued regulation, and also because increased use of mobile data has made it cheaper, per bit, to terminate calls.

On Thursday, Ofcom also moved to cut the amount of time it will take for a customer to transfer their mobile number between operators from two days to just one day. Each porting authorisation code (PAC) — a string of characters that is required by the customer to effect the transfer — must be sent to the customer within two hours of request, under the regulator's new rules, which will come into effect in the first half of 2011.