Mobile operators must charge much less for incoming calls made to their customers, Ofcom has ordered, in a move that those companies have complained will lead to charges becoming "too low".
On Tuesday, the regulator imposed cuts of around 80 percent to mobile termination rates (MTRs). These are the charges that a mobile operator levies on other fixed and mobile operators for the privilege of having calls from those networks arrive on its customer's handset. The move follows proposals outlined by Ofcom in April 2010, following guidance from the European Commission.
Ofcom has imposed cuts of around 80 percent to mobile termination rates. Credit: Ofcom
Ofcom said in a statement that the lower MTRs were designed to make it cheaper to call mobile phones from landlines and to give customers more choice.
"Lower termination rates promote competition in the mobile market, providing customers with more choice," the regulator said. "Operators will have more pricing flexibility and will be able to increase the range of packages available to consumers."
Operators will have more pricing flexibility and will be able to increase the range of packages available to consumers.– Ofcom
The cuts will begin on 1 April, when they will fall from the current level of 4.18p per minute for O2, Everything Everywhere and Vodafone and 4.48p per minute for operator 3 to 2.66p per minute. MTRs will then head downwards on an annual basis until they reach 0.69p per minute in 2014. This is roughly what it actually costs operators to terminate calls on their networks.
BT, which has been a prime campaigner against the current MTR levels, responded immediately by reiterating a promise to pass the savings on to customers as soon as possible.
"We are also looking to introduce an all-inclusive package that will include calls from landlines to mobiles, and we will make a further announcement on this in due course," the company said in a statement. A BT Retail spokesperson told ZDNet UK that this announcement is likely to come in the next few months.
However, the big mobile operators responded much more negatively. O2 said it is "deeply disappointed" that Ofcom has chosen to peg MTRs to the actual incremental cost of terminating a call.
"It results in charges that are too low," O2 said in a statement. "Pre-pay mobile customers are likely to be hardest hit by the reductions, and there is scant evidence that BT and other fixed companies will pass the lower costs to their customers."
Pressed as to why it believes BT will not follow up on its promise, O2 said it was going by the telco's history.
Pre-pay mobile customers are likely to be hardest hit by the reductions, and there is scant evidence that BT and other fixed companies will pass the lower costs to their customers.– O2
"We often hear fixed line providers, like BT, saying that lower MTRs will result in cheaper calls to mobile phones," an O2 spokeswoman told ZDNet UK. "However, this is not reflected in what BT has been charging people when calling mobiles over the last few years. During this time, MTRs have fallen by about 2p per minute to less than 4.5p per minute.
"When its residential customers phone a mobile, BT now makes a margin of over 10p per minute, on an average retail price of 14.75p per minute," she added. "BT has had the opportunity to put calls to mobiles prices down for years, but has, in fact, pushed them up, even while its costs have fallen."
Everything Everywhere, the parent of T-Mobile and Orange businesses, said it might appeal Ofcom's decision. It said it was concerned about the impact of the decision on its "vulnerable" pay-as-you-go customers.
"By applying [cost-pegged] methodology in setting call termination rates going forward, Ofcom has suggested we recover a larger share of our costs from retail charges," Everything Everywhere said. "This may force us to change the pay-as-you-go model as we know it, as a large number of these customers will now become uneconomical — making the way our consumers currently buy, use and enjoy their mobiles radically different going forward."
A 'fairer deal'
Terminate the Rate, the campaign to lower MTRs backed by BT, 3, the Federation of Small Businesses (FSB) and others, said it wants Ofcom to make the process of cutting the rates even faster.
"Ofcom has acknowledged that lower mobile termination rates are better for consumers and committed to reducing them to less than a penny, which raises the question: why can't those benefits be realised sooner?" a Terminate the Rate spokesperson asked. "In the long term, this is a win for consumers: cutting mobile termination rates supports competition and better deals for all that call mobiles."
Moneysupermarket.com, which also backed the campaign, predicted that customers will "finally get a fairer deal on their landline to mobile and cross-network mobile calls".
"For too long consumers have paid over the odds for the calls they make," Moneysupermarket.com said in a statement. "Mobiles are the preferred way for us to communicate, and it's great that Ofcom are making the networks move with the times and reduce the cost of what has become an everyday commodity."
"The rollout of the changes to be completed in April 2014 will hopefully give the networks more than enough time to adapt to the new structure. We hope the networks won't try and recoup costs related to termination charges from their customers in other ways," it said.
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