Landline-to-mobile cap to drop 85pc after BT wins row

Calls from landlines to mobile phones may become even cheaper than originally planned, after BT and Three emerged victorious from an appeal of Ofcom's plans.

The UK's Competition Commission has backed Ofcom's plans for cutting mobile termination charges, saying the cuts should be deeper and swifter. Image credit: Jon Yeomans

The telecoms regulator said last year that mobile termination rates (MTRs) — the amount operator A charges operator B to let B's customers phone A's customers — would have to come down by 80 percent by 2014-15. BT and Three appealed, saying the cuts were too shallow and the timescale too long.

On Tuesday, the UK Competition Commission announced that it agreed with BT and Three. The commission proposed making the cuts 85 percent rather than 80 percent — based on MTR level in 2008-9 — and bringing the deadline forward to 2013-14. It is now up to the Competition Appeal Tribunal to enforce the decision.

The commission also threw out a connected appeal by Everything Everywhere, O2 and Vodafone, in which the mobile operators argued that Ofcom had been wrong to mandate deep cuts. These operators stand to lose more from the cuts, as it is more common for people to call their customers' phones from a landline or Three mobile than it is for their customers to call BT and Three users.

"BT welcomes the Competition Commission's endorsement of the approach Ofcom took last year," BT said in a statement. "We are particularly pleased that the CC has upheld our view that Ofcom should have brought forward its low-rate target by a full year."

"Despite vigorous attempts by the incumbent mobile operators to have Ofcom's approach overturned and so increase the rates they can charge for terminating calls, the CC has decided that wholesale mobile termination rates should be reduced even further. We trust the Competition Appeal Tribunal will now bring the CC's decision into effect as swiftly as possible," BT added.

MTR rates

Before Ofcom mandated the cuts early last year, mobile operators were able to charge as much as 4.18p per minute in termination rates alone. The immediate effect of the planned cuts would have been to bring that down to a 2.66p-per-minute cap.

Ofcom imposed cuts of around 80 percent to mobile termination rates in 2011. Credit: Ofcom

Ofcom's planned 'glide path' for the MTR reductions would have involved a steady downward trend in the charges, with a particularly sharp drop in 2014, ending at a cap of 0.69p per minute. Now, the Competition Commission has said, the cap should be 0.67p in 2013 — bringing the sharp drop a year forward — and 0.65p in 2014.

However, MTRs are just part of the cost of calling a mobile phone from a landline, so it is not a sure thing that the cuts will be passed on to the consumer.

Ofcom welcomed the commission's decision to back its deep cuts. "Ofcom also notes the Competition Commission's conclusion that the benefits of lower rates should be brought forward by a year," the regulator said.

Vodafone disappointed

Vodafone's response to the decision was markedly less upbeat. "We are very disappointed that the Competition Commission considers that deep cuts in MTRs are necessary, because it will further harm consumers," the operator said on Tuesday. It added it is reviewing the commission's 555-page decision and will decide whether to launch a further appeal after that.

The operator claimed that the cuts made it unsustainable to continue subsidising the cost of mobile handsets for pay-as-you-go customers.

"We warned Ofcom at the time of its original decision that drastic cuts in termination rates would disenfranchise many consumers who rely on their phones to keep in touch with friends and family," Vodafone said.

In July, Vodafone and Orange raised their pay-as-you-go prices, saying they were doing so in response to the MTR cuts.

In its latest statement, Vodafone also took a shot at BT and other fixed-line operators, claiming that they had "merely pocketed previous reductions in mobile termination rates, instead of reducing prices for customers". It noted that BT has raised its line rental prices three times in the last 18 months.

A BT spokeswoman hit back, pointing out that the telecoms company had indeed cut its charges for landline-to-mobile calls, as it had promised to do.

"Line rental may have gone up, but our all-inclusive packages have gone down at the same time," she said. "Line rental charges aren't relevant to this debate."