Mobile operators warn EC over termination rate cuts

The European Commission's telecoms commissioner, Viviane Reding, has said mobile termination rates could fall by as much as 70 percent over the next three years.

However, mobile operator body GSMA has cautioned that any move to accelerate rate reduction could force operators to make cuts in services, increase prices or end handset subsidies.

A spokesman for GSMA warned: "If you're going to make a big change to something as important as mobile termination rates, you, as the Commission, should carry out a full impact assessment."

Termination rates are the charges mobile operators make for connecting calls to each other's networks. They are currently regulated on a country-by-country basis, by national telecoms regulators.

Reding said rates are, on average, nine times higher than fixed-line termination rates, and also vary significantly across the EU, from €0.02 per minute in Cyprus to more than €0.18 per minute in Bulgaria.

The commissioner has said this lack of consistency distorts competition between operators from different countries, and between fixed-line and mobile-phone operators. Fixed-line operators and their customers are indirectly subsidising mobile operators by paying higher termination rates for calls made from fixed lines to mobiles, she added.

Reding said in a statement: "Disparate termination rates across the EU and large gaps between fixed and mobile termination rates are serious barriers to achieving a single European telecoms market that benefits competition and consumers. The consumer pays the price for these gaps between national regulatory policies."

The Commission has launched a public consultation on the future of voice call termination rates, which will run until 3 September, 2008, and Reding said she hopes this will spur competition among operators and lower phone charges for European consumers.

European telecoms regulatory lobby group Ecta (European Competitive Telecommunications Association) recently called for Reding to cut termination rates, which, it said, penalise consumers.

However, a spokesman for GSMA, said rates have already been reduced by around 40 percent over the past four years, as a result of national regulation, so it does not see a need for the commission to get involved.

GSMA expects rates to fall by a similar amount over the next three years without EC intervention, it added.

According to GSMA, operators' costs vary across the EU by a factor of four, owing to differences in, for example, labour costs, licence fees and population density. The GSMA has argued, therefore, that "a single rate just wouldn't be appropriate".

Asked whether cuts in mobile termination rates could drive operators to pull the plug on 'free' (subsidised) mobiles for pay-monthly customers, the spokesman said it is "very difficult to say what individual operators would do".

He said: "Whereas one operator might look at handset subsidies, another operator might say: 'Well we're going to cut back investment; we're not going to provide such extensive coverage in rural areas.' Another operator might say: 'We're going to change the way we charge for text messages.' There's all sorts of things operators might do.

"A lot of it's going to depend on how profitable they are at the moment. A lot of individual operators are not covering their costs with capital so they've got a lot of pressure on their bottom line," said the spokesman.

He added: "If they [the EC] decided to bring these mobile termination rates down much faster than they're already coming down, that would, inevitably, have a knock-on effect somewhere else."

The Commission's draft recommendation on mobile termination rates can be downloaded from its website.

UK operators recently quashed suggestions they would look to switch to a 'customer-pays-to-receive-calls' business model if termination rates are slashed.