O2 wades into termination rate spat

It costs more to call a 3G phone than a 2G phone because 3G is less popular, a spokesperson for O2 has revealed.

The justification came on Tuesday as Ofcom puts the finishing touches on its revised regulation of termination rates — the charges levied by Operator A on Operator B when B's customers call numbers on A's network. This new regulation, due to come into effect at the start of April, could cut the cost of calling a third-generation mobile device.

As it stands, the regulator imposes a limit on the termination rates for calling 2G phones, which are supposed to make it cheaper to call a mobile from a landline. The current regulations expire in March, and Ofcom wants to use the opportunity to bring 3G into the fold, thus eliminating the pricing discrepancy currently experienced when calling the two kinds of networks.

However, on Monday O2 joined T-Mobile in complaining to Ofcom about BT's refusal to accept so-called "blended" termination rates from these two operators. These blended rates are a rough average between the existing 2G cap and what operators claim it costs to connect a call to a 3G phone. O2 and T-Mobile want to use blended rates whenever a BT customer calls any of their mobile users, not just those on 3G — which would mean in practice that the cost of calling a 2G user would exceed Ofcom's capped rate.

Speaking to ZDNet UK, O2's spokesperson claimed that BT accepted blended rates from Vodafone and Orange last year, but changed its mind when approached by T-Mobile and O2 more recently.

"All we're asking for is to be treated exactly the same as Vodafone and Orange," the O2 spokesperson said on Tuesday, while conceding that "it becomes really academic anyway because, come 1 April, 3G will also be regulated".

BT's argument against blended rates is that its customers would be forced to pay more than they should. "People who don't have these high-tech 3G phones are still having to pay a lot," a BT spokesperson said on Tuesday, hinting that operators were trying to recoup some of the hefty investments they had made in 3G licences.

O2's spokesperson, however, said it was more expensive to connect calls to a 3G phone because "there's not a huge amount of 3G traffic", and the unit cost of a call will be naturally high if most of the network is "lying idle". "If there is a lot of traffic going at 2G levels it becomes clearly efficient," the spokesperson added.

Ofcom has confirmed to ZDNet UK that the review into regulating 3G termination rates will be completed "during March, with a view to the new charge controls coming into effect on 1 April".

Separately to that, the regulator also has to resolve the existing disputes of T-Mobile and O2 versus BT (and decide whether BT needs to repay those operators any money for the last year), and BT versus Orange, Vodafone and 3 (who are now all refusing to accept BT's proposed lower termination rates).