Mobile operators reap savings from Ofcom

Changes to the 'termination rate' will save networks millions, but whether mobile users will feel the benefits remains to be seen

Regulator Ofcom has saved the UK's mobile operators hundreds of millions of pounds per year — and the watchdog is hoping some of the cash will find its way back into consumers' pockets.

Under the current system, when a call is placed to a mobile from either a fixed-line or mobile phone, the network of the user making the call must pay the network receiving the call for the privilege.

Now Ofcom has reduced the amount operators can charge another to connect calls — and is hoping mobile users will see the benefit.

For the first time, third-generation network 3 and other 3G providers will be subject to the new "termination rate" charges of 5.9p per minute, while the UK's other four main operators will be subject to rates of 5.1p per minute, whether the call is connected over 2G or 3G. The rates are lower than many expected, following a consultation published last September that suggested prices of 6p and 5.3p respectively.

For T-Mobile and Vodafone, the changes to rates will mean a 20 percent reduction; for O2 and Orange it will be around 10 percent. All in all, Ofcom said it believes the networks will save between £400m and £500m over the four years as a result of the legislation, adding that it expects "savings... to be passed through to retail customers".

Whether the regulator's dream will be realised is yet to be seen — O2, Orange, T-Mobile and Vodafone have so far not commented on whether they intend to pass their savings onto their customers.

The UK's termination rates are among the lowest in Europe even before the latest round of cuts, according to analysts — but it's not all good news.

Stefano Nicoletti, principal analyst, regulatory practice at Ovum, said in a research note: "Recent proposed cuts represent a modest drop of termination rates when we consider they will apply over a period of three to four years. Despite the technology and market maturity of mobile networks and despite years of regulation, the cost of terminating calls on mobile networks in Europe is still substantially higher than on fixed networks."

An O2 spokesman said call rates are likely to come down across the board through competition, fixed-line telcos will benefit most from the changes and may pass savings onto consumers. It's not a stance the chief executive of telco Cable & Wireless, Jim Marsh, agrees with.

Marsh said in a statement: "Fixed network customers will bear the brunt by paying above the odds for calling mobile users — money which the mobile operators will use to subsidise the retail tariffs they offer to their own customers."