Cost of calls to mobiles could drop sharply

The cost of calling a mobile phone could drop significantly after the competition appeal tribunal (CAT) yesterday handed down two judgments which open the way for reducing so-called mobile termination rates.

BT was handed a potentially very significant victory as the CAT dismissed the way regulator Ofcom had calculated how much the cost of calling a mobile phone from a fixed-line phone should come down.

BT argues the price of calling a mobile phone is still far too high and consumers are overcharged to the tune of £1bn a year.

While the CAT's decision in BT's case only concerned price setting from September 2006 to March 2007 - before new caps came into force - BT has taken succour from the fact that the tribunal set out how it thinks Ofcom should operate in future.

BT also maintains that Ofcom got its sums wrong in calculating the current caps on mobile termination rates, which came into effect in April 2007, and they should actually be far stricter.

Those caps are currently the subject of a Competition Commission investigation which the CAT itself ordered back in March. The commission has to report back by October 31.

Under Ofcom's plan, the rate that 3 can charge will fall 45% to 5.9p a minute over the next three years, while the other four networks will see prices drop to 5.1p, which works out as a 10% cut for Vodafone and O2, and 20% for Orange and T-Mobile.

But BT wants those price reductions to be even larger.

"We are really pleased that the tribunal has unanimously upheld all our arguments," BT said yesterday.

In a separate case, meanwhile, the CAT threw out a plea from the UK's newest mobile phone network 3 that it should be excluded from the current set of price caps, which regulate the cost of calling between mobile phone networks.

Ofcom welcomed the CAT's agreement that 3 does have significant market power and is therefore subject to regulation.

A spokesman for 3, meanwhile, said the company "is of the view that a less intrusive form of regulation was more appropriate for later and smaller entrants".

Paradoxically, 3 has also suggested that mobile termination rates should be got rid of altogether, a move which legal experts say suggests the company always suspected it would lose its plea to be outside regulation.

Getting rid of mobile termination rates would pave the way for the sort of unlimited calling packages already available in the US and Germany.

If all five mobile phone networks stopped charging each other - and BT - to connect their customers that could actually be better for 3 than the other four networks. It only has a 3G network to run, while O2, Orange, T-Mobile and Vodafone also have the cost of running their old 2G networks. In theory, ending termination rates could spark a new price war, with 3 using its lower cost base to undercut its rivals. A spokesman for 3 said yesterday that the CAT judgement is "only one aspect of 3's appeal".

source: guardian.co.uk 21-05-2008

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