O2 warns Ofcom over reduction in mobile termination rates

O2 has warned regulators that a reduction in the charges levied by networks to connect calls will harm consumers.

Mobile phone users from low-income households could be priced out of the market if the regulator presses ahead with plans to drastically slash the cost of calls, the UK's largest mobile phone company, O2, has warned.

The mobile networks could respond to regulatory pressure by trying to recoup their losses through increasing prices elsewhere, the mobile operator said. Free handsets could also be axed and users of smartphones, such as Apple's iPhone, could see charges rise, O2 has told Ofcom.

Earlier this year, the regulator proposed dramatic reductions to mobile termination rates – the charge levied by the networks on each other and fixed-line operators, such as BT, to connect calls – when the current price cap regime expires in 2011.

BT and the UK's smallest network 3 have lobbied for them to be scrapped altogether with their "terminate the rate" campaign. Their petition has already garnered over 70,000 signatures and almost 200 MPs have signed an early day motion to have the charges scrapped. They believe ending the charges would allow mobile users to start enjoying the unlimited call packages seen in other countries ,while the cost of calling a mobile from a fixed-line phone would also fall.

But in its submission to the regulator as part of the consultation process on its plans, O2 accuses the two companies of being "driven ... by self-interest" and warns "sudden and dramatic changes to termination rates introduce a risk that the retail markets would be affected in a way that could harm, and not benefit, consumers".

O2 reckons monthly contract charges, handset prices and the cost of calls could all go up. Pre-pay customers, who tend to receive more calls than they make, will be hard hit as mobile phone companies would have to slap "use by" dates on top-up credit. This would be particularly painful for low-income households and younger consumers as many rely solely on pre-pay mobile phones and do not have a BT line.

Cutting mobile termination rates could also have a serious effect on the UK's mobile virtual network operators – companies that offer phone services but lease airtime from the five networks – according to O2. Some of these MVNOs are aimed at migrant workers and the UK's large ethnic communities while others, such as Tesco Mobile which uses O2's network, are aimed at people who want a cheap pre-pay phone with few bells and whistles.

The last time that Ofcom proposed cutting mobile termination rates, the issue ended up with the Competition Appeal Tribunal and O2's submission suggests the lawyers could be called in again, saying some of its proposals are "inconsistent with European and domestic law".

O2 also questions whether a reduction in mobile termination rates would lower call charges from fixed-line phones. "In 2007, when mobile termination charges fell significantly, both BT's and Virgin Media's [cable] average retail prices actually rose. Mobile termination charges fell again, significantly, from April 2009, but this has had no effect on BT's and Virgin Media's standard retail charges; they remain stubbornly high. If there is a problem in fixed retail markets, it is not one that lower mobile termination rates would solve."

Source: The Guardian, 9th August 2009

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