Plans to change mobile termination fees

Almost unnoticed, and certainly much earlier than expected, Ofcom, the communications regulator, last week slipped out an interesting set of documents on its website.

The watchdog published the reactions from various interested parties to its plans to change mobile termination fees — the costs paid by telecoms operators to connect a call to a rival’s network.

Ofcom’s consultation, in part, follows a campaign called Terminate the Rate launched jointly by BT and the mobile operator 3UK. They argue that termination fees, which are about 5p to 6p per minute, are excessive and, by creating an artificial floor on prices, suffocate competition. BT argues that people who use mainly fixed lines suffer disproportionately. It argues that a penny per minute would be about right.

Needless to say, the big four mobile operators disagree, arguing that most UK consumers pay less for the mobile services they use than their counterparts in the United States — the market that Ofcom seems most keen to emulate — and pointing out that mobile penetration is higher here.

Possibly the most intriguing response, though, is from Tesco’s mobile phone division. It warns that, as termination fees fall, operators will need to raise other charges to make up for this. Under one scenario it sketches out, customers might even have to pay minimum daily charges or commit to monthly fees, charging structures that, it points out, are common in the US.

Potentially the biggest loser, should this come to pass, would be Tesco Mobile itself. Nearly all its customers are signed up to “pre-pay” tariffs, people who tend to be less well-off and who mainly use their mobiles to receive calls. It is conceivable that many, if obliged to pay a monthly fee, would decide that they could do without a mobile phone.

Yet the response from Tesco Mobile, which is jointly owned with O2, is at odds with the grocer’s usual approach — to compete aggressively at all costs in order to bring down prices for customers.

And it is strikingly in contrast with the submission from Asda, which supports BT and 3UK’s case, arguing that termination fees represent an unavoidable cost. Cut these, it says, and we will be able to reduce the cost of calls to our customers.

Time was when this would have been precisely Tesco’s approach.

Source: Times Online, 19th August 2009

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