Telcos Warn on Impact of Forced Rate Cuts

Operators are up in arms as the EU telecoms commissioner says the price telcos charge for connecting calls to other networks could fall as much as 70%

The European Commission's telecoms commissioner, Viviane Reding, says mobile termination rates could fall by as much as 70 per cent over the next three years.

But mobile operator body, the GSMA, has cautioned any move to accelerate rate reduction could force operators to make cuts in services, increase prices or even end handset subsidies.

A spokesman for the GSMA warned: "If you're going to make a big change to something as important as mobile termination rates, you as the Commission should carry out a full impact assessment."

Termination rates are the charges mobile operators make for connecting calls to each other's networks. They are currently regulated on a country by country basis, by national telecoms regulators.

Reding said rates are, on average, nine times higher than fixed line termination rates, and also vary significantly across the EU—from €0.02 per min (in Cyprus) to more than €0.18 per min (in Bulgaria).

This lack of consistency displeases the commissioner as she said it distorts competition between operators from different countries and between fixed line and mobile phone operators. Fixed line operators and their customers are indirectly subsidising mobile operators by paying higher termination rates for calls made from fixed lines to mobiles, she added.

Reding said in a statement: "Disparate termination rates across the EU and large gaps between fixed and mobile termination rates are serious barriers to achieving a Single European Telecoms market that benefits competition and consumers. The consumer pays the price for these gaps between national regulatory policies."

The Commission has launched a public consultation on the future of voice call termination rates, which will run until 3 September 2008, and Reding said she hopes this will spur competition among operators and lower phone charges for European consumers.

European telecoms regulatory lobby group ECTA (European Competitive Telecommunications Association) recently called for Reding to cut termination rates which it said penalise consumers.

However, a spokesman for mobile operator association, the GSMA, said rates have already been reduced by around 40 per cent over the past four years, as a result of national regulation, so it does not see a need for the commission to get involved.

It expects rates to fall by a similar amount over the next three years without EC intervention, it added.

According to the GSMA, operators' costs vary across the EU by a factor of four—owing to differences in things like labour costs, licence fees and population density—so "a single rate just wouldn't be appropriate".

Asked whether cuts in mobile termination rates could drive operators to pull the plug on 'free' (subsidised) mobiles for pay monthly customers, the spokesman said it is "very difficult to say what individual operators would do".

He said: "Whereas one operator might look at handset subsidies, another operator might say, well we're going to cut back investment—we're not going to provide such extensive coverage in rural areas, another operator might say we're going to change the way we charge for text messages… There's all sorts of things operators might do.

"A lot of it's going to depend on how profitable they are at the moment. A lot of individual operators are not covering their costs with capital so they've got a lot of pressure on their bottom line."

The spokesman added: "If they [the EC] decided to bring these mobile term rates down much faster than they're already coming down that would inevitably have a knock on effect somewhere else."

The EC's draft recommendation on mobile termination rates can be downloaded from here.

UK operators recently quashed suggestions they would look to switch to a 'customer pays to receive calls' business model if termination rates are slashed.