Consumer cost of mobile undertakings is high, says TUANZ

Telecommunications Users' Association boss Ernie Newman says if proposals by Telecom and Vodafone to gradually reduce mobile termination charges are accepted, a moderate mobile user could face up to $1,300 in extra charges between now and 2014.

Newman says he agrees with analysis released by the Commerce Commission earlier today.

"The cost-based figure the commission has calculated for mobile termination is around 9c a minute less than Telecom and Vodafone are currently charging," he says in a statement.

"That means for example, a user who spends (conservatively) 10 minutes a day on calls from their fixed or mobile phone, to somebody's mobile, is incurring $300 a year in excess charges that are way above a reasonable rate of return for the mobile operators.

"Similarly, if the Commission accepted Telecom's and Vodafone's proposal of a very slow glide path down to 11 cents between now and 2014. such a user would incur around $1,300 in excess charges over that time. That amount would inflate users' monthly mobile and fixed phone bills, and result in excessive profit to Vodafone and Telecom."

He says such a glide path is "entirely inappropriate" and is calling on the commission to accelerate its process.

The commission announced today it has written to Vodafone, Telecom and NZ Communications with its preliminary views on their proposed undertakings.

Mobile termination rates are sums charged by network operators for terminating calls from other networks on their own. As such they form part of the cost to the consumer for making calls to mobile numbers.

"The mobile termination rates provided by Vodafone and Telecom in their undertakings (see table in attached pdf) are significantly above the commission's preliminary view on current international cost-based benchmarks," says Commerce Commission chair Paula Rebstock.

Vodafone offered rates starting at 15 cents per minute (cpm) and reducing over time to 11 cpm for voice calls, and starting at 9.5 cents per SMS and reducing over time to 7 cents per SMS. Telecom have offered rates starting at 16 cpm and reducing over time to 10 cpm for voice calls, and a flat rate of 3.5 cents per SMS.

"The Commission's preliminary view, based on current benchmarks, is that cost-based termination rates could be as low as 7cpm for mobile to mobile and fixed to mobile voice calls, and 1 cent per SMS," Rebstock says.  "Based on these preliminary benchmarks, the Commission expects that any revised undertakings will need to offer significantly lower mobile termination rates before the commission could consider recommending that the minister accept them."

The Commission can only recommend regulation at the wholesale level, however, the commission expects increased competition to benefit end-users by leading to lower retail prices.

Meanwhile, Telecom CEO Paul Reynolds says he will reflect on the Commerce Commission's comments on Telecom's proposed undertakings.

"We are still analysing the detail of today's announcement, but it is fair to say that there are some aspects of it that we would question, particularly the approach the commission has taken to benchmark termination rates in other countries against the rates we have proposed",  Reynolds said today.

The commission uses a figure of 6cpm for Australia in its benchmark, but Telecom says the Australian regulator this month rejected that as being "unrealistically low".

"We need to be careful not to make important regulatory and industry decisions on the basis of theoretical information that does not represent the real world," Reynolds says.