New Zealand Regulator Wants Lower Mobile Termination Rates

New Zealand's Commerce Commission has sent letters to the country's three mobile phone networks warning that it wants a reduction in their mobile termination rates. The three networks had sent submissions to the Commission to lower their rates voluntarily, but the Commission has replied saying that the cuts don't go far enough.

Vodafone, Telecom and NZ Communications supplied undertakings to the Commission for mobile termination access services in January 2009. The proposed undertakings were in response to the Commission's Schedule 3 investigation under the Telecommunications Act 2001 into whether mobile-to-mobile, fixed-to-mobile and short-message-service termination (SMS) should be regulated. Telecommunications companies and other interested parties then made submissions to the Commission on the undertakings.

"The mobile termination rates provided by Vodafone and Telecom in their undertakings are significantly above the Commission's preliminary view on current international cost-based benchmarks," said Commerce Commission Chair Paula Rebstock.

Vodafone have 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," Ms Rebstock said. "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."

"Another key feature of the undertakings was the approach to pricing," said Ms Rebstock. "The Commission's preliminary view is that cost-based pricing is currently more appropriate than the ‘bill and keep' pricing approach proposed by NZ Communications because cost-based pricing is likely to best promote competition." However, Ms Rebstock noted that it may be appropriate for the Commission to reconsider the adoption of ‘bill and keep' in the longer term, but this would depend on New Zealand market conditions.

The Commission's investigation relates to the wholesale terms that telecommunications companies charge each other, rather than the price that consumers directly pay for mobile calls. The Commission can only recommend regulation at the wholesale level.

"However, the Commission would expect increased competition, as a result of reduced wholesale charges, to benefit end-users by leading to lower retail prices," said Ms Rebstock.

Any revised undertakings from Vodafone, Telecom and NZ Communications must be supplied by 22 April 2009. After the Commission has received any revised undertakings it will issue a draft report.

Posted to the site on 25th March 2009