OFTEL REDUCES SETTLEMENT FEES FOR CALLS TO MOBILE NETWORKS

Oftel said further charge controls for termination rates should be introduced after July. Then mmO2 and Vodafone will have to reduce their termination charges by inflation measured by retail price index (RPI) minus 15%, and Orange and T-Mobile by RPI minus 14%. Charge controls should run for 3 years until 2005-2006, Oftel said.

Oftel Dir. Gen.-Telecom David Edmonds said new rates would allow consumers to save $307 million per year in calls from fixed to mobile phones. U.K. Competition Commission, which produced initial report, said operators were overcharging their customers up to 40%, and callers to mobile phones had “no choice but to pay” high termination charges: “There is little incentive for the operators to reduce their charges towards their actual cost.”

Vodafone said it would seek judicial review of pricing proposals: “The Competition Commission has significantly underestimated the costs of running a mobile phone network and it has also failed to reliably determine how these costs change in the future.” Other mobile carriers said they also would consider asking for judicial review. Carriers said mobile phone bills had been reduced 70% in last 5 years, driven by intense competition in U.K. Vodafone CEO Gavin Darby said: “This is harsher regulation on top of increased competition.” Orange said Commission ignored mobile industry’s $38.9 billion investment in 3G licenses in its model of industry’s costs and didn’t consider termination charges for calls to 3G networks.

MMO2 said it would delay planned launch of commercial 3G services until 2nd half of 2004 to recover lost revenue. It said it also would accelerate cost-saving programs, including handset subsidy reduction. CEO Peter Erskine said: “We will review all of O2 UK’s investment programs, and in particular the scale and timing of our 3G roll-out.” ING Financial Markets analyst Damien Chew said U.K. mobile operators, which generated 20-25% of their revenue from termination charges, would have revenue reductions of 3-4% this year depending on operator. However, Oftel’s Edmonds said price cuts wouldn’t have adverse affect on mobile operators’ business plans: “The Commission have made it clear that these cuts will not jeopardize the mobile operators as they will be able to make a fair return on terminating calls to their networks.”

BT applauded Oftel’s decision and said it would pass on benefit of savings to its customers. It said it planned to reduce its charges for customers calling from their fixed lines to mobile phones. It said in 2001-02, BT retail recorded $1.62 billion of revenue from its customers’ calls to mobile phones but at same time BT wholesale had more than $1.62 billion in transit revenue from calls terminating on mobile networks. Orange said Commission didn’t ensure that reduction in termination charges actually was passed on to fixed line customers by BT. It said BT could use savings not only to reduce fixed-to-mobile call rates, but also to subsidize other fixed line services. Orange said BT retained dominant market share of fixed line calls, but no longer was regulated on charges it imposed for originating fixed line to mobile calls.

Consumers will be forced to pay more as result of ruling, operators said. Vodafone said action was “fundamentally flawed” and would mean higher costs to buy and use mobile phones: “This means that the primary beneficiaries of the [ruling] will be the 5 million households in the U.K. who do not own a mobile phone, at the expense of 49 million mobile customers.” Orange Exec. Vp John Allwood said such interference “would produce no net consumer benefit.” He said Commission had failed to ensure fixed-to-mobile call costs reduction would in fact benefit fixed line customers. He said Commission also failed to specify how its directives would work in environment of changing regulatory structures in U.K. and Europe, with Oftel being superseded by new OFCOM in July and changes in European regulation also planned for July.

European Commission (EC) spokesman said Oftel’s regulatory decision had no direct effect on competition: “If the U.K. say they want to do it, it’s their right. U.K. regulators are better placed to determine whether this measure is needed.” He said, however, that EC was in process of investigating international roaming termination charges of mobile operators in U.K. and Germany. He said prices different mobile operators charged for terminating roaming calls on their networks were very similar: “We are not sure if these prices are determined by the market forces or collusion.” Spokesman said EC was in preliminary stage of investigation: “If preliminary investigation proves that [there is a collusion], we'll launch a statement of objection, and the companies will be able to rebut.”