Mobile termination charges to be regulated in New Zealand

Stuart Corner
Monday, 01 May 2006 10:56

IT Policy - Regulation

After two years of consultation, investigation and debate the New Zealand trade regulator, the Commerce Commission, has decided to regulate the termination of calls on mobile networks.
It claims that the move will generate net benefits of between $NZ46 million and $NZ63 million over five years, based on indications from the carriers of the prices they will charge. The commission has used a price of $NZ0.15 per minute in its benchmarking but expects the price to fall to $NZ0.12 over the next few years.

Implementation of its recommendations awaits a decision from the minister for communications, who had rejected an earlier version.

The Commerce Commission's decision has been strongly criticised by Telecom NZ which has accused the regulator of failing to understand changes that are already happening in the sector. "This is regulation for the sake of regulation," Telecom general manager Government & Industry Relations, Bruce Parkes said. "The Commission has failed to make a case for why fixed to mobile calls should be regulated, but is recommending that step nevertheless.

"The Commission has in fact concluded that depending on the assumptions it uses, New Zealand as a whole could be worse off or only marginally better off as a result of the regulation.

However the report states clearly that: "The cost-benefit analysis (CBA) used for the purposes of the reconsideration compares a counterfactual scenario based on the commercial offers of Telecom and Vodafone with a factual scenario in which mobile termination rates are regulated. The CBA indicates that ...the quantifiable benefits of regulating mobile termination rates in preference to acceptance of the commercial offers are material. Regulation is estimated to produce a net benefit over a five year period of between $46 million and $63 million in present value terms, depending on the assumed nature of the demand functions."

Vodafone New Zealand said the Commerce Commission’s decision did nothing to deliver real benefits to New Zealanders. CFO David Sullivan said that the wholesale fees mobile operators charge fixed providers to terminate calls on their networks had moved on little since the last draft, and in fact, presented a weakened case for regulation.

"The net public benefit stated by the Commission of between -$5m and $5m is based on fixed line operators voluntarily passing through mobile termination rate savings to landline users.  There is no regulated enforcement of the 'pass through' feature so achieving any real cost savings for landline users relies wholely on the goodwill of fixed line operators,” said Sullivan. "We question how the government can accept the case for regulation when the Commission’s case falls away if 'pass through' does not occur?"

Communications minister David Cunliffe (who rejected the Commission's  first 'final' report) had asked the Commission to deliver a solution to the '“pass through' issue, but Sullivan says the Commission has failed to do this, leaving the case for regulation flawed and extremely weak.

In its Report, the Commission says it expects Vodafone to raise retail mobile prices by around two percent to recover revenue lost through reduced mobile termination charges.

 “The Commission itself has acknowledged that mobile prices will go up by an average of $NZ9.61 each year over the next five years, and predicts that 18,567 Kiwis will stop using their mobiles altogether over the same period,” Sullivan said.

TelstraClear, which resells services on the Vodafone Network,  welcomed the decision. CEO, Allan Freeth, said: "The Commission got it right. It was faced with commercial offers from mobile providers and arguments over the exclusion of 3G technology which could have watered down the benefits to consumers. Today's announcement puts the long-term interests of consumers first without impacting mobile operators' ability to invest in new technologies and services. Just as importantly it will allow companies like TelstraClear to improve deals for consumers."

The decision applies only to voice calls, and the Commission has resiled from its earlier decision not to regulate 3G networks saying it is too difficult to make clear distinctions between technologies.

The process of arriving at the decision has been long and difficult. The Commission commenced its investigation in May 2004 and began the process of public consultation with the publication of its issues paper on 22 June 2004 and the draft report on 18 October 2004. A conference was held on the 23-25 February 2005.

The Commission released its final report containing its recommendation to the Minister on 9 June 2005, but on 9 August 2005 the Minister announced that he was requiring the Commission to reconsider its recommendation.
In response, the Commission released its Mobile Termination Reconsideration Draft Report On 22 December 2005, followed by its final report this week.

The Commerce Commission's decision follows similar developments in Australia where the Australian Competition and Consumer Commission (ACCC) has recommended a phased reduction in the price of mobile termination from around $A0.20 per minute to $A0.12 by January 2007.

The move has been strongly opposed by most of the mobile operators and, with prices presently set by commercial negotiation, the ACCC has been required to arbitrate on numerous access disputes and has set interim prices in line with its recommendations.