Mobile Termination Rates – helping or hindering convergence?

At the ECTA 2007 Regulatory Conference, Hutchison 3 outlined their view that high Mobile Termination Rates (MTRs) are holding back market developments. High (above cost) MTRs in the 1990s helped pay for network roll-out and customer growth but with 100% penetration Hutchison’s view is that it is time to rethink the level of MTRs given their impacts - keeping retail prices high, preventing flat rate offers, slowing innovation. The question is whether the internet model (peering – bill and keep) should replace circuit-switched termination charges. Hutchison’s 3 Skype phone is an early example of the change where is not clear anymore what is data and what is voice. The correlation between low MTRs and high minutes of use is very strong with the US leading the charge – at over 800 minutes of use and around 2 Euro cents per minute. Australia by comparison has average 200 minutes of use and 8 Euro cents per minute. Hutchison’s conclusion;
“Low (or zero) MTRs solve these problems and remove (most) regulation from the mobile sector.”

US
A case in point is Verizon in the US. Verizon Wireless has 63.7 million customers, a significantly wider wireless than wireline presence, and is a joint venture partner with Vodafone. The US is a very competitive wireless market with the two largest wireless carriers having 51.5% of the market compared to Australia where the two largest share 75.9% of the market. The MTR market in the US is a “calling party pays” system, with local traffic from a wireline carrier pays $US.0007 per minute for wireless termination. Even when termination charges are paid between carriers they rarely appear on the customers bill. Wireless carriers have commercial agreements to exchange traffic on a ”bill and keep” basis. Long distance carriers do not pay to terminate traffic on wireless carriers.
The US wireless termination rate is .07 US cents per minute compared to an EU average of 13.3 US cents per minute. This pricing structure has seen rapid growth in customers, lower prices and average usage per wireless handset per month of 834 minutes compared 189 minutes in Australia and 153 minutes in Europe. There are now more total wireless minutes in the US than wireline. Revenue per minute is $0.05 in the US, $0.15 in Australia and around $0.21 for the EU. From June 2005 to June 2006, mobile wireless’ share of total broadband lines rose from 1% to 17% of total broadband lines. In another move to easier access for customer, on 28 November Verizon announced a new “open network” model where all handsets that meet the technical standards will be accepted on Verizon’s network. Customers will now be able to choose whichever handset they prefer, including managed mobile services and third party handsets and applications.

Europe
European market developments saw the introduction of EU Roaming Regulation on 7 June 2007: Click Here

The ‘Eurotariff’ sets a maximum limit for calls made (€0.49 excl. VAT) and received (€0.24 excl. VAT) when abroad. Operators are expected to compete below this consumer cap. The price caps will be further reduced in 2008 and 2009.
The EU Roaming Regulation, welcomed by citizens (see IP/06/1515), also forces operators to keep all customers informed about roaming prices. These transparency obligations will also allow consumers to identify easily the best roaming deals available and also know the prices they have to pay when it matters most, i.e. while they are roaming. There will also be wholesale caps for the prices that operators charge each other for roaming which will apply two months after today's publication. For the next 12 months the wholesale cap is set at €0.30. The European Commission’s roaming website which includes samples of roaming tariffs per country and further information on roaming is available Here
The first benchmark report from the European Regulators Group is Here

Ofcom Chief Executive, Ed Richards, summarised concerns with the reported findings on text and data roaming in the EU Here

The high cost of text roaming

The cost of sending a text from abroad looks high: an average charge of 21 pence per roaming text sent from Europe compared to an average of 5.6 pence per text sent within the UK but with very low associated marginal cost.

Data Roaming charges - an obstacle to business

An even more significant longer term issue is the price for data roaming. The average price charged by UK operators for using data roaming services within Europe last summer was £4.11 per Mb. These prices represent a significant price hurdle to the use of mobile internet while abroad. My biggest concern is the effect on businesses which increasingly depends on connectivity and in particular mobile connectivity.

Ofcom, working with other national regulators across Europe, is highlighting the potential importance of this issue, based on the work of ERG. We intend to take this forward by working with colleagues in the ERG and the European Commission to examine a range of questions on how text and data roaming could be regulated in the future, if the market fails to deliver lower prices.

Voice Roaming – the 20% hidden charge

It is common practice to charge a full first minute for any national or roaming call made, regardless of length. If the call lasts longer than a minute, the remainder is charged per second or, sometimes, thirty-second interval. This means that a twenty or thirty second call could be charged as if it took 1 minute.

But this is not contrary to the European Regulation. However, it means that for roaming, this practice adds up to 20%, on average, to consumer bills.

This is a hidden charge and I am very concerned about it…... As a result we will be looking to see whether we have any scope under our national powers to take action...”

Australia

In Australia, the ACCC has used regulatory powers to reduce domestic termination charges from 22 cents per minute average to 9 cents per minute (applies until December 2008). But the ACCC has no jurisdiction over the termination rates charged in overseas jurisdictions. This issue will have to be progressed through International Forums by National Governments.

If the US domestic termination rate is.07 cents per minute and if European users pay a maximum of 49 Euro cents per minute (gliding down to 43 Eurocents per minute in 2009), it is very difficult to see why Australian mobile users should be paying on average around $3 per minute to use their mobile phone service to call home from the US, UK or New Zealand.