Recently there has been a lot of media coverage and talk about whether UK mobile users could be forced to pay to receive calls and texts. There is much talk of mobile termination rates – but what exactly are these charges and how do changes in them affect the prices consumers pay?
Mobile termination rates are not, as is sometimes assumed, the same thing as a charge to receive a call. Consumers don’t pay termination charges directly. Instead, operators pay each other a termination charge when a call is passed from one network to another. We all ultimately fund this through our phone bills or pay-as-you-go credit. Most of the time regulators set these charges because they are invisible to customers.
Retail charges (how much consumers pay) are set more simply. Suppliers choose what price plans to offer; customers choose a supplier. The regulator doesn’t tell suppliers how much to charge since competition limits prices anyway, and nor do we tell the suppliers how to charge; for example, whether to charge for outgoing calls, incoming calls, or whether to combine with one monthly charge, or a combination of these.
The European commissioner, Viviane Reding, has proposed cutting the termination rates that fixed and mobile operators charge each other to complete calls, by changing the principles used by national regulators to set them. Across Europe, wholesale charges are around eight euro cents on average.
Some operators claim that the commission’s approach would reduce their revenue by up to a fifth – and that they will need to make up shortfalls in other ways. Operators are arguing that the biggest impact will be on users who currently pay the least, which is low-spending pay-as-you-go customers.
And although no operator has indicated that they are even seriously considering the idea, the media has reported of another way to claw back lost revenue, which would be for mobile operators to charge users to receive calls.
Ofcom is currently assessing our overall approach to the mobile sector – including the question of how termination rates should be set. In 2007, we capped termination rates for all five major operators, requiring the rates to fall each year until 2011, which has served consumers well. But our recent consultation on the mobile sector asks: is there a better way?
We understand that a lot of people don’t like the idea of paying to receive calls so it is unlikely that UK mobile operators would choose to force customers down that route and why any regulator – in London or Brussels – is unlikely to choose charges that are deeply unpopular with consumers.
We are thinking widely about options for the future of mobile termination charges. One thing we’ll be looking to understand is the effect that any changes might have on retail prices, including whether it would raise a realistic prospect of incoming call charges being widely introduced. And given our duties, we won’t make any detailed proposals, let alone changes to the rules, without carefully considering the effect on consumers.
David Stewart is competition partner at Ofcom