3 is subsidising rivals through termination fees

3 is subsidising rivals through termination fees

Termination rates is one of four major regulatory issues that is extremely important to our future as a business, but most significantly, they are working against the benefit of the consumer. The others are: number portability, spectrum refarm and EU roaming rates.

The UK has lagged behind the world when it comes to issues like number porting and termination rates.

The regulatory environment is one where the incumbents have negotiated very comfortable positions on these issues and it has not helped the UK consumer or the health of the UK industry.
I simply disagree with the view that the UK mobile industry is a competitive market. Competition doesn’t necessarily exist if you have people giving away an Xbox with a contract on the high street. That’s not real competition. Where is the innovation? Where is the value and the service quality?

I find it a fascinating mentality that says ‘we can’t change it because this is where we are now’.

The question I ask is: do the powers that be have the appetite to take on the legal teams of four massive network operators?
The cost we pay for termination rates has little bearing to the network cost. The rates currently are 6p per minute for voice and between 2p and 3p for texts. SMS doesn’t cost a network anything. It’s nothing in terms of the capacity of the network; call termination is half a penny.

We have given over £190m to the incumbent networks in termination fees. 3, as a new entrant, is effectively subsidising the incumbents.

If I put my consumer hat on, MTRs effectively create an artificial price floor.

If we were to charge 4p per minute for calls, we would lose money because we are paying 6p in termination rates. To put that in context, our underlying cost is less than a penny. 3 could offer voice calls for 2p per minute and the only thing stopping us is MTRs.

I would bring in an unlimited voice, unlimited text and data tariff for £25 a month, and tell the consumer, ‘there you go, go nuts’.

It’s a fundamental failure of the industry when you have a new entrant like us, we build up the quality of the network and then you have an environment with artificial pricing so we can’t improve the market for consumers.

My solution would be to bring MTRs to 1p per minute. That’s a more realistic valuation of the cost involved in terminating calls.

There has been a tsunami-like noise from the incumbents about the effects of our proposals. The scaremongering rhetoric of a potential additional cost for prepay customers, and charging customers to receive calls simply doesn’t stack up.

You can ask me to sign something to guarantee that 3 will not make the customer pay to receive calls. We will also say right now that we will match or better existing standard prepay price plans if the changes were to come in.

We will offer the customer a taste of that from 1 November with £15 per month for unlimited voice and text but only to other 3 customers.

3, as a business, was in a bad place 24 months ago. We are now building a business with the vision of becoming a mobile internet service provider. We will have 13,000 sites in the UK through our joint venture with T-Mobile, giving us a monster of a 3G network.

Mobile broadband has been a saviour for us. We now have 600,000 mobile broadband customers. We underestimated how big the market was and now estimate it to be eventually as big as 20 million people. Instant messaging is already a third of SMS traffic on our network, and the numbers continue to go up.

It is frustrating that our barrier is not brand, distribution or service but an environment that isn’t friendly to a new entrant or the consumer.

It has made our job as much political as it is commercial to try and push through these important and necessary changes. We have fundamentally different commercial strategies
to our rivals.

This is an edited extract of a talk given by 3’s UK CEO Kevin Russell in London last week

Written by Mobile Today
Mobile Today


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