Ofcom cuts termination rates by 80%

Ofcom cuts termination rates by 80%
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Ofcom has announced an 80% reduction in mobile termination rates over the next four years.

From 1 April 2011, the regulator will place caps on the rates charged by all four operators. The rates will then be gradually reduced until March 2015.

The current rates until April are: 4.18p for O2, Everything Everywhere and Vodafone; and 4.48p for Three. This will reduce to 2.66p for all operators in 2011/12; 1.7p in 2012/13; 1.08p in 2013/14; and 0.69p in 2015.

The move is a victory for the Terminate the Rate campaign, which has been lobbying to cut termination rates to zero. However, it agued that the rates should be reduced sooner.

A Terminate the Rate spokesman said: ‘Ofcom has acknowledged that lower mobile termination rates are better for consumers and committed to reducing them to less than a penny, which raises the question: why can’t those benefits be realised sooner?  In the long term, this is a win for consumers: cutting mobile termination rates supports competition and better deals for all that call mobiles.

‘We will continue to call on Ofcom to act faster and go further.’

Operators other than Three, which is one of the lead companies in the Terminate the Rate campaign, were unhappy with Ofcom’s decision.

Vodafone UK CEO Guy Laurence said: ‘We are really disappointed that Ofcom has ignored the evidence that termination rate cuts will mean higher costs for prepay customers especially at a time when money is tight for many families. We are studying Ofcom's decision and considering all of our options.’

An O2 spokeswoman said: ‘O2 is deeply disappointed that Ofcom has chosen to peg O2’s mobile termination rate to the “pure LRIC” cost standard.  It results in charges that are too low. Ofcom continues to regulate other companies, including BT, on other, more generous cost standards and this is discriminatory. 

‘Prepay mobile customers are likely to be worse off as they are charged to make up the shortfall and there is scant evidence that BT and other fixed companies will pass the lower costs to their customers.’

According to Ofcom research, the volume of data traffic over mobile networks has increased by 104% over the last year.

Ofcom said: ‘As mobile termination rates only apply to calls rather than data, over the four year charge control period, they are likely to become a less significant element of mobile companies’ revenue.

‘Data revenue increased by 90% between Q4 2007 and Q4 2009 and Ofcom expects continued data revenue growth in the future.

‘Therefore Ofcom expects that investment in the UK mobile sector will be driven increasingly by the growing appetite for data services, smartphones and mobile broadband. Ofcom does not expect lower mobile termination rates to materially change this trend. ‘

 

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