Commission acts on termination rates to boost competition

The European Commission has set out clear guidance for EU telecoms regulators on the cost-based method to be used when calculating termination rates; the wholesale fees charged by operators to connect the call from another operator’s network which are part of everyone’s phone bill.

The guidance is in the form of a Recommendation that national regulators are obliged to take the utmost account of. The Recommendation indicates specifically that termination rates at national level should be based only on the real costs that an efficient operator incurs to establish the connection.

Eliminating price distortions between phone operators across the EU will lower consumer prices for voice calls within and between Member States, saving business and household customers at least €2 billion (about £1.7 billion) in 2009 to 2012, and help investment and innovation in the entire telecoms sector. Mobile termination rates varied widely in the EU in 2008 from 2.00 euro cents (about 1.7 pennies) per minute (in Cyprus) to 15 euro cents (about 13 pennies) per minute (in Bulgaria).

Mobile termination rates (on average 8.55 euro cents (about 7.5 pennies) per minute) are also typically 10 times higher than fixed termination rates (on average ranging from 0.57 to 1.13 euro cents (about 0.5 to 0.99 pennies) per minute).

Higher mobile termination rates make it harder for fixed and small mobile operators to compete with large mobile operators. These divergences, and differing regulatory approaches, undermine the Single Market and Europe’s competitiveness.

Viviane Reding, EU Telecoms Commissioner, stated: “Despite efforts by some national regulators to bring termination rates closer to their real costs, they remain very disparate across the EU, with large gaps between fixed and mobile termination rates. This is not in line with the increasing convergence between fixed and mobile telephony and can lead to serious distortions of competition between Member States and operators. The Commission decided to intervene today against these distortions of competition in the Single Market, which deter investment into upgrading fixed networks to fibre and for which in the end consumers are paying the price.”

EU Competition Commissioner, Neelie Kroes, stated: “Bringing down termination rates to an efficient level will increase competition to the benefit of European consumers. Only a rigorous and harmonised approach to regulation will ensure that the existing distortions of competition are removed in the whole EU and that innovative new products combining fixed and mobile calls will emerge.”

To realise the full potential of a single telecoms market, the Commission’s Recommendation sets out cost factors that all EU national telecoms regulators should take account of when setting termination rates which are not market prices, but regulated by national regulators. This will make termination rates converge to a considerably lower level than today (to approximately 1.5 euro cents to 3 euro cents (approximately 1.3 to 2.3 pennies) per minute by the end of 2012, according to a Commission Staff Working Paper that accompanies the Recommendation).

All EU national regulators should apply the recommended approach to termination rates by the end of 2012. However, national regulators with limited resources may use different approaches for a limited further period as long as they achieve the same pro-competitive result.