Tough opposition from mobile operators in termination rate battle

Ofcom faces tough opposition from mobile operators in the battle to reduce termination rates due to the negative impact on revenues, according to Ovum.

In a new report, the independent telecoms analyst firm has stated that Ofcom and other regulators will become embroiled in a ‘vigorously contested’ consultation with operators, as they seek to protect their bottom line.

The mobile termination rate (MTR) is the amount charged by one operator to another for terminating a call on their network. The rates for mobile are currently higher than fixed line charges and vary across different operators.

However, the European Commission wants standardisation across the continent and is putting pressure on regulators such as Ofcom to intervene. According to the report, this would result in MTRs falling by almost 90 per cent over the next five years, from an average of six euro cents to one.

Matthew Howett, an Ovum lead analyst and co-author of the report, said: “There is currently a revolution underway in Europe for how MTRs are calculated and we expect rates to fall considerably as a result. However, Ofcom’s intervention in the matter will be hotly contested by operators who will oppose a reduction in their rates due to the negative impact it will have on their revenues.

“Operators will definitely not accept any reduction in termination rates without a fight and Ofcom should be prepared for a fierce battle with operators, keen to protect their own interests. As a result, consumers may be waiting longer for the cheaper calls that lower termination rates could encourage.

“Currently the termination rate represents a price floor in terms of the retail price paid by consumers. Regulators will also be vigilant of operators increasing call prices for some consumers as a way to make up for lost revenues.”

Termination rates were reduced by 52 per cent on average between 2005 and 2010, with France leading the way with a cut of 76 per cent. In stark contrast, Ireland saw the smallest cut with a reduction of just 24 per cent.

Howett added: “According to the existing EU telecoms rules, Ofcom must take ‘utmost account’ of the EC’s recommendation and will have to bring termination rates down and ensure standardisation by 31 December 2012. However, given the opposition that mobile operators will put forward, this could be a tall order.”