Vodafone offers to reduce mobile termination rates

Call prices to come down as early as August, says cellphone giant

Vodafone is trying to head off regulation of the mobile market with a last-ditch offer to the government.

Vodafone is offering to reduce mobile termination rates, the amount telcos charge each other to terminate calls on their networks, and to pass on all the savings to customers. The catch, however, is that Vodafone is proposing to reduce its termination rates over the next four years rather than by next year.

The Commerce Commission reviewed the amount telcos charge each other last year and concluded that the mobile termination rates (MTR) should be reduced from its current level of 26 cents per minute to 15 cents per minute.

Telecom offered to reduce its charge to 18 cents in 2009 and to pass all of the reduction in MTRs to callers if the offer was accepted in lieu of regulation. Now Vodafone has offered a similar solution. It will reduce its MTRs to 20 cents this year and on to 14.4 cents per minute in 2010. It will also pass on all of the savings to end users and increase its rate of network expansion.

Vodafone chief executive Russell Stanners describes the offer as a win-win scenario.
"Customers will get cheaper calls sooner and the government gets a solution that is better than the one offered by the Commerce Commission."

Stanners says Vodafone's numbers deliver better returns using the Commission's own model than the regulated plan because Vodafone can guarantee the savings will be passed on to customers — something the Commission wanted to include in its final report but could not legally require.

"The Commission couldn't guarantee 100% pass through [to customers] and under its own model it needed at least 80% pass through for the numbers to work." Stanners says the industry has historically only passed on 68%.

"Because we can guarantee 100% pass through we do better on both the welfare test and consumer test that the Commission has set." Stanners says Vodafone will still take a "$100 million hit" but that's better than the $250 million it estimated the Commission's regulated solution would cost.

"We'll be able to turn that around and invest in 19 new centres throughout New Zealand, accelerating the roll out ahead of schedule." Stanners says Vodafone has already worked with Telecom on the issue and is ready to offer cheaper services "in August" if the offer is accepted by government.

However in May, Computerworld reported that both companies already offer lower MTR rates to overseas-based providers, something the Commission did not take into account in drafting its determination.

Commerce Commission communications adviser Jacqueline Martin said in May that the low wholesale rates available to overseas providers and least-cost call routing were not raised by any of the submitters and so the Commission didn’t look at them when drawing its conclusions.

The Commerce Commission's final recommendation is with communications minister David Cunliffe who has called for final comments from industry players before making an announcement.