Ofcom seeks to lower UK mobile termination rates yet again

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The UK communications industry regulator – Ofcom – has announced proposals designed to further reduce mobile termination rates; the wholesale prices mobile operators charge other operators for connecting to their networks.

According to Ofcom MTRs are currently at 0.8 pence per minute, down from 4ppm in 2011 and considerably higher a decade before that. It is Ofcom’s policy that MTRs should be as close to what they cost the operator as possible in order to minimise the competitive advantage they offer to the larger operators, which tend to be net beneficiaries of MTRs.

The stated reason for proposing a further reduction in MTRs from 0.8ppm to around 0.5ppm is a perceived lowering of the cost, due to increased network capacity and efficiency, since the last review in 2011. Ofcom believes any savings made by the operators should be passed on to consumers.

“Every operator that connects a call to its network has market dominance because by definition nobody else can connect to its network, so there’s always the potential in the market for connecting calls that an operator might abuse that position,” Joe Smithies, Ofcom spokesperson, told Telecoms.com.

Any reduction in the cost of making a mobile phone call is in principal good news not just for consumers, but for anyone that pays MTRs, such as fixed-line and smaller mobile operators. However larger operators, for whom MTRs can be net revenue generators, understandably tend to oppose calls to reduce them. The last such move by Ofcom in 2011 was appealed by the larger UK operators, but ultimately upheld. That defeat combined with the relatively minor tweak this time around makes it unlikely they will bother to appeal again.

Phil Kendall, executive director at wireless research house Strategy Analytics, stressed that revenue implications of MTRs these days are minimal. “The net inflow of money into the mobile market from MTRs was equivalent to 0.5 per cent of 2013 service revenue. That net inflow was 15 per cent of service revenue in 2000,” Kendall told Telecoms.com, observing that the higher MTRs of the past made prepaid customers desirable even if they made no outgoing calls themselves. “Further reductions from today’s low levels are largely irrelevant, but the reductions have forced operators to rethink what a profitable prepaid customer looks like.”

Regulators have to be seen to be regulating, and having established the principal that MTRs should mirror cost, it’s appropriate for Ofcom to keep reviewing them. However, in the face of persistent regulatory pressure on both a national and European level, expect UK operators to redouble their efforts to recover lost revenues elsewhere.