Vodafone delivers final undertaking

, posted: 18-Dec-2009 13:06

Media Release
18 December 2009

Vodafone delivers final undertaking
SMS termination at zero, voice cut by two thirds

Vodafone has submitted what it hopes will be the final Undertaking as part of the Commerce Commission’s review of mobile termination rates.

On December 3 the Commission asked operators to work together to align their undertakings into one offer that would serve as an alternative to regulation in the Commission’s final report. Vodafone has worked to meet the Commission’s requirements and has aligned its undertaking rates with Telecom, at the levels the Commission indicated were likely to be accepted.

Vodafone had offered to reduce SMS termination rates to zero if traffic is in balance starting October 1, 2010. Previously Vodafone had offered to reduce SMS rates to 1.2 cents/TXT and has now agreed to move entirely to so-called ‘bill and keep’, making it cheaper for third party networks to terminate TXT messages on Vodafone’s network.

In terms of voice calls, Vodafone has agreed to reduce termination rates by 46% in the first year alone and will move rates down to 6 cents per minute by the start of 2014.

Vodafone’s GM of corporate affairs Tom Chignell says these rates will be based on a ‘second plus second’ rounding rather than ‘minute plus second’ basis.

“The impact to Vodafone’s business would be an immediate $50m reduction in revenues increasing over the period of the Undertaking. In a flat or declining market this is a non-trivial move.

“Vodafone has expressed concerns throughout this process that the Commission’s work is lacking in several areas and this continues to be a concern. However the Commission is both prosecution and judge in this area and, in the interests of concluding what has been a lengthy process, Vodafone has offered this Undertaking in line with the Commission’s recommendations.”

- ends -

Vodafone previously offered rates based on minute plus second (that is the first minute of a call is paid in full regardless of the duration). The Commission asked that we re-configure to use second plus second billing.


Other related posts:
Of termination rates and regulatory holidays
Minister recommends regulation - Vodafone's response
Vodafone's response to the Commerce Commission's report

Comment by Hursh, on 18-Dec-2009 13:55

About time... but why so far away? This should be implemented Jan 1 2010.

Author's note by jointhedebate, on 20-Dec-2009 07:44

Hardly a long time. Glide paths are a norm in most jurisdictions around the world where it's recognised that pushing a company's revenue off a cliff isn't as great an idea as it sounds. Better to allow companies to manage the process.

This isn't small change - it's going to cost $50m in the first year for Vodafone alone.

Now to see if you get a comparable drop in your landline to mobile calling charges.

Comment by Jon, on 13-Jan-2010 10:07


Just curious if can explain this 'lost' income ...

(from prev blog comments ...)
"Let's take the extreme customer - someone who buys a phone, tops up once ($20) and doesn't spend another cent that year.

At the moment that customer can receive as many calls/TXTs as he or she likes. Let's say there's a call a day... five a week (working week) lasting 2 minutes each.

That customer is earning (currently, assuming 15cpm MTR) 30c/day for five days a week, that's $1.50 a week. Say 50 weeks each year, for a total of $75 on top of the original $20 in the year. $95 a year total.

Now, take away MTR entirely, and all we'll make is $20/year. That's a huge loss of revenue for a company to swallow without making some drastic changes.

So as above Sally tops up her pre pay vodafone cell phone with $20, once a year, receives a call a day earns vodafone $75 ....

However theres also John, but he has a Telecom mobile, also tops it up $20, and only receives calls earning telecom $75.

Great, so what you are saying is if the MTR were dropped both companies LOSE Revenue right?

But what I've never heard about, is won't you also lose a cost? ... where does Telecoms $75 revenue from John come from? probably mostly vodafone right ...

I have heard that the numbers are roughly even (can't quote on this), so you're not losing revenue at all really ... funny thing numbers and stats ... All I can see MTRs doing is stopping new players getting into the market as they'll have to pay the existing players more as they already have existing customers already covered.

Author's note by jointhedebate, on 15-Jan-2010 07:58

Hi Jon,

in the mobile to mobile world the numbers are pretty much a wash, you're right.

But in the fixed to mobile world Telecom continues to dominate with around what, 80% market share or more... So we will reduce our termination rates, all that saving is given to the fixed operators and internationally they simply don't pass it on to consumers. It becomes increased margin or pure profit.

Take a look at Australia - they've spent the past five years reducing termination rates. In that time, the number of mobile players has reduced from four to three meaning there's less competition in mobile. Has that been balanced by an increase in fixed line competition? No, Telstra's market share is as strong as it's ever been.

We will no longer have the income from mobile termination. Telecom won't have it either, but will benefit from increased margins in the fixed line world that will more than offset the loss.

hope that helps,



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Paul Brislen
New Zealand

You’ll have heard about mobile termination rates and how the Commerce Commission is investigating whether or not to regulate them. But what is a mobile termination rate, how does it work and why is it so important?

In this blog, we’ll try to answer your questions, tell you a bit about what we think and keep you up to date with the Commerce Commission and its process.

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