Here we go again

, posted: 7-Jun-2010 09:08

And so here we are again. A recommendation from the Commission on what to do about mobile termination rates is looming and the Minister once again will have to make a call.

Given the Minister sent back the last recommendation (not to regulate but to accept the Undertakings offered by Telecom and Vodafone) it seems likely the Commerce Commission will take the hint and call for regulation.

So let’s have a look at the actual outcomes on offer here: what will regulation give us and what will the Undertakings give us.

Undertakings first.  From October 1 we would see a reduction in termination rates for voice from just over 14 cents/minute today to just under 10 cents/minute in October, just over 8c/min in January, and then on a glide path down to just below 5c/minute in 2014.*

TXT messages take an even greater chop dropping from a standard rate of 9.5 cents/TXT today to effectively zero on October 1, so long as traffic is in balance between operators.**

If the Commission recommends regulation, it is currently indicating rates under 5c/min for voice next year, falling gently over time to a little over 3.5c/min in 2014, and a TXT rate of either 1c/TXT or nothing.***

So the difference in rates between undertakings and regulation is:

•    3.5c/min falling to under 1.5c/min for voice, with the regulatory rates being the lower, and

•    nothing on TXT pricing, although regulatory rates might be higher if the Commission settled on a 1c/TXT rate.

This is not an enormous difference.  It is not worth the extra effort required to set regulatory rates, and the uncertainty, argument and difficulties of that process.  Based on previous efforts, the regulatory Standard Terms Determination process could take six to nine months of public debate.  During that process the current rates remain at 14.4c/minute for voice and 9.5c/TXT.

The Undertakings were crafted to meet the requirements of the Commerce Commission. The Undertakings process gives the telcos a chance to “sharpen their pencils” and come up with an offer to stave off regulation.  But this does not mean undertakings are a bad deal or a soft option.  As you can see from the above, the differences are very small.  Operators weigh up the costs and consequences of either regulation or undertakings and, with some prodding from the Commission, come up with a view they think they can live with.

We seem to have ended up in a world where people either support regulation, because they believe that big telcos need to be controlled, or they support the undertakings, because they prefer commercial arrangements over government control.  What we have lost sight of is that these two options are practically the same.

It is even more obvious that the extra effort of regulation is not worthwhile when you think about the impacts for customers, i.e., if MTRs were 1c/min or 3.5c/min lower, how much more will mobile operators cut their retail prices?

In the last investigation into termination rates there was a fairly clear link between cuts in termination rates and lower prices to call mobile phones from landlines.  Operators committed to reduce landline prices as termination rates came down.

This time around the question is how lower MTRs would flow through into prices to call between mobile phones.  And no one is really sure how much difference, if any, lower MTRs will make.  I think we can be sure that if the wholesale difference is one or three and a half cents, the difference at retail between undertakings and regulation will not be big.

The Commission efforts on termination rates are designed to protect 2degrees.  But in my view 2degrees is having no trouble competing, having attracted a substantial proportion of prepay customers within six months of launch.  2degrees is also protected by our interconnection agreement with them.  And traffic tends to balance out between mobile operators anyway, so we would not expect 2degrees to be seriously exposed to termination rates.  In addition, we have already done favourable deals with 2degrees on spectrum, interconnection and cell-site co-location.

The best available answer on MTAS is to accept the undertakings and have the new rates kick in from October 1.  The undertakings mean lower mobile termination rates faster, and we avoid months of economic modelling, conferences, legal jousting and further submissions, which the Commission is indicating would make only a minor difference to rates anyway.

*  All these figures are based on minute plus second rounding.  The second plus second equivalent figures are 18, 12, 10 and 6/min.

** Note that 2degrees has a special deal with Vodafone that gives it access to rates that are lower than those mentioned here.

*** Again, these figures are based on minute plus second rounding.  The second plus second equivalents are just under 6c/min falling to just over 4c/min.  The Commission has also suggested that it would consider a glidepath down in rates, i.e., the rate in 2011 might be higher than the number indicated here.

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

Permalink to Here we go again | Add a comment (10 comments) | Main Index

Comment by Chris, on 7-Jun-2010 12:26

@Paul, Why can the government interfere in what you charge??? Having a cell phone is a luxury item. Also what do you mean by ''traffic tends to balance out between mobile operators''? I do know that a text from a Telecom phone or Two Degrees mobile to a Vodafone prepay often does not get a reply back because Prepay customers have to pay for each text sent off net. so if you meant that traffic tends to balance out between mobile operators well I'm not sure what you meant...

Comment by Chris, on 7-Jun-2010 12:32

@Paul, I also want to know, If the government do not accept your undertakings and want to drop the rates a little more... If what you have proposed as low as you will go?? will you haggle or if they want to drop the rates down further then your undertakings will you charge for incoming calls/texts? That would be a real deal breaker for me.

Comment by richms, on 7-Jun-2010 13:19

If I can use a cheap-ass calling card to ring vodafone to china for 1.something cents per min, how can they justify these insanly high rates for termination?

Author's note by jointhedebate, on 7-Jun-2010 15:55

Hi Chris,

TXT was offered at zero (or "bill and keep") so long as overall traffic balances are maintained. Otherwise you open up your network to TXT spam, something we discussed in an earlier post on this blog (and which was resoundingly shouted about by those who believe they know best. I'm glad to say the Commission recognised the danger in pure BAK for such things).

Humans tend to use TXT in a two-way balanced fashion (I TXT you, you TXT back). Spammers do not. They send. This way we can reject spammers from having access to BAK.

As for our Undertakings, if they're rejected it's pure regulation - that is, the Commerce Commission decides. We'll make submissions but that's all we can do.

@richms, the reason those rates are so low is because the operator is also getting termination rates to offset the costs. Without them... who knows what will happen to the retail price.

Comment by Chris, on 7-Jun-2010 17:08

@paul, The ''You Text Me I Text You Back'' comment is not really true in regards to Vodafone Prepay (they often do not txt other networks back) because you do not offer free texts off net.

And as for Simply Prepay 12cent text, That likely go up to 20cents with the GST rise!!!

Comment by hellonearthisman, on 7-Jun-2010 18:48

IMHO, One way txting services are not always spam and ideology has blocked spam but blocked the development of such services, like powermeters that txt in reading and the like.

It's cheaper to call the UK on a mobile than it is to call someone in NZ. There is something wrong with that as it requires the additional use on international circuits to complete the call, but costs less.

Author's note by jointhedebate, on 7-Jun-2010 19:43

@Chris, Vodafone's in/outbound TXTs are pretty much in balance. There's some discrepency here and there but generally speaking it's the same.

12c/TXT take away 12.5%, add 15% doesn't make 20c, so no... don't think so. ;-)

@hellonearthisman we do already have mechanical TXT systems like this - they're not counted in the regular TXT services on offer. They're machine-based and are quite different. We have power meters and the like on it already.

Comment by Chris, on 7-Jun-2010 20:17

I know people on prepay that don't text off network cause of the cost..

Comment by Tom GT, on 8-Jun-2010 20:18

Why can't both solutions happen? Unless I'm missing something, the government is setting maximum termination rates, not minimum. I don't see why termination rates can't drop as currently proposed by Vodafone, and if they are too high when the regulation comes in, drop them then as well.

Doing so would show good will from Vodafone, addressing an area that is of concern to some consumers (and Vodafone argues MTRs make no difference, so it's not going to hurt them).

Author's note by jointhedebate, on 8-Jun-2010 21:03

@chris, we see about 700m TXTs a month... they're roughly in balance.

@Tom GT, I guess they could. But in that case what's the point in offering anything? The idea of the Undertakings process is that you offer your best rate so as to avoid regulation, not encourage it.

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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.

Recent comments

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