Vodafone undertaking proposal: zero rate SMS, voice cut by two thirds

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freitasm

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#54577 18-Dec-2009 13:41

From Vodafone:

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.”

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#283780 18-Dec-2009 14:22

Can anyone put this into laymens terms? Will the cost of txting/calling soon be cheaper on Vodafone?

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sbiddle

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#283785 18-Dec-2009 14:37

Both Telecom and Vodafone have put forward virtually identical submissions to the Commerce Commission in regard to their termination rates. While this is a Vodafone press release Telecom have a very similair offer on the table.

2degrees have chosen to throw their toys out of their cot, not put forward a new submission at all and revoke all previous submissions. They have essentiually turned up their noses at the whole process and will simply not be happy until they presumably have BAK for all voice and SMS traffic in New Zealand.

The proposal from VF and Telecom offers a hybrid BAK model for SMS where no costs will be incurred unless there are inbalances in traffic. This hybrid model stops a single operator from say offering a $2 flat rate SMS service which would in effect cause significant traffic inbalances across other networks.

Both have also proposed MTR rates dropping significantly between now and 2015 and will also move to second+second billing which differs to the minute+minute or minute+second charging that occurs at present. This second+second is only at a wholesale level.

Will calling and txting be cheaper? That's anyone's guess. We already have some of the cheapest SMS pricing in the world so I don't see that falling much more.

MTR rates for voice calling are also largely irrelevant since MTM calls in a sence even out between networks now. FTM rates should drop but having said that when fixed line providers like Telecom are already charging double the rate to call a mobile from a landline than a provider such as WxC or 2talk then rates won't necessarily drop because there is no requirement for passthru to occur.

rossmnz

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#283791 18-Dec-2009 15:03

So essentially.....the big boys are making an agreement to try and cut out anyone from their duopoly?

It will be interesting what savings if any get passed onto the customer.

As far as i was aware the whole text message thing is a farce, as they do not take up any extra network bandwidth and are more of a "byproduct" of the mobile phone industry which costs nothing extra to operate and is 100% profit.

The force is strong with this one!

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#283801 18-Dec-2009 15:17

rossmnz: So essentially.....the big boys are making an agreement to try and cut out anyone from their duopoly?

What makes you draw that conclusion? The Commerce Commission asked for submissions from all three networks. After seeing these they told all three that the preference would be for a joint industry agreement and set reasonably strict expectations that such an offer would have to include to be accepted. Both Vodafone and Telecom have done this and have proposed dropping SMS rates from ~9.5c to 0c using a hybrid BAK system and voice MTR costs will also fall by roughly 66% and also move to second+second billing for wholesale interconnection costs.

They aren't cutting anybody out. They're cutting rates like the Commerce Commission told them to do. 2degrees simply don't want to partake in any agreements and it's very clear not they won't be happy unless BAK exists for both voice and SMS which is something that is simply not going to happen at this present time.

The rates proposed by Telecom and Vodafone are similair or better than the proposed regulated rates that the Commerce Commission initially published in June when they announced they were looking to regulate MTAS rates.

It will be interesting what savings if any get passed onto the customer.

It will be indeed. There is no significant evidence to show that MTR costs have any effect at all on the costs of mobile calling.

As far as i was aware the whole text message thing is a farce, as they do not take up any extra network bandwidth and are more of a "byproduct" of the mobile phone industry which costs nothing extra to operate and is 100% profit.

While they might be your opinion you certainly won't find a telco in the world who agrees with you that SMS's cost nothing. Even the Commerce Commission acknowledge that there is a cost in providing the service and have benchmarked stats.

rossmnz

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#283812 18-Dec-2009 15:30

Interesting, I was under the impression that sms is an absolute rort.

some interesting reading on it here:

http://gthing.net/the-true-price-of-sms-messages/

http://consumerist.com/2007/03/why-are-text-messages-marked-up-7314.html#comments-content

http://www.wired.com/gadgetlab/2008/12/text-messages-c/

(^^ this one states it costs $0.00 for text messages for the carrier).

Of course no telco would agree with me Mr biddle!! They are the ones making trillions from this scam each year!

The force is strong with this one!

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#283819 18-Dec-2009 15:47

rossmnz: http://www.wired.com/gadgetlab/2008/12/text-messages-c/

(^^ this one states it costs $0.00 for text messages for the carrier).

Of course no telco would agree with me Mr biddle!! They are the ones making trillions from this scam each year!

Disagree. The cost of transmission may be just above zero, but there are still a stack of other overheads such as billing, delayed delivery, CSR training and support of such products.

If it uses any of your resources, it costs you some way or another.

rossmnz

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#283823 18-Dec-2009 15:59

Billing? The existing pc systems would undoubtedly do most of the work with the bills.

Most are pre pay which needs no billing.

The remainder on contract get bills anyways. The issue of more paper is a moot point now due to most providers using e-bills etc.

CSRs are already needed, already getting trained. Im pretty there would be no extra training required for text messages.

i think the point is that the whole infrastructure is already there.

All texts are is transferring a minute amount of data from one phone to another.

now we are 3G why not discard texts and use data/emails like in japan? Would be far more cost efficient.

The force is strong with this one!

Ham

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#283840 18-Dec-2009 17:21

rossmnz:

It will be interesting what savings if any get passed onto the customer.

Savings? Not going by what this is saying...

freitasm: From Vodafone:

“The impact to Vodafone’s business would be an immediate $50m reduction in revenues increasing over the period of the Undertaking.

I'm sure this will be passed onto the customer...

simon14

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#284220 20-Dec-2009 18:37

I firmly believe the industry needs to be regulated regardless of what offers the Telco?s put forward.

We will run into the same exact issues in 10 years time when the rate for calling is still 6c per minute!

And data/new services that we havn't even thought about yet are over priced.

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#284251 20-Dec-2009 21:03

simon14: I firmly believe the industry needs to be regulated regardless of what offers the Telco?s put forward.

How about if operators are offering better rates or conditions than proposed regulation would offer?

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#284269 20-Dec-2009 23:40

rossmnz: i think the point is that the whole infrastructure is already there.

No it isn't. John, Paul or Neal could I'm sure confirm this for me, but I'm pretty sure that an SMSC is not a 486 in the basement, and I'd place good bets that it wasn't free to set up or maintain either.

Anyway, apart from all that I'm irritated that the CC didn't look at the most expensive feature on mobile networks: data. Why is data so ridiculously expensive? Why can I get 3GB of mobile data for the same price as 50GB of fixed line data? I don't expect parity, but I would expect at least something that doesn't look like the pricing was decided by rolling a 20-sided die - to decide the multiplier on top of fixed line data to charge.

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#284280 21-Dec-2009 07:29

rossmnz: Billing? The existing pc systems would undoubtedly do most of the work with the bills.

Most are pre pay which needs no billing.

The remainder on contract get bills anyways. The issue of more paper is a moot point now due to most providers using e-bills etc.

CSRs are already needed, already getting trained. Im pretty there would be no extra training required for text messages.

i think the point is that the whole infrastructure is already there.

I noticed this remark in a XT thread as well, and I'll bite...

You still need billing systems for prepaid (track peoples usage to their balance etc).

Billing systems cost money to deploy and maintain. These systems are generally specialized, and aren't something simple like Windows XP and Excel.

Ebills or not - you still need a very fancy computer package to track ones usage, rate it to certain plans (included minutes, free on net sms etc), track payments, bar/unbar (for prepaid customers), handle unpaid bills (unpaid).

CSR's requirements depend on call volumes. Potentially cheaper SMS means more SMS sent and potentially less $$$. How long does the average SMS based call take? (If its long, then thats less time that these agents could be used answering other questions) More SMS sent might drive further calls into centres (how much more? only places like Telecom or Vodafone would know), therefore requiring more agents. Agents cost $$$, so does the recruitment and training...

You've also got other factors - does a significant increase in text messaging put pressure on other systems. Do they need to be upgraded or replaced?

So in short - nothing is free... there is a lot of factors to take into account

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#284310 21-Dec-2009 10:17

@cokemaster did you not know the vendors just give away free sms routers HLRs MMSCs BSCs RNCs MSCs GGSNs SGSNs and the power is free putting up cells so the sms can be sent are free the transmission is free and when contractors fix the cells thats free and the land the hardware sits on is free the staff work for nothing as well. Geeeeez cokemaster don't you know anything stop trying to mislead people that this stuff costs big big bucks

John

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#284312 21-Dec-2009 10:22

It also pays not to forget that when the Commission is talking about cost, it's not talking about it in the same way we are in this thread.

To the Commission cost includes things like how much certainty there is in the market when you're trying to raise capital to fund the building of the network that will carry those so-called "free" TXT messages.

It's an economist's view of cost rather than a technologist's view.

For those interested in such things take a look at the workings behind the TSO regime.

The Commission decided to reject the introduction of mobile and other technologies in its cost model because while they're more efficient at delivering the service on offer (9.6kbit/s) they introduce more uncertainty in the model making Telecom's cost of raising capital more expensive and thus cancelling out any gain. Because it rejected those new technologies, the level of certainty went up, making it easier for Telecom to raise capital, thus reducing the TSO cost for the year.

The less efficient technology delivers a cheaper service.

Cost to the Commission is not the same as "how much to build a network and run it and send bits over it".

As for passing on savings to the customers, most of the savings will go to the fixed operators who will see a greater margin for calls from landlines to mobiles. They're the ones who stand to gain the most from this - in Australia Telstra earned an extra $900m over five years by paying less for terminating mobile calls and passed on less than half to customers. I'm sure our fixed-line operators will be better placed to answer those questions. I've put up some info over on the Join the Debate blog.

cheers

Paul

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#284314 21-Dec-2009 10:39

sbiddle:
simon14: I firmly believe the industry needs to be regulated regardless of what offers the Telco?s put forward.

How about if operators are offering better rates or conditions than proposed regulation would offer?

I still think regulation is the better choice for the same reason as i pointed out in my previous post.

Going with the cheaper options offered by the Telcos now may not be in the best interests for consumers in future.

Vodafone know this too; they wouldn't offer lower prices than regulation will provide if they didn't think it would be better for them to do so in the long run.

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