Interesting quote on mobile termination rates

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timestyles

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#60090 19-Apr-2010 11:29

"We have always maintained that mobile termination rates have absolutely nothing to do with the price we charge for retail [calls] in the market."

Paul Brislen, Vodafone, from http://www.stuff.co.nz/business/industries/3594874/2degrees-attacks-6-cent-calling

If that is the case, then why have them? Some people would make the conclusion that they are simply used to stifle competition. What purpose do they have? I know that I'm dragging up an old issue, but the above quote is really surprising.

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#320169 19-Apr-2010 11:35

Terminating voice traffic on a network costs money and nobody disputes this issue. The issue is how much does it really costs, this is an issue nobody anywhere in the world can agree upon.

There are two ways of recovering this cost, either a CPP based billing system where the caller's network (a party) pays the other network (b party) an appropiate cost, ie the MTR. This is what happens in most countries in the world and is also how fixed line calling works.

The other is MPP (USA, Canada for example) where the person answering the call pays for the cost of this inbound call, typically from included minutes in their plan or by paying a fixed cost per month for unlimited inbound calls.

So the answer is pretty straight forward and you are confusing retail pricing and interconnect costs. Many would argue that MTR's are a wholesale cost of which off network traffic can't fall below but Telecom's numerous TXT plans that have offered both on and off net TXT's throw that theory out the door. I had unlimited off peak on and off net calling to mobiles and landlines on BellSouth 12 years ago for $19.95 per month when MTR costs were around 35c per minute at that time.

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#320177 19-Apr-2010 11:49

This is an old topic. Paul (and Vodafone by extension) are being consistent on this. For example, from a discussion that is more than one year old now:

"I don't know why it changes the methodology... just the raw numbers. Also, retail prices do not directly correlate with MTRs - there's no match up within that ERG list at all." (27 Feb 2009)

"I think you're mixing up MTRs with retail pricing as well. MTRs really don't have anything to do with the retail price (I have a chart to show MTRs across Europe and their equivalent retail prices - there's no correlation. You'd expect high MTRs to equate to high retail but that's not the case at all). Our argument is that if you're going to introduce regulation that simply passes money from one telco to another you're doing nobody any favours." (27 Feb 2009)

Interesting to read the whole discussion "Vodafone is expensive" as you will see that the same arguments are repeated over and over again.

You can probably find even older discussions if you dig deep for other posts...

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#320185 19-Apr-2010 12:02

The cost doesn't impact retail prices if the traffic is the same in each direction. It does prevent competition though.

MTR's do impact landline to mobile retail prices though, but when Vodafone say they don't impart on retail prices, they aren't talking about landlines to mobile, only mobile to mobile.

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#320187 19-Apr-2010 12:05

Here is the thing though... If the MTR doesn't impact in retail prices, then discussing them is a worthless waste of time. Just accept the regulation and be done with it.

There will probably be an inbalance between mobile and fixed line. And if there are complains then we will know for sure they are indeed impacting in cost ;)

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#320195 19-Apr-2010 12:20

simon14: The cost doesn't impact retail prices if the traffic is the same in each direction. It does prevent competition though.

MTR's do impact landline to mobile retail prices though, but when Vodafone say they don't impart on retail prices, they aren't talking about landlines to mobile, only mobile to mobile.

The question is to what extent? Telecom charge some business customers 22c + GST for a call from a landline to a mobile. Many residential customers pay 63c for the exact same call. MTRs aren't the cause of this. MTR's do represent a cost that fixed line to mobile calls are unable to drop below (the same does not occur with mobile to mobile calls) but the problem is VF stand to lose money with MTR drops while landline providers simply absorb those drops which is exactly why Telecom's fixed line to mobile rate has only dropped from 71c to 63c in a little over 20 years despite MTRs dropping from ~50c to ~17c in that time.

I believe MTR costs should fall and fall significantly, the problem is the issue is an incredibly complex one, especially when nobody can even agree on cost models that establish a true cost of termination and the simple reality of business being that if revenue is cut from one part of a business then other parts of the business have to perform better.

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#320201 19-Apr-2010 12:36

sbiddle:
simon14: The cost doesn't impact retail prices if the traffic is the same in each direction. It does prevent competition though.

MTR's do impact landline to mobile retail prices though, but when Vodafone say they don't impart on retail prices, they aren't talking about landlines to mobile, only mobile to mobile.

The question is to what extent? Telecom charge some business customers 22c + GST for a call from a landline to a mobile. Many residential customers pay 63c for the exact same call. MTRs aren't the cause of this. MTR's do represent a cost that fixed line to mobile calls are unable to drop below (the same does not occur with mobile to mobile calls) but the problem is VF stand to lose money with MTR drops while landline providers simply absorb those drops which is exactly why Telecom's fixed line to mobile rate has only dropped from 71c to 63c in a little over 20 years despite MTRs dropping from ~50c to ~17c in that time.

I believe MTR costs should fall and fall significantly, the problem is the issue is an incredibly complex one, especially when nobody can even agree on cost models that establish a true cost of termination and the simple reality of business being that if revenue is cut from one part of a business then other parts of the business have to perform better.

If you are only looking at the price Telecom charge for landline to mobile calls, then sure it looks like the MTR doesn't have much of an impact on the retail price. We all know Telecom are greedy and will milk us for all we are worth but look at other tele companies.... Slingshot offer 25c per minute from italk, wXc offer 35c per minute and so on.

For landline to mobile calls, the MTR is a fixed cost per minute of calling so naturally if this cost is reduced, the retail price will fall....... unless there is not much competition in the market, but i believe we have plenty of competition in the tolls market.

Grans and Grandpas need to realise that Telecom isn't the only telecommunications provider out there and just because they have been with them forever, doesn't mean it's best to stay with them and continue to be ripped off.

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#320209 19-Apr-2010 12:55

Hi Timestyles,

the mobile market is a two-sided market: that is, we earn revenue from two sources - retail customers and other telcos.

When you call from Vodafone to Telecom you pay Vodafone so many cents per minute, but you don't pay Telecom anything at all.

However, Telecom pays half the costs of connecting that call - so wants to recoup some of that cost. It can either charge its customer to receive the call (bad bad bad idea) or it can charge Vodafone for connecting the call.

In NZ we've opted for the latter model - it's called termination rates.

In that example, Telecom says to Vodafone "you're making money off us allowing your customer to talk to our customer, so you must share that income". It's in everyone's best interests that Telecom customers receive calls from Vodafone customers (and vice versa, and from other networks both local and international) so we pay fees to each other for using their networks.

Hope that helps.

we have more on this over at the Join the Debate blog - www.geekzone.co.nz/jointhedebate

Cheers

Paul

Paul Brislen
Head of Corporate Communications
Vodafone

http://forum.vodafone.co.nz

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#320211 19-Apr-2010 13:00

simon14:
If you are only looking at the price Telecom charge for landline to mobile calls, then sure it looks like the MTR doesn't have much of an impact on the retail price. We all know Telecom are greedy and will milk us for all we are worth but look at other tele companies.... Slingshot offer 25c per minute from italk, wXc offer 35c per minute and so on.

For landline to mobile calls, the MTR is a fixed cost per minute of calling so naturally if this cost is reduced, the retail price will fall....... unless there is not much competition in the market, but i believe we have plenty of competition in the tolls market.

Grans and Grandpas need to realise that Telecom isn't the only telecommunications provider out there and just because they have been with them forever, doesn't mean it's best to stay with them and continue to be ripped off.

You contradict yourself very badly there - first by agreeing that the MTR doesn't affect retail but then by saying the retail cost will drop as the MTR does but statistics from everywhere around the world have shown this is not the case and that 100% passthru doesn't necessarily occur.

Right now in NZ Telecom and Vodafone are required by law to drop their fixed line to mobile rates in line with MTR drops, this was something they agreed to do as part of their submission that Paul Swain accepted when as minister he chose an industry solition over regulation. These new submissions have no such clause and there will be no requirement for this to continue.

timestyles

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#320415 19-Apr-2010 19:27

Hey thanks everyone for their replies. I guess it's like going to the supermarket, one company sells fruit at under cost, but the rest of what they sell is over priced so you have to go to other companies to get cereals and like, yet another to get toiletries. Annoying as hell. I'm hoping we won't have to carry around 2 or 3 phones/sims for the next 10 years or so.

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#320460 19-Apr-2010 21:32

timestyles: Hey thanks everyone for their replies. I guess it's like going to the supermarket, one company sells fruit at under cost, but the rest of what they sell is over priced so you have to go to other companies to get cereals and like, yet another to get toiletries. Annoying as hell. I'm hoping we won't have to carry around 2 or 3 phones/sims for the next 10 years or so.

If you think NZ is bad try looking at Aussie. The latest craze there (and in many other countries in Europe) is now unlimited on-net calling and SMS which is essentially free when you topup.

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#320510 20-Apr-2010 07:40

sbiddle:
timestyles: Hey thanks everyone for their replies. I guess it's like going to the supermarket, one company sells fruit at under cost, but the rest of what they sell is over priced so you have to go to other companies to get cereals and like, yet another to get toiletries. Annoying as hell. I'm hoping we won't have to carry around 2 or 3 phones/sims for the next 10 years or so.

If you think NZ is bad try looking at Aussie. The latest craze there (and in many other countries in Europe) is now unlimited on-net calling and SMS which is essentially free when you topup.

2degrees is working on that...

Ironic that they are furious with Vodafone's $12 addon, when their magic topups are virtually identical (near free on-net calling, 10x higher price for off net).

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#320528 20-Apr-2010 08:57

Just received:

In response to a query from the Minister for Communications and Information Technology, the Commerce Commission has invited the Minister to consider the launch of Vodafone’s Talk Add-on product in his assessment of whether Telecom’s and Vodafone’s mobile termination access services (MTAS) undertakings should be accepted.

In February 2010 the Commission recommended that the Minister accept undertakings from Telecom and Vodafone as an alternative to regulation.

In April 2010 Vodafone launched a new Talk Add-on product offering up to 200 minutes to Vodafone New Zealand mobiles and landlines for $12 a month for certain pre-pay plans. This plan is promoted on Vodafone’s website as “just 6 cents a minute to Vodafone NZ mobiles and landlines in New Zealand”.
The Minister has requested the Commission’s view on whether Vodafone’s new on-net plan is material to concerns identified in the Commission’s final report relating to the issue of whether smaller operators could compete with Telecom’s and Vodafone’s on-net retail rates.

“Since becoming aware of the launch of Vodafone’s new Talk Add-on product last week, the Commission has reviewed the details of, and the type of market behaviour exhibited by, Vodafone’s new Talk Add-on product. The Commission’s initial view is that such a plan, and any market outcomes which may arise from it, may be material,” said Telecommunications Commissioner Dr Ross Patterson.

“Further, the Commission’s initial view is that such a plan may have the potential to affect the basis for the Commission’s recommendation in the final report. The Commission recommended acceptance of the final undertakings as an alternative to regulation on the basis that Telecom’s and Vodafone’s final undertakings would address the competition issues which the Commission identified throughout the MTAS investigation,” said Dr Patterson.

“The Commission has invited the Minister to take account of the Talk Add-on product in his assessment of whether Telecom’s and Vodafone’s final undertakings should be accepted, or whether it is appropriate to request the Commission to reconsider its recommendation in light of the potential impact of Vodafone’s new Talk Add-on product,” said Dr Patterson.

There will be no further comment from the Commission at this stage.

Background
Mobile termination prices are the wholesale charges mobile phone companies charge for terminating calls or texts from other fixed or mobile networks.

Undertakings. Under the Telecommunications Act 2001, parties can submit undertakings, which are an offer of terms and conditions for the supply of a service as an alternative to regulation.

Requirements of the Telecommunications Act. The Act requires that the Commission makes a recommendation which best promotes competition for the long-term benefit of end users.

Reconsideration of Commission’s recommendations. Under clause 6(2) of Schedule 3 of the Act, the Minister can require the Commission to reconsider its recommendations or any aspect of its recommendations, for any reasons specified by the Minister.

MTAS investigation. On 6 November 2008 the Commerce Commission commenced an investigation under Schedule 3 of the Act into mobile termination access services (MTAS). The MTAS incorporates mobile-to-mobile voice termination (MTM), fixed-to-mobile voice termination (FTM) and short-message service termination (SMS). The investigation considered whether these services should become regulated services under Schedule 1 of the Act.

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#320533 20-Apr-2010 09:06

I have created another thread (http://www.geekzone.co.nz/forums.asp?forumid=95&topicid=60134) to discuss the ComCom request to the minister.

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simon14

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#320693 20-Apr-2010 14:19

sbiddle:
simon14:
If you are only looking at the price Telecom charge for landline to mobile calls, then sure it looks like the MTR doesn't have much of an impact on the retail price. We all know Telecom are greedy and will milk us for all we are worth but look at other tele companies.... Slingshot offer 25c per minute from italk, wXc offer 35c per minute and so on.

For landline to mobile calls, the MTR is a fixed cost per minute of calling so naturally if this cost is reduced, the retail price will fall....... unless there is not much competition in the market, but i believe we have plenty of competition in the tolls market.

Grans and Grandpas need to realise that Telecom isn't the only telecommunications provider out there and just because they have been with them forever, doesn't mean it's best to stay with them and continue to be ripped off.

You contradict yourself very badly there - first by agreeing that the MTR doesn't affect retail but then by saying the retail cost will drop as the MTR does but statistics from everywhere around the world have shown this is not the case and that 100% passthru doesn't necessarily occur.

No, i am not contradicting myself...

The MTR doesn't affect the retail mobile rate for mobile to mobile calls in NZ - because the traffic between each party is equal and will always be with high MTR's.

As the MTR rate drops, this will create more of an incentive for others to lower their prices because the risk of having an imbalance isn't as much as the MTR goes down.

simon14

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#320703 20-Apr-2010 14:31

PaulBrislen: Hi Timestyles,

the mobile market is a two-sided market: that is, we earn revenue from two sources - retail customers and other telcos.

When you call from Vodafone to Telecom you pay Vodafone so many cents per minute, but you don't pay Telecom anything at all.

However, Telecom pays half the costs of connecting that call - so wants to recoup some of that cost. It can either charge its customer to receive the call (bad bad bad idea) or it can charge Vodafone for connecting the call.

In NZ we've opted for the latter model - it's called termination rates.

Paul, I wish you would stop scaring people into believing we shouldn't regulate for fear of having to pay to receive calls.

We would only have to pay to receive calls if the MTR was completely removed all together.

Regulating the MTR doesn't mean getting rid of it all together, it means reducing the rate to a reasonable level.

Your post suggests that if the ComCom regulates the industry, we will have to pay to receive calls. This is complete rubbish and nothing but scaremongering.

Your scenario makes no sense under regulation... you are implying that Telecom won't be getting anything from Vodafone for terminating the call? Why do you assume this? The ComCom is only reducing the MTR, not getting rid of it.

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