Mobile regulation – who will win and who will lose?

Vodafone New Zealand today tabled a new proposal to help ensure that regulated reductions in wholesale mobile termination rates translate into savings for consumers.

In its submission, released by the Commerce Commission, Vodafone says the most likely outcome of the Commission’s draft proposal for regulation is that fixed operators will benefit from lower wholesale mobile termination costs, and mobile operators will lose significant revenue, with customer benefits left very uncertain.

“With the current proposal the winners are likely to be fixed operators with a huge transfer of wealth from the mobile market into the fixed,” says Hayden Glass, Vodafone’s General Manager of Public Policy.

“The real issue is ensuring that customers will actually benefit when mobile termination rates come down. There is no guarantee that Telecom or other fixed-line operators will reduce their retail prices when MTRs are cut. The Commission’s current proposal risks harming the mobile sector and generating little for customers.”

In its submission Vodafone proposes an alternative approach which it believes ensures a higher level of certainty around consumer benefits.

Vodafone’s proposal includes:
• Cutting mobile-to-mobile and SMS termination rates to cost immediately the regulation comes into effect.
• Reducing fixed-to-mobile termination rates more gradually down to cost on a three year glide path in line with standard regulatory practice internationally. 
• Commission monitoring of retail fixed-line pricing as fixed-to-mobile termination rates come down to ensure that price reductions are actually getting through to customers.

“This deals with the Commission’s key concern which has been to reduce mobile-to-mobile termination rates to cost to help a new mobile entrant like 2degrees compete with other mobile operators,” says Mr Glass. 

“Our approach also addresses the risk of simply transferring wealth from mobile operators (Vodafone and 2degrees) to fixed operators (Telecom, TelstraClear and others) and allows the Commission to monitor whether or not consumers are getting the benefits of reduced MTRs.  If they are then rate drops continue, if not then they can be stopped and reviewed.”

Mr Glass says this approach continues to support mobile sector growth and investment, including by 2degrees.

He says that one cent per minute rate proposed for SMS is a pragmatic solution that allows the Commission to test the impacts of regulation without risking market damage.   One cent SMS interconnection would amount to an 89% reduction from prevailing rates, and would be the lowest regulated rate in the world.

“Zero priced SMS interconnection, so called ‘Pure Bill and Keep’, risks encouraging SMS spam.  Maintaining a cost for SMS, even something as low as one cent, will help protect against spam. 

“France trialled Pure Bill and Keep in 2004 and it did not work.  Arbitrage by spammers drove costs up and annoyed customers.  The French regulator intervened and reversed this arrangement to cost-based regulation.”

Mr Glass says Vodafone believes the approach outlined in its submission is much more likely to deliver real benefits to customers.