Wednesday, May 6, 2009

European Commission Pushes for Cost-Basis in Setting Mobile Termination Rates

The European Commission issued guidelines for EU telecoms regulators on the cost-based method to be used when calculating termination rates -- the wholesale fees charged by operators to connect the call from another operator's network.

The guidance is in the form of a "Recommendation" that national regulators are obliged to take "the utmost account" of. The Recommendation indicates specifically that termination rates at national level should be based only on the real costs that an efficient operator incurs to establish the connection.

The EC argues that eliminating price distortions between phone operators across the EU will lower consumer prices for voice calls within and between Member States, saving business and household customers at least €2 billion in 2009-2012, and help investment and innovation in the entire telecoms sector. The goal is to make termination rates converge to approximately 1.5 euro cents to 3 euro cents per minute by the end of 2012, significantly lower than they exist today. Termination rates should be based on the costs of an efficient operator and should apply to all operators at the same level. Exceptions are allowed in certain conditions, for a limited period of time, for cost differences outside an operator's control.

Mobile termination rates varied widely in the EU in 2008 from 2.00 euro cents per minute (in Cyprus) to 15 euro cents per minute (in Bulgaria). Mobile termination rates (on average 8.55 euro cents per minute) are also typically 10 times higher than fixed termination rates (on average ranging from 0.57 to 1.13 euro cents per minute). Higher mobile termination rates make it harder for fixed and small mobile operators to compete with large mobile operators. These divergences, and differing regulatory approaches, undermine the Single Market and Europe's competitiveness.

"Despite efforts by some national regulators to bring termination rates closer to their real costs, they remain very disparate across the EU, with large gaps between fixed and mobile termination rates. This is not in line with the increasing convergence between fixed and mobile telephony and can lead to serious distortions of competition between Member States and operators," said Viviane Reding, EU Telecoms Commissioner. "The Commission decided to intervene today against these distortions of competition in the Single Market, which deter investment into upgrading fixed networks to fibre and for which in the end consumers are paying the price."

"Bringing down termination rates to an efficient level will increase competition to the benefit of European consumers," said EU Competition Commissioner Neelie Kroes: :Only a rigorous and harmonized approach to regulation will ensure that the existing distortions of competition are removed in the whole EU and that innovative new products combining fixed and mobile calls will emerge. This is why today's Commission decision is a milestone in the pro-competitive development of EU telecoms regulation. "

The EC further argues that the current mobile termination structure serves as an indirect subsidy that benefits mobile operators with a large market share to the detriment of smaller and fixed-line operators. They also direct funds away from critical investments like upgrades to high-speed internet networks, and hinder innovative services like converged fixed-mobile products and competitively-priced bundles of calls.

See also