Ofcom unveils new mobile price controls

The regulator has introduced a four-year control on the amount mobile phone companies charge for connecting calls between networks.

Communications watchdog Ofcom today unveilled plans to limit the amount that mobile phone companies can charge for connecting calls between networks, with savings of as much as 45 per cent for some call connections.

The controls affect 2G and 3G operators in the UK and are expected to result in annual reductions in wholesale charges of 400 to 500 million over the four-year period - savings which Ofcom expects to be passed on to retail customers.

Some were sceptical as to what extent this will be true.

Chris Frost, a telecoms expert at independent price comparison and switching service uSwitch.com, said: "In theory, this should result in significant savings for customers over the four-year period in which the charge controls will apply. In practice, it is only the phone operators that have the power to decide whether customer bills will come down.

"Following this latest move by Ofcom and the impending announcement of the results of the EU's investigation into roaming charges, mobile operators could be set to lose millions in revenue. Any loss of earnings could result in a backlash for consumers as phone providers will undoubtedly find ways of making up for lost revenue. We could witness a dramatic fall in the number of "free" handset deals as well as a revision in pricing plans."

Jim Marsh, chief executive of Cable & Wireless was also quick to criticise the proposals.

"Ofcom's rates are overly generous to the mobile operators. Fixed network customers will bear the brunt by paying above the odds for calling mobile users - money which the mobile operators will use to subsidise the retail tariffs they offer to their own customers. To be clear, we're talking around 1.5 billion over the next four years...that's not small beer.

"We're working through the detail of Ofcom's reasoning before deciding what action to take."

Ofcom backs up its decision to introduce the controls with its findings that mobile operators ultimately control the termination of calls on their respective networks, putting them in a significantly powerful position. Ofcom says that customers need protecting and that charges must be transparent.

The hardest hit is 3, whose wholesale charges are pruned to 5.9 pence per minute - a reduction of 45 per cent.

The remaining operators will have charges scaled back to an average of 5.1ppm.

For Orange and T-Mobile, this represents a 20 per cent cut, while for Vodafone and O2 it is 10 per cent.

"UK rates now, as before, are amongst the lowest in Europe but recent proposed cuts represent a modest drop of termination rates when we consider they will apply over a period of 3-4 years," said Stefano Nicoletti, a principal analyst in Ovum's regulatory practice.

"Despite the technology and market maturity of mobile networks and despite years of regulation, the cost of terminating calls on mobile networks in Europe is still substantially higher than on fixed networks."

Ofcom has also launched a consultation for any amendments to the controls it has put in place as well as to find ways to encourage mobile operators to allow customers to take their numbers with them when they change networks.

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