Ofcom cuts mobile termination rates

The communications regulator announces plans to dramatically reduce the amount operators can charge one another, leading to consumer cost savings.

Figure using mobile phone

Ofcom is changing the way mobile operators can charge for handling calls from other networks a move set to slash costs by up to 80 per cent over the next four years.

By reducing so-called mobile termination rates, consumers will benefit from reduced costs and greater market choice, according to the regulator.

The big four UK networks will have a cap imposed on their termination rates from 1 April. Rates will be set on a "fair and reasonable basis" for the other companies providing a mobile comms service to UK users.

At present, the likes of 3, Everything Everywhere, O2 and Vodafone charge just over four pence per minute in mobile wholesale termination fees. The plan is to reduce this on a gradual basis to just over two pence from 1 April, until it reaches 0.690 pence in 2015.

Mobile termination rates graph

"This will allow fixed-line operators such as BT to bundle minutes to mobiles within their call packages, which up until now has been prohibitive given the cost," said Ovum analyst Matthew Howett.

"Those that will feel the most pain will be the mobile network operators. These charges account for a significant proportion of their revenues (as much as 15 per cent), and they may look to raise subscription charges to offset this."

Ofcom disagreed. It believed mobile traffic would increasingly be less of a focus for operators as users continued to feed their appetite for data.

In the last year, data traffic grew by 104 per cent, according to Ofcom. Between the fourth quarter of 2007 and the same period in 2009, data revenue also increased by 90 per cent.

"The regime after 2015 has yet to be determined, but having the cost of terminating a call in the mobile network at a level similar to the fixed network will enable operators to choose from a range of alternative charging mechanisms - such as bill and keep, where call termination is priced at zero," added Howett.

"Capacity-based interconnect could be another option, which becomes a lot more relevant in a world where data is king and the minute is no longer a relevant cost driver."

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