The major mobile phone networks shot themselves in the foot this week, which is impressive considering, from where I’m standing, they don’t have a leg to stand on. They inadvertently got termination rates slashed sooner.
Vodafone, Everything Everywhere (Orange and T-Mobile) and O2 all went running to the Competition Appeals Tribunal (CAT) over the fact Ofcom was making them cut the mobile termination rates (MTRs) they charge each other.
Mobile termination rates are what each mobile network charges others for carrying a call on their network and Ofcom ruled that these had to be cut over the next four years.
Unfortunately for them, it turns out that once the CAT had a look at the case it decided Ofcom’s cuts weren’t enough and has now accelerated the process to just three years.
CAT gets the networks’ cream
The networks are now crying foul as they will receive less money from fixed line companies and crucially the mobile network 3.
As each of the major networks has a similar amount of customers they usually end up spending as much money on MTRs as they receive back.
The problem is when you have one mobile network – namely 3 – which is much smaller than the rest. 3 currently pays out more in MTRs than it receives back and so is at a big disadvantage.
Smokescreen of excuses
The main argument networks make against reducing termination rates is that it will reduce their profits and they’ll be forced to pass this cost on to their customers – and especially to low pay-as-you-go users as they tend to receive more calls than they make.
But surely if termination rates are reduced, not only will the mobile networks receive less money from other networks, they’ll also have to pay out a lot less themselves – leaving their profit relatively unchanged.
In fact, the only reason mobile networks will receive less money from termination rates is because they’ll no longer be able to exploit fixed line operators (which is why it costs so much to call a mobile from your landline) and 3. And despite 3 receiving less in termination rates, it still manages to offer as cheap if not cheaper call and text rates than the big boys.
The mobile operators can continue their scare mongering, saying lower termination rates will mean they’ll have to drive up prices. But we can just watch as their customers switch to 3 – which now may be even cheaper as it will no longer pay so much to the major networks.
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