THE EUROPEAN Commission (EC) is now crusading against high termination rates charged by mobile operators and is pressing on national telecom regulators to more effectively regulate wholesale tariffs which phone operators charge each other for connecting calls to subscribers on their networks. The commission’s efforts are fuelled by what it calls a “serious inconsistency between national approaches concerning the regulation of termination rates”.
On May 7, the commission recommended that national telecom regulators push mobile operators to bring their termination rates down to the level of costs of an efficient operator, suggesting that such a move should bring lower consumer prices for voice calls since the termination rates are part of everyone’s phone bill.
The commission said that regulators are required to take into “utmost account” its recommendation to bring termination rates in their countries down to the cost level of an efficient operator starting immediately and to complete the task no later than the end of 2012, according to an official EC release.
This recommendation will also help eliminate price distortions between big and small mobile phone operators across the EU and also distortions between fixed and mobile operators, said Viviane Reding, EU Commissioner for Information Society and Media in Brussels.
According to Reding, currently mobile termination rates are about 10 times higher than fixed termination rates, with these, on average, being less than 1 euro cent per minute while mobile termination rates range up to 8.55 euro cents per minute.
“Finally, the recommendation will help the creation of a level-playing field and more consistent regulation on the European telecoms market, thereby triggering investment and innovation in the entire telecoms sector,” said Reding.
Meanwhile, Slovakia’s telecom regulator, the Telecommunications Office (TÚ) announced on May 6 that it has started an administrative proceeding to require all three Slovak mobile operators to charge cost-oriented prices.
“The Telecommunications Office has found out through its analysis of the wholesale market of termination rates that O2, Orange and T-Mobile have a significant share of this market,” Roman Vavro, spokesman of the TÚ, told The Slovak Spectator. “The results of the analysis and the proposed duties have gone through national and supra-national consultations and at the end the European Commission commented on them.”
In its administrative proceedings, the TÚ plans to apply regulation of termination rates in mobile networks while the office has the authority to choose the appropriate method for the calculation of the prices, Vavro explained.
According to Vavro, mobile operators Orange Slovensko and T-Mobile Slovensko must continue meeting their other duties such as non-discrimination, the keeping of separate records, transparency of access, and promptly meeting valid requests for the use of certain elements of their networks and of interconnection of networks, among others. The same duties will be assigned to Telefónica O2 Slovakia as well.
Over the past four years, the termination rates of T-Mobile and Orange fell 11.2 percent in 2005, 6.1 percent in 2006, 7.2 percent in 2007 and 8.6 percent in 2008 while termination rates of Telefonica O2 fell by 8.4 percent in 2008, according to the TÚ analysis.
The TÚ action has not come as a surprise to mobile operators Orange, T-Mobile and Telefónica O2 and the operators said they will respect the decision and see no major obstacles in meeting the obligation.
“The issue of regulating the termination rates has in no way taken us by surprise since we have had long-term cooperation with the TÚ in the market analysis and in shaping a regulatory environment and the regulation of the termination rates has been prepared since last year,” Peter Tóth, corporate affairs manager of Orange Slovensko, told The Slovak Spectator.
Tóth does not expect the regulation to have any fundamental impact on the market.
“Even now we are meeting almost all the duties flowing from the analysis of the regulator,” Tóth said.
Andrej Gargulák, spokesman for T-Mobile Slovensko, spoke in a similar manner, suggesting that the recent analysis is a regular evaluation of the conditions in the market undertaken by the Telecommunications Office and that this activity is defined by law.
“The prices of calls and services are continuously dropping regardless of the level of termination rates,” Gargulák told The Slovak Spectator. “The termination rate is not the only component which makes up the price for a call and there is no direct link between its level and the price of a call into another network.”
Richard Fides, spokesman for Orange Slovensko, also told The Slovak Spectator that termination rates are one of many cost items which enter into the end price of mobile services. The end prices of calls differ based on the different calling programmes and different offers, he added.
Telefónica O2 said it supports the TÚ steps leading to the efficient cost orientation for setting the limit of termination rates.
“The European Commission, in its statement on the analysis of mobile termination rates in Slovakia, has confirmed that the lowering of the termination rates is a European trend because it creates room for reducing the final price for the end consumer, specifically the inappropriately high prices of calls to other networks of competing operators,” René Parák, spokesman of Telefónica O2 Slovakia told The Slovak Spectator.
“The latest developments in Germany, Austria, Hungary, Poland and Romania prove that it is the right time to take action," Parák said.
According to Parák, the level of termination rates in Slovakia makes it the third most expensive country in the European Union. O2 would consider a termination rate of €0.07 per minute to be appropriate.
“The Commission is concerned about the absence of price regulation in the mobile termination markets in Slovakia,” reads the commission’s assessment concerning wholesale call termination rates on individual mobile networks in Slovakia, released on April 24.
“The fact that up to now the determination of termination rates has been left to commercial negotiations has not resulted in rates that would reflect effective costs.”
The commission welcomed the TÚ intention to impose a cost-orientated obligation and it also pointed to the fact that the process of determining the details of the proposed cost accounting methodology will be subject to further consultations.
Since the proposed price control obligation might not be operational immediately, the commission suggested that the TÚ should consider appropriate transitional price control measures such as international benchmarking.
“The commission reminds TÚ SR that according to the principle of forward looking economic efficiency, termination rates should be set on the basis of the costs of an efficient operator using efficient technology,” reads the statement.
The method of international benchmarking which the commission proposes could be easily implemented and might work as a temporary tool of price regulation, from which Slovak customers would benefit first of all, Parák of O2 said.
As far as the European Commission’s recommendations are concerned, Vavro said that the TÚ’s administrative proceeding on the treatment of termination rates is underway and thus the “TÚ will not predict its further decisions at this time”.
