Brussels, 12/09/2008 (Agence Europe) - Historic operators are still fighting in the battle that sees them ranged against the European Commission which is seeking to change to current telecommunications practices. Deutsche Telekom, Orange, Telecom Italia, Telefónica and Vodaphone commissioned consultancy firm Frontier Economics to assess the impact that a reduction in mobile termination rates (MTR), as the European Commission wants, would have on the European market. “The European Commission … underestimates the costs of termination services,” said George Houpis and José María Rodríguez of Frontier Economics.
The study, which was presented on Friday 12 September, argued that reducing MTRs would not automatically lead to a reduction in retail prices or, in general terms, to any improvement in consumer welfare. Reducing charges to 2 cents, as the Commission wants to do, from the 9 cents currently charged, would slow mobile penetration by 9%, and this would hit less well-off users, thus reducing access to mobile technology for consumers as a whole, Frontier Economics says. The study shows, too, the extent to which following the US model, where MTRs are low, carries risks for the European market. On the US market, call prices are much lower than in Europe, but penetration and coverage are also much lower. Furthermore, customers' overall expenditure is also €11.73 higher per month, the report points out. “Economic theory indicates that it is wrong to assume that lowering termination rates will translate automatically into lower retail prices, since operators will need to recover their costs,” said Houpis. Consequently, “lower MTRs imply higher subscription charges when the calling party pays for calls (CPP, the current European model) or the need to also charge the receiver for receiving a call(RPP, the current US model),” he continued.
In a document sent to the Commission in early September and revealed by the Financial Times, Vodaphone criticised the Commission plans, estimating that 40 million Europeans could dump their mobile phones as a result of the new European rules. This figure was described by Martin Selmayr, spokesman for Information Society and Media Commissioner Viviane Reding as “outrageous”. The British operator, just like Frontier Economics, said that operators, to make up for losses thus incurred, might have to charge for call reception, as is the case in the US, but which is, for the moment, free in Europe.
Less well-off consumers would be the most affected and some would have to get rid of their phones, Vodaphone claimed. “The company calculated what would happen if they changed the system and charged for calls received,” responded Selmayr. “Consumers would probably not find that an attractive proposition,” he acknowledged, noting that there was nothing to stop anyone implementing this practice. He felt, however, that ultimately the consumer would not be the loser since, “there are enough other competitors on the market who would be pleased to take on the consumers that this company loses”.
Mobile termination rates are charges that the operator of the person receiving the call bills the operator of the person making the call to cover costs of using its network. In Europe, these charges are passed on to callers, whereas, in the United States, the person called has to bear these charges. The Commission, in the belief that MTRs are far too high in Europe and that there are wide differences from one member state to another, has called for MTRs to be reduced to 2 cents. It is currently drawing up a recommendation, to be brought forward before the end of the year, informed by the public consultation procedure launched on 26 June. The Frontier Economics report is available at http://www.frontier-economics.com/europe/en/publications/204 (I.L./transl.rt)