Scrap network-to-network fees, say mobile firms

· Watchdog urged to end complex charging regime
· Move could lead to new tariffs for unlimited calls

British mobile phone users could enjoy the sort of "all-you-can-eat" call packages that are available in the US after the Competition Commission was asked yesterday to consider scrapping one of the most complicated aspects of call charging.

The Competition Appeal Tribunal posed a series of questions yesterday to the commission as part of a long-running spat between the regulator, Ofcom; BT and the UK's newest mobile phone network, 3, about mobile termination rates.

One of the questions was whether the UK's five networks - 3, O2, Orange, Vodafone and T-Mobile - should stop charging each other to connect calls to customers from other operators and so cut mobile termination rates to zero.

The move would enable the mobile phone companies to offer flat-rate tariffs allowing customers to make as many calls as they want for a fixed monthly charge. Similar packages in the US for $99.99 (£49) a month have already been announced by AT&T, T-Mobile and Verizon Wireless. In Germany, T-Mobile and E-Plus are offering unlimited calls.

The network 3, owned by the Hong Kong-based conglomerate Hutchison Whampoa, has been pushing hard for an end to the pricing regime, which Ofcom restructured a year ago.

Having far fewer customers than the other four players, 3 is a net payer of mobile termination rates. It pays out about £50m a year more in termination rates than it collects from Vodafone, O2, Orange and T-Mobile when their customers call someone on its own network.

Tim Lord, 3's director of regulatory affairs, said the lack of termination rates in the US and Hong Kong meant customers got lower service prices, and bigger bundles of call-time allowances. Utilisation rose by a factor of three. "We think it will change the industry fundamentally if it happens here," he said.

BT, meanwhile, has to pay the mobile phone firms every time one of its landline customers calls a mobile phone. It pays the five networks more than £1bn a year in mobile termination rates. BT objected to the new termination rates imposed by Ofcom last year, saying the regulator had not been strict enough.

Under Ofcom's plan, the rate that 3 can charge will fall 45% to 5.9p a minute over the next three years, while the other four networks will see prices drop to 5.1p.

Scrapping termination rates altogether is likely to be better for 3 than it is for the other four networks because the former only has a 3G network to run; O2, Orange, T-Mobile and Vodafone also have the cost of running their old 2G networks. The end of termination rates could also spark a renewed price war in the UK with 3 using its lower cost base to undercut rivals.

The UK is already one of Europe's most competitive mobile phone markets. Research from the market experts Gfk Retail and Technology showed that in the second half of 2007 the market increased year-on-year in terms of number of phones sold. But to spur that growth in predominantly pre-pay mobiles, the operators heavily subsidised the price of handsets. In cash terms, sales were actually down in the second half of 2007.

Gfk warned that while there appears to have been growth in the first quarter of this year, the market would slow down over the months ahead.

All the mobile phone companies are cutting costs as they focus on retaining existing customers. Vodafone, for instance, yesterday announced plans to lay off 450 people, mainly managers, from its headquarters in Newbury, Berkshire. The company is adding more than 400 frontline staff and building a customer service centre in Stoke-on-Trent, with the capacity to take 850 workers, as it battles with a market in which penetration is well over 100% - meaning many people have more than one mobile device.


Richard Wray, communications editor

The GuardianTramp

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