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Europe says 3G auction inflates UK mobile prices

Proposal could slash call costs by a third

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The European Commission has called on Ofcom to discount the massive costs paid by operators for 3G phone licences when calculating call costs. The proposal could cut mobile call charges by up to a third.

Ofcom has set target prices for mobile calls of 5.3 pence per minute for networks with second and third generation networks and 6 pence per minute for 3G networks. Those prices, though, take account of the £22bn spent on 3G licences in 2000. Without those charges, 3G network calls would be reduced by almost a third.

Ofcom regulates mobile prices based on the cost of providing services, so not including the costs of licence acquisition would significantly reduce the cost base of networks under consideration and, therefore, target prices.

"I am concerned that Ofcom's approach to calculate 3G spectrum costs could hinder the movement towards lower mobile interconnection prices," said the EU Information Society and Media Commissioner Viviane Reding. "The commission believes that such costs should not be calculated on the basis of prices paid during the spectrum auctions, which are in today's context inflated. Otherwise, distortions of competition and higher prices for mobile customers could be the result. I therefore ask Ofcom to reassess their method of calculating mobile termination rates in the UK."

At the height of the dot.com boom in 2000, a massive amount of money was paid by operators for 3G licences. The planned massive uptake of mobile phone data usage has largely failed to materialise, and the EU wants to make sure that consumers do not pay for the runaway auction of March 2000.

"The commission, in a letter sent to Ofcom on 22 November and made public today, considers that the mobile termination rate charges proposed by Ofcom disproportionately reflect their historical 3G spectrum auction value and do not appear to reflect their current value," said a statement from the European Commission. "In its letter the commission therefore invites Ofcom to reconsider the valuation of 3G licences so that users derive maximum benefit in terms of price."

The commission said Ofcom told it that the inclusion of the cost of the 3G spectrum adds 1.2 pence per minute to the second and third generation network operators and 1.9 pence to the 3G networks' costs.

Ofcom did not comment before publication.

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