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Learning to love termination fees

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Termination fees - the money paid to a receiving network for connecting a call - are for the chop. The question is what, if anything, will replace them; moreover, will ordinary punters ever even notice they're paying to receive calls?

Ofcom recently announced it was going to take a good look at the question of termination fees, putting many of our readers into a tizzy and swearing they'd never pay to receive a call. But the rationale behind Ofcom's position, and the argument against termination fees, is worthy of examination, as it leads to the almost inevitable conclusion that it's just a matter of time before we end up paying to receive calls if we aren't already.

Termination fees are paid to the receiving network in exchange for them handling the call, so when Mr O2 pays 25 pence a minute to call Ms Vodafone, O2 passes on 5.1 pence to Vodafone for completing the call. That rate is set by the regulator - Ofcom - on the grounds that otherwise there would be nothing to stop Vodafone charging, say, £2 a minute. O2 would then be forced to pass that charge on to its customers, making it look like the expensive network.

That 5.1 pence rate is the one Ofcom is scheduled to re-examine in 2011. The regulator also sets a rate for fixed-line telephony, and mobile operator 3 has its very own rate as it's smaller and needs the help.

Where a termination rate is used punters need to know what a call is going to cost them, so the kind of phone they're connecting to. In the UK, for example, all mobile phone numbers start with "07" so anyone dialling such a number knows they're going to have to pay a premium. But that means number portability is limited by technology: you can't take the phone number from your house and put it on your mobile, or vice versa. In the USA, where termination rates are consistent across technologies, your phone number is your property to be ported to fixed, mobile or VoIP lines as you see fit.

Convergence also presents problems, as the terminating technology may not be known until the call is connected. VoIP provider Truphone, for example, issues "07" numbers, but if the handset is within a Wi-Fi area the call is routed over VoIP. T-Mobile is still refusing to pay mobile termination rates to Truphone on the grounds that calls may not be carried on a mobile network, but the carrying technology isn't known until after the call has been connected.

This is only going to get more complicated as more wireless technologies come online, which is the expected result of Ofcom raffling spectrum off to all and sundry. That could mean a range of termination rates that Ofcom would have to negotiate, maintain, and defend in court when (inevitably) challenged.

Ofcom, and the EU, reckon that's going to be unmanageable in the long term, and that people increasingly want one phone number that never changes regardless of the technology being used to deliver phone calls.

So if the current system is broken, what are the alternatives? Ofcom makes a few suggestions in its consultation. Removing all regulation is considered too dangerous as it would give the largest players too much power; but removing the termination rate is a possibility, or setting a single rate to be applied to everyone.

Both options would probably result in punters paying to receive calls on a mobile phone, something to which many people appear ideologically opposed, though if they realised that VoIP has always worked that way they might not feel so strongly.

Skype and similar services make much of the fact that many calls are free, but that's simply not the case - when I receive a Skype call it uses up the bandwidth that I'm paying for on my ADSL contract, and outgoing calls also tick up against my data cap as well as the cap of the person receiving the call, in just the same way that a termination-fee-less telecommunications system would operate.

The only reason no one notices this is because the amount of bundled data is so huge that incoming Skype calls won't register - but that's a question of scale, not ideology. It would be interesting to know how many of those who swear they would never pay to receive a call happily use Skype.

There's an old joke about a man who asks a girl if she'll sleep with him for a million pounds, she accepts, so he offers her 20 quid: "What kind of girl do you think I am?" asks the outraged lady. "We've already established that," responds the man, "now we're just negotiating the price." Those who claim they'll never pay to receive calls will, if the price is right - they just don't want to accept that they would. ®

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