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Payback time for Ofcom on incoming call charges

Mobile Termination Rates II: The Slashening

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The UK's competition commission has ruled that regulator Ofcom got the termination rates for mobile calls wrong, while the Competition Appeals Tribunal has decided that such mistakes should be acknowledged retrospectively.

Ofcom caps the average rate that mobile operators charge for incoming phone calls - the termination rate - which the regulator calculates based on how much it costs the mobile networks to handle the call. Back in 2007 BT complained that Ofcom had got its figures wrong, a complaint that has now been largely upheld (pdf).

BT complained that Ofcom based its figures on the amount the operators paid for their 3G licences, rather than what they're actually worth. The former monopoly also complained that Ofcom had overestimated the allowance for network externality and failed to allow for reductions in the cost of administration.

The Competition Commission accepted the first two arguments but rejected the latter, and has recalculated what mobile termination rates should now be.

Accordingly, the average cost of terminating a mobile call will drop to 4.0 pence per minute by 2010/11, excepting calls to 3UK (who were awarded a late-mover advantage to help them be competitive) which will drop to 4.4 pence per minute. These figures are 1.5 pence below what Ofcom had decided, and thus less than companies have been charging each other for the last two years.

Ofcom always intended that the cost of termination would fall slowly towards the 2010/11 target, in a process known as the glide path, but that glide was commenced in 2007 aiming at 5.1 pence. Hitting 4.0 pence will need a steeper glide, but that won't make up for the over-charging of the last two years.

In presentation to the Competition Appeals Tribunal (CAT), which has been considering the matter, BT initially suggested that the operators just hand it a pile of cash. The operators quickly pointed out that BT been passing the costs on to its customers, and it would hardly be reasonable to return the money to BT unless it could be guaranteed to get back to the people who paid it.

It also argued that the CAT has no authority to apply different pricing retrospectively, a matter on which the CAT unanimously disagreed.

So the CAT has ruled (pdf) that pricing must be reorganised for the whole period, 2007-2011, by Ofcom, who will have to manage some form of restitution to those who have overpaid - most likely through lower rates charged to the disadvantaged parties.

For punters this probably means the cost of calling a mobile phone will drop fast over the next couple of years, before bottoming out until termination fees vanish completely - after which no one knows what will happen to the cost of calling. ®

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