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Mobile operators argue with Ofcom over termination rates

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The UK's bigger operators are taking Ofcom to the Competition Appeals Tribunal, arguing for higher termination rates - except Three, which wants the opposite.

Vodafone and Everything Everywhere are challenging Ofcom's position on termination rates, with an appeal to the CAT that's supported by O2.

The three operators reckon the regulator didn't include the cost of spectrum, or consider the advantages of subsidising low-volume users, when calculating its numbers. Three, on the other hand, has lodged its own complaint claiming that rates should fall faster and further, though no one seriously expects anything to change.

Termination rates are the fee paid by the caller's network to the callee's network. So if one is with Vodafone and calls a mate on O2 then Vodafone pays O2 4.18 pence per minute to terminate the call.

Those rates are set by Ofcom to prevent dominant companies shutting out competitors by charging excessive rates, but mobile terminations are much higher than their fixed-line equivalents.

Ofcom is committed to reducing the mobile termination rate to what it actually costs to transport the call, somewhere around .7 of a penny a minute as Ofcom calculates it. But Vodafone argues the regulator hasn't considered the sociological advantages of subsidising those who make few outgoing calls, it also reckons Ofcom got the basic figures wrong in failing to include the billions of pounds the operators spent on those 3G licences in 2000 amongst other things. By Vodafone's calculations the rate should be 1.25 pence at the very least.

It might seem petty, but the Financial Times reckons that termination fees make up ten per cent of an operator's turnover so a difference of a penny matters enormously.

Right now most of that money comes from fixed-line providers; BT, TalkTalk and so forth. Fixed operators have to pay the mobile termination rate, but only receive the much-lower fixed rate in return so are firmly on the side of reducing the rate as fast as possible.

Three would also like the rate dropped, or (ideally) scrapped entirely. The UK's smallest operator reckons it has least to lose, and in its presentation to the CAT it argues that Ofcom has overpriced the cost of delivering calls.

The Competition Appeals Tribunal isn't known for the speed of its decision making, so don't expect anything to happen soon. Ofcom's previous ruling will apply until the appeals are completed, and only lasts until 2015, so rates will start dropping and network operators will have to start looking for other sources of revenue while the case rumbles on.

Coincidentally Three has just told customers they'll be paying a penny for SMS receipts from 6 June, which should help keep revenue up: expect similar innovations from the rest of the pack over the next year or two. ®

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