The UK telecom regulator, Ofcom, will squeeze MTRs to half a penny by 2015. But at that rate, why not remove it entirely? asks Ian Scales
The termination rate is the wholesale price telcos charge each other on calls between networks. Currently mobile network termination rates (MTR) are much higher on mobile than fixed networks which means mobile users pay more for calls and fixed users pay significantly more for calls to mobile networks.
This results in large cash transfers from fixed to mobile networks, which particularly annoys BT which, of course, doesn't have a mobile operator of its own.??Ofcom said yesterday that it would like to reduce the per minute termination rate from around 4.3p per minute (as it's set at the moment) to just 0.5p.
The response has been predictable. In general the large UK mobile operators profess themselves gravely worried. With revenues already under pressure they hint darkly that they’ll have to raise rates elsewhere to make up the shortfall.
The one big operator to welcome the change is BT, of course, which has been pushing for reduced termination rates for years. Why? Because unlike most of the other European ex-incumbents, it doesn’t have a mobile arm so is a huge net outpayer to the mobile networks. Very galling.
But it’s not just BT. The small operators such as 3 also benefit from a low termination rate.
According to Jessica Ekholm, principal research analyst, consumer services at Gartner, the way the mechanism works favours the large operators because of the proportion of calls that each operator gets to keep on its own network. It’s a straight maths thing: big operators tend to be net beneficiaries and small ones become outpayers.
She says that 3 UK, for instance, welcomes the move.
In fact the direction of travel on MTR has been clear for some time, so despite the grumbling there are no real shocks here.
Last year the European Commission set out a target and time frame for termination reductions along these lines and several other countries in Europe are already implementing them. The UK is actually a laggard MTR, not a pace-setter.
Perhaps the real question is: if it’s feasible to reduce termination rates by about 88 per cent without the sky falling down, why not just get rid of them entirely? At 0.5 p per minute the cost of collecting the data and agreeing and executing the payments must be getting close in value to the small amount of revenue finally exchanged between operators.
The upside from a consumer point of view would surely be positive as it would enable lots of free calling business models to emerge... oh yes of course. That’s why they don’t want it.
That remaining 0.5 p per minute will be fought for tooth and nail - it keeps out the free business models.
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