Regulation to bring reduction for mobile users

1 Aug 2003

A package of EU directives, which were signed into law last week, will give extra powers to the Commission for Communications Regulation (ComReg) to regulate certain segments of the mobile and fixed telecoms industry.

The regulations came into force from last week, although it will take several months before the full impact of the reforms are felt by both industry and consumers.

For the first time ComReg will be able to regulate mobile termination rates – the wholesale charges that mobile operators apply to other operators, both fixed and mobile, for calls that terminate on mobile networks. It will also be able to regulate the cost of roaming – making and receiving mobile phone calls when abroad – in a move that could lead to price intervention.

According to Ian McDonald, senior analyst with Mason Communications, the impact of the regulations on mobile rates is that it will drive prices down. “The regulator now has the power to influence and regulate mobile termination and roaming rates where it is seen that those rates are excessive and unfair to the user. It is expected that the mobile operators will come under pressure from ComReg to reduce their rates,” he says.

Indeed, at the start of this month ComReg gave the two biggest mobile operators, Vodafone and O2, just two weeks to review their termination rates or face intervention. “ComReg will monitor developments in the area in the next two weeks. If it judges that insufficient progress is being made, it … may make a direction on cost orientation,” it stated.

O2 and Vodafone have come under scrutiny recently due to the extremely high average revenue per user generated from Irish consumers. Subscribers to the firms spend more on mobile services than users from any other country in the EU. Both firms say Irish users talk and use mobile services more than other Europeans, justifying the high profit margins. But critics, such as telecoms lobby group ALTO, have claimed that the mobile operators are ripping consumers off.

However, Vodafone’s 13pc reduction of its peak period termination rate earlier this year will be followed by a further 5pc reduction to its average termination rates next year. O2 have also indicated that it plans to introduce reductions in average termination rates of Consumer Price Index minus 8pc both this year and next year. It is estimated that by summer 2004, average mobile termination rates will have fallen by over 20pc for the previous three years.

Both Vodafone Ireland and O2 have said that these rates are already set at cost-orientated levels and are currently among the lowest in Europe.

Meteor, the third Irish mobile operator, is not affected by the issue because it is not judged as being dominant in the market.

However, despite these reductions ComReg issued a warning to the operators this last week. “If any of the [mobile] operators are found to have significant market power, appropriate obligations will be put in place to address any identified market issue. These may include measures aimed at achieving greater transparency of cost structures such as account separation and measures to control the level of price.”

At present, ComReg is conducting a major review of termination rates and international roaming rates and will shortly issue decision notes on mobile rates. Recently, a similar ruling by the British regulator Oftel on reducing mobile operators’ termination rates was upheld in the British courts.Vodafone, Orange and T-Mobile lost their judicial review of Oftel’s decision, which should reduce the cost of calling a mobile from a landline by 30pc. The cost of calling a mobile from a mobile should fall by 20pc, according to research by Oftel.

Meanwhile, the new regulations will introduce a more flexible penalty regime within which ComReg will be able to operate. This will give ComReg the power to seek an order from the High Court to force operators, which have breached regulatory decisions, to pay fines that are proportionate to the breach. The new powers will replace the previous enforcement regime, which forced ComReg to seek a criminal indictment against errant firms.

The new regulatory measures could also work to loosen ComReg’s regulatory grip on certain markets. They are intended to allow markets already deemed to be competitive to operate without regulation. So markets found to be competitive following analysis by ComReg should be allowed to operate without significant intervention.

Another significant development following the transposition of the regulations is the creation of a new appeals panel that will give firms an alternative route to challenge decisions by ComReg. The panel, which should be set up before the end of the year, is a key provision sought by Eircom in the lead-up to the introduction of the new European regime. It is intended as a way to prevent lengthy legal challenges to decisions, such as Eircom’s current challenge to the cost of accessing its network.

By Lisa Deeney