Ref: 01/03
Date: 22 January 2003

The four mobile operators will be required to reduce their charges for making calls to their mobile networks, David Edmonds, Director General of Telecommunications has confirmed today.

The Director General announced today that the Competition Commission's findings supported Oftel's view that consumers pay too much for calls to mobile phones and that the mobile operators must cut their termination charges for these calls.

Consumers will make considerable savings on the basis of the Commission's recommendations. Consumers would save £190m each year to 2006 in calls from fixed to mobile phones as a result of the 15 per cent cut in termination rates by July, with further cuts proposed over the following two years.

Following the Director General's reference to the Competition Commission in January 2002, the Commission has reached the following conclusions:

• operators are overcharging customers by up to 40 per cent for terminating calls onto their networks;
• callers to mobile phones have no choice but to pay the termination charge set by the mobile operator, which means that there is little incentive for the operators to reduce their charges towards their actual cost;
• there should be a 15 per cent cut in call termination charges for all mobile operators by 25 July 2003; and
• further charge controls for termination rates should be introduced after July - RPI minus 15 per cent for O2 and Vodafone, and RPI minus 14 per cent for Orange and T-Mobile. The charge controls should run for three years until 2005-06.

The Director General has accepted the Commission's conclusions and will now consult on the amendment to each operator's licence in the light of these recommendations.

Announcing the Commission's conclusions and recommendations, David Edmonds said today:

"After a thorough and independent investigation, the Competition Commission has reached the same conclusions as Oftel did in 2001. The Commission has agreed with Oftel that the operators are acting against the public interest.

"Consumers are being over charged for calls to mobile phones and the mobile operators must reduce their charges to a fair level.

"In competitive markets, consumer choice puts pressure on companies to make prices reflect cost, or risk losing their customers.

"Callers to mobile phones have no choice but to pay the high termination charges set by the mobile operators. There is no real incentive for operators to reduce their charges, which means that call termination charges have remained much higher than cost.

"I will begin the process of implementing the Commission's recommendation of a one off cut of 15 per cent by July.

"The new European Directives on electronic communications require that telecoms markets, including the calls to mobile market, are reviewed before regulations are introduced under the new Directives.

"I will, therefore, shortly issue a consultation document on my proposals for regulation of mobile call termination charges under the new regime.

"The Competition Commission's very thorough report and its clear recommendations provide the best possible basis for these proposals."

David Edmonds said that there will be significant and immediate benefits for consumers as a result:

"For example, the price of a two minute peak rate call from BT to a Vodafone customer could come down from 40p to 35p by the end of July.

"BT have indicated that they will pass on the savings in call termination charges to their customers.

"Consumers would save on average £18 in the last year of the charge control for calls to mobile phones from fixed line phones."

David Edmonds said that the Competition Commission believed that the price cuts would not have an adverse effect on the mobile operators' business plans.

"The Commission have made it clear that these cuts will not jeopardise the mobile operators as they will be able to make a fair return on terminating calls to their networks."

Notes to editors:

1. Chapter one (Summary) and the main conclusions from chapter two (Conclusions on the Public Interest) from the report have been published today and are available on Oftel's website from www.oftel.gov.uk/publications/mobile/2003/ctm_index_0103.htm.

2. Oftel expects to publish the full report from the Competition Commission on its website shortly. Hard copies of the report will be available from The Stationery Office (tel: 0870 600 5522/e-mail: book.orders@tso.co.uk) during February.

3. In September 2001, Oftel published the findings of its investigation into the termination charges set by the four mobile operators. Mobile operators charge each other and fixed networks for terminating calls onto their networks, and these charges are passed directly on to the consumer making the call and are contained in the final call charge. Oftel found that termination charges were too high and that costs should be reduced through a charge control of RPI minus 12 per cent for four years. As the operators rejected these proposals, in January 2002 Oftel referred the matter to the Competition Commission to decide whether regulatory action was in the public interest.

4. Oftel has issued a series of press releases and publications on calls to mobiles. The most recent press releases can be found at:

• www.oftel.gov.uk/press/releases/2001/pr64_01.htm;
• www.oftel.gov.uk/press/releases/2001/pr84_01.htm;
• www.oftel.gov.uk/press/releases/2002/pr01_02.htm; and
• www.oftel.gov.uk/press/releases/2002/pr31_02.htm.

The series of publications that have been issued by Oftel on calls to mobiles are available from www.oftel.gov.uk/publications/mobile/ctm_2002/index.htm.