Oftel announced on 22 January 2003 that the four main mobile network operators (MNOs) will be required to reduce the charges for making calls to their networks. This follows a year long investigation by the Competition Commission on Oftel's proposals put forward in September 2001 to cap the level of these charges.

The Commission supported Oftel's view that consumers are paying too much to call mobile phones and that the MNOs - O2, Orange, T-Mobile and Vodafone - must cut their termination charges for these calls.

Termination charges are those charges which an operator makes for connecting calls to its network, and are paid by consumers in the retail price to call a mobile phone.

Following the Director General's reference to the Competition Commission in January 2002, the Commission have concluded that:

• MNOs have a monopoly for terminating calls on their own networks;
• callers to mobile phones have no choice but to pay the termination charge set by the mobile operator which means there is little incentive for the operators to reduce charges nearer towards cost;
• current termination charges are 30-40 per cent in excess of a 'fair charge';
• as a consequence, consumers pay too much for fixed-to-mobile and off-net calls; and
• consumers who make more fixed-to-mobile or off-net calls than calls across the same network, or who make more off-net calls than they receive, unfairly subsidise other consumers.

To remedy these, and other 'adverse effects' of high termination charges, the Commission proposed that all four MNOs' termination charges be reduced. The operators should make a one-off cut of 15 per cent before 25 July 2003, and then charge controls of RPI-15 per cent for O2 and Vodafone, and RPI-14 per cent for Orange and T-Mobile, should be imposed from July 2003 to March 2004 and for two further years.

Oftel estimates that the average fixed line consumer would benefit by £18 a year by 2005-06, and that a typical peak-rate call from a fixed line to a mobile phone should come down by about 2.5 pence per minute by July this year.

The Competition Commission also considered the impact on the MNOs and concluded that there should be no threat to the financial viability of the MNOs, nor should any retail mobile prices need to rise as a result of their recommendations.

Oftel proposes to implement the first part of the Commission's recommendations immediately by modifying the MNOs' licences. Draft licence modifications for all four operators were published on xxx February 2003.

The report from the Commission marks the end of a year long investigation which itself follows a detailed market review by Oftel. Oftel's review began in mid 2000 and concluded in September 2001 when it set out proposals to introduce a price cap of RPI-12 per cent for all four operators for the four years 2002-06. Oftel believed that this proposal struck a fair balance between the needs of consumers to be protected from high prices in this part of the mobile market, and the ability of the operators to make fair returns.

However, all the MNOs objected to the proposed licence modifications to introduce controls on their termination charges. Therefore, Oftel referred the matter to the Competition Commission to carry out its own investigation. Oftel asked the Commission, if it found that the charges were too high and therefore against the public interest, to establish whether this could be remedied by regulating termination charges.

An electronic version of the Commission's report is available on Oftel's website from www.oftel.gov.uk/publications/mobile/2003/ctm_index_0103.htm. Hard copies are available from The Stationery Office (tel: 0870 600 5522 / e-mail: book.orders@tso.co.uk).
For further information, contact Vince Affleck (tel: 020 7634 8819 / e-mail: vincent.affleck@oftel.gov.uk) or Selena Bevis (tel: 020 7634 8844 / e-mail: selena.bevis@oftel.gov.uk).