The Competition Commission has this month published the latest (possibly the last) in a long series of rulings in a dispute between BT (and also the smallest mobile network, 3) and the other mobile operators with the Regulator OFCOM caught in the middle . You can find the lengthy ruling here.
OFCOM is obliged under the Communications Act (and EU legislation) to conduct market reviews with the view to determining whether they need to impose a range of controls, including price controls. The issue what has been rumbling on for a number of years has related to the prices which the main mobile networks have charged for allowing other operators to connect calls to their subscribers (a call termination charge). The issue involves a great deal of economic and accounting theory (which i don't understand) but the basic argument has been that these termination charges are higher than the actual cost of processing the calls. between the main mobile networks, calls in (for which they get paid) and calls out to other networks (for which they pay) roughly balance out (and their consumers pay) . For BT and also for 3, the argument is that there is an imbalance in traffic and that these networks are essentially subsidising the mobile networks.
In 2011 OFCOM issued a determination requiring that termination rates be reduced over a period of years. BT (and 3) claimed too little to late, the mobile networks claimed too much, too fast. The Commission have now ruled in favour of BT and prices will be required to come down quickly and steeply. Good news for consumers? Maybe. You might look at this article and this one
Essentially, the business model of UK networks has been to subsidise the cost of handsets and recoup the money from higher call charges. this has perhaps been best seen in the market for prepaid (pay as you go) phones. It is apparent if you go to other EU countries, I've been particularly struck in Germany, that handset prices are much higher than in the UK - and calling charges much lower.
Which is best? I don't pretend to know. You will see in some of the articles that the change is likely to impact upon the poorer elements of society who typically use prepaid phones. We are perhaps moving close to discussions of universal service which we will consider later in the semester.
Any thoughts?
OFCOM is obliged under the Communications Act (and EU legislation) to conduct market reviews with the view to determining whether they need to impose a range of controls, including price controls. The issue what has been rumbling on for a number of years has related to the prices which the main mobile networks have charged for allowing other operators to connect calls to their subscribers (a call termination charge). The issue involves a great deal of economic and accounting theory (which i don't understand) but the basic argument has been that these termination charges are higher than the actual cost of processing the calls. between the main mobile networks, calls in (for which they get paid) and calls out to other networks (for which they pay) roughly balance out (and their consumers pay) . For BT and also for 3, the argument is that there is an imbalance in traffic and that these networks are essentially subsidising the mobile networks.
In 2011 OFCOM issued a determination requiring that termination rates be reduced over a period of years. BT (and 3) claimed too little to late, the mobile networks claimed too much, too fast. The Commission have now ruled in favour of BT and prices will be required to come down quickly and steeply. Good news for consumers? Maybe. You might look at this article and this one
Essentially, the business model of UK networks has been to subsidise the cost of handsets and recoup the money from higher call charges. this has perhaps been best seen in the market for prepaid (pay as you go) phones. It is apparent if you go to other EU countries, I've been particularly struck in Germany, that handset prices are much higher than in the UK - and calling charges much lower.
Which is best? I don't pretend to know. You will see in some of the articles that the change is likely to impact upon the poorer elements of society who typically use prepaid phones. We are perhaps moving close to discussions of universal service which we will consider later in the semester.
Any thoughts?
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ReplyDeleteWhen you have, for example, a voice call terminating in a network it does use processing and resources of the terminating network, and I find it fare to charge, the originating operator (competitor) who is collecting the charges from the caller, for this. Terminating network needs to cover for their OPEX!
ReplyDeleteAlso terminating charges works both ways. Each operator may serve as a terminating operator for subscribers/fixed line user connected to it. If the prices are fare then it would serve both interconnected operators and their customers.
As said, in Europe, it is the consumer who pays... subsidised handsets are bound with subscription and usually for minimum a year and the offered handsets are also of the new product lines facilitating more services and more advanced technologies as become available to the operator's deployment. Most operators offer flat-rate (with max limit of xy) and this is a fix revenue, and once the consumer may extensively use their mobile services and he/she may pass the limit and even pay more. Where prepaid card are mostly used when the consumer has limited budget... and the call/service is more expensive due to no subscription fees.
So I guess in end-effect pre-paid may not be the best solution model for operators to make revenue and this would then solve the terminating charges... I am not experienced in revenue generation, but this is how I see it.
Regulating the terminating charges per country would save the consumer, and will facilitate fare competition among service providers/operators (the service provider/operator will not increase their prices just to pay the terminating operator but will be based on the services they offer and how much they would charge for them). This in turn may also increase the service provider/operator CAPEX.
Note: in North America there are fees for the called person using cellular network, the receiver pays his part of the fee.
The report from OEDC provides different models of charging in mobile networks CELLULAR MOBILE PRICING STRUCTURES AND TRENDS (http://www.oecd.org/dataoecd/54/42/2538118.pdf)
The European Commission is reining in the Dutch regulator following its decision to formulate its wholesale mobile termination rates using the 'wrong' methodology. The commission has suspended the new rates' implementation pending an inquiry.
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