Decision to Investigate Mobile Termination Rates

Decision to Investigate Mobile Termination Rates

The purpose of this paper is to set out the Commission’s reasons for deciding to investigate mobile termination rates.

The Commission has received complaints that the lack of competition in the mobile termination market results in unreasonably high charges for fixed-to-mobile calls in New Zealand.

Mobile termination relates to the termination of calls to mobile customers, and is a component used in the supply of various downstream retail services such as fixed-to-mobile and mobile-to-mobile calling services.

The Commission is satisfied under clause 1(a) of Schedule 3 to the Telecommunications Act 2001 (‘the Act’) that there are reasonable grounds for an investigation into mobile termination rates.

The Commission has considered the following factors in making its decision to investigate mobile termination rates:

There are indications that mobile termination prices in New Zealand may exceed cost by a significant margin. Cost-based estimates of mobile termination rates in comparable jurisdictions appear to be well below the current New Zealand rates. If this is proven to be the case, a further issue for the Commission to address is the degree to which a reduction in New Zealand wholesale mobile termination rates will flow through to reductions in retail fixed-to-mobile rates.

The owners of mobile networks, in this case Telecom New Zealand and Vodafone, appear to have a substantial degree of market power in terminating calls on their mobile networks. A number of overseas regulators have identified competition concerns in relation to mobile termination services. Overseas regulators have identified the calling party pays arrangement for calls to mobiles as being a source of market power. The Commission considers that an investigation is necessary to determine whether similar competition issues exist in New Zealand.

With 2.8 million mobile phones in New Zealand and 1.7 million fixed lines, the termination of mobile calls is relevant to most phone users. Spending on calls to mobile phones makes up a significant portion of spending on telecommunications services.

The Commission will commence an investigation pursuant to clause 2 of Schedule 3 of the Act on whether or not mobile termination should be regulated by including it in Schedule 1 to the Act as a designated service.

Douglas Webb

Telecommunications Commissioner

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