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MTR Regulation Bad News for Consumers, Competition

Media Release

14 February, 2006

MTR Regulation Bad News for Mobile Consumers And Competition

Mobile phone customers will suffer under the Commerce Commission's proposal to regulate mobile termination rates (MTRs), Vodafone said today.

In its response to the Commerce Commission’s reconsideration draft report on mobile termination rates - the rates mobile telecommunications companies charge fixed telecommunications companies to terminate calls on their networks - Vodafone said that regulating MTRs is not in New Zealand’s best interests.

Vodafone Finance Director David Sullivan said Vodafone has a number of serious concerns with the Commerce Commission’s analysis and recommendations.

“There’s a myth that this regulation will result in lower mobile call prices. If anything, the opposite is true. The Commission itself acknowledges that this regulation means that mobile customers will end up paying more for their calls. Its own prediction is that about 18,000 people will give up having mobiles altogether if this regulation is imposed.”

Vodafone highlights the fact that landline customers calling mobiles will not benefit either. In its submission Vodafone calls for ‘rigorous enforcement’ of pass through of any cost savings to consumers to ensure any benefits of MTR regulation are reaped by customers calling mobiles from landlines, rather than those benefits being pocketed by fixed line operators such as Telecom who may resist passing those cost reductions through to their retail customers.

“The Commission recognizes this and has tried to enforce pass through, but the mechanism needs to be substantially strengthened for it to work. If fixed line operators are not required to pass on benefits to their customers, there can be no benefits at all from this regulation”.

Sullivan said that Vodafone was worried about the impact of MTR regulation on its ability to compete and to continue to bring innovative services to New Zealand.

“Telecom is the major beneficiary of this regulation. We are very concerned that we are being forced to cut our mobile termination prices which ultimately make more money for our biggest competitor, creating an uneven playing field in the mobile market.”

Vodafone also strongly disagrees with the Commission’s recommendation to regulate MTRs for calls made to its new 3G network.

“This is an incredibly short-sighted recommendation with no substantiation. The network is only six months old and we are still in the early stages of building customer numbers. Given the Commission has no information on our rollout plans, no information on 3G usage, and scant evidence of 3G costs, we cannot understand its justification."

John Small, from economic consultancy Covec, which reviewed the Commission's report, said mistakes in the Commission's analysis overstated the benefits of regulation.

"The Commission made a number of serious errors in its modeling and analysis. We found nine areas of concern. Correcting just the first error alone would mean that the Commission’s case for regulation does not stack up," he said.

David Sullivan said that New Zealanders should be concerned that regulation which results in higher prices and distorts the competitive arena is not in the country’s best interests.

“We have already offered to reduce our MTRs as an alternative to regulation. The Commission should recommend that the Minister accept our commercial offer as the quickest, most certain option, and one that will avoid distorting the competitiveness of the mobile market.

“The Commission says that fixed to mobile prices will decline by a very small amount as a result of regulation. We say it’s just not worth imposing all the costs of this regulation on mobile customers, on mobile competition and on our ability to compete and invest.”


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