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Industry MTR solution offers lower prices sooner

19 July 2006

Industry solution to wholesale MTRs offers customers lower prices sooner

Vodafone NZ CEO Russell Stanners today announced an alternative commercial solution to the regulation of Mobile Termination Rates proposed by the Commerce Commission.

This solution will deliver reduced MTRs, the wholesale fees mobile operators charge fixed providers to terminate calls on their networks – and Vodafone believes it provides a much better prospect of lower retail prices sooner for consumers. “It builds on the Commerce Commission’s findings and goes further to address key issues that cannot be addressed through regulation,” says Stanners.

“This Vodafone initiative can enable real retail price reductions for fixed calls to mobiles, is fast to implement and addresses the challenge of regulating new technologies.

“We have negotiated a new interconnection agreement with Telecom that includes reduced MTRs that are consistent with our proposed commercial solution.

“If these reductions are passed through to consumers, this would mean that landline customers will pay less for their calls to a mobile – savings that could not be guaranteed under the regulated proposal. The Minister now has a more consumer-friendly proposal to consider,” says Stanners.

He says Telecom has previously indicated its willingness to consider pass-through commitments if requested by the Government to do so as the Government’s condition for accepting a commercial solution.

Vodafone has used the Commission’s own model to develop this new solution. Stanners says the benefits of this industry solution over regulation include:

- Greater economic benefits – the Commission’s own model shows that consumers get between $2 million and $11 million more over five years from this industry proposal than from regulation.

- Speedy delivery – this industry solution will deliver benefits nine to 12 months earlier than the proposed regulation path, meaning consumers get money in their pockets sooner.

- Supports competition – the transition period for lower wholesale MTRs makes it easier for new entrants in the mobile market while allowing existing mobile-only players time to absorb the reduction in revenues.

Vodafone’s glide path reduction in MTRs will start at 20c this year, and reduce to 14.4c in April 2010. This year’s 20c rate is in line with the Australian MTR rate of NZ21c and Ireland’s at NZ19.90c.

Independent analyses by Ernst & Young and Covec confirm that the Commission’s own model shows these reductions will deliver greater benefits to the public than the proposed regulation.

“Our work confirms that, given the Commission’s own cost benefit analysis model, the solution will deliver positive net benefits to New Zealanders,” says Ernst & Young Director Peter Goss.

John Small from Covec says New Zealanders are better off with this new offer than with the regulated approach.

“The regulated alternative takes longer to implement and does not guarantee lower fixed to mobile prices. This proposal, on the other hand, is a positive step forwards for consumers and shows that you don't always have to regulate to get good outcomes," he says.

Vodafone is calling on the government to accept this proposal as a next step beyond the Commission’s recommendation. It believes the offer is a positive step which addresses issues that regulation cannot address and is a win for consumers, industry players and the government.

“Concluding the MTR process quickly, and in a way which benefits everyone is the right course of action for the government,” says Stanners.

“In addition, if the government agrees with our alternative to regulation, we will use some of the savings we achieve to accelerate regional roll-out of 3G Mobile broadband. Starting in 2007, we will invest our savings in extending coverage to 19 additional locations, enabling them to enjoy the benefits of broadband sooner than would be possible with regulation.

“We think delivering lower retail prices earlier to customers and increasing broadband coverage is a better outcome than regulation. Regulation will take longer, has uncertain benefits for consumers and significantly impacts our ability to invest in building our broadband network,” says Stanners.

As part of its solution, Vodafone has also made the commitment to continue leading mobile prices down. The Commission itself has acknowledged mobile prices would go up if MTRs were regulated.


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