Lower fixed to mobile prices than Australia

Media Release
12 January 2009
EMBARGO: 17h00, Monday 12 January

Vodafone deal ensures lower fixed to mobile prices than in Australia

- New deals to reduce consumer costs even further -

Vodafone New Zealand has offered a commercial deal to ensure existing cost savings in the termination rates of landline to mobile calls will reduce even further over the coming years and extend to other mobile services.

The current Deed has already resulted in fixed to mobile calls costing New Zealanders around 30% less than their Australian mobile phone users[1.

Three new undertakings, provided to the Commerce Commission today, build on the fixed to mobile Deed introduced in 2007. By 2011, this existing agreement will result in an
overall reduction of 30% in the wholesale charge when a call from a fixed line goes to a mobile phone.

A key element of the original Deed and new undertaking is the guarantee that the savings are passed on to consumers.

Vodafone has offered the new undertakings as a more effective alternative to regulated pricing of termination rates when calls are made between fixed and mobiles, from mobile to mobile and for SMS. Termination rates are the amount per minute charged between the different telecommunications carriers.

The new undertakings will see a further reduction of fixed to mobile termination rates of 21% between 2011 and 2014. The termination costs of mobile to mobile voice calls and SMS rates would come down 26% over the period of the new undertaking.

“Vodafone knows competition and lower pricing are more easily achieved via innovative commercial solutions. New Zealanders already pay less than Australians for landline to mobile calls, even though the Australian termination rates are regulated,” says GM Corporate Affairs, Tom Chignell.

Recent Australian experience proves that commercial deals with guaranteed savings for consumers are more effective than regulated pricing.

Regulating termination prices in Australia has lead to a substantial margin improvement to the retail operators with only a quarter of the savings being passed on to consumers. This concern has been raised by the ACCC, which has also acknowledged the New Zealand voluntary deeds as an effective approach2.

“The commercial Deed that currently exists includes an agreement between Vodafone (and separately Telecom) with the Crown to pass on 100% of the savings as the termination rates reduce. Our most recent undertakings will ensure that all mobile operators will do the same,” Chignell says.

“The Deeds in New Zealand have worked. We have honoured our commitments to lower fixed to mobile voice termination rates and met our pass-through obligations. We believe these new undertaking applications offer an opportunity to create much needed certainty for the industry and consumers.”

The new Undertakings cover three services: fixed to mobile voice; mobile to mobile voice and SMS.

Cost reductions over time will see the fixed to mobile termination rate drop from 20cpm (cents per minute) in 2007 to 11cpm in 2014. Mobile to mobile and SMS termination rates would reduce by 26% between now and 2014.

From / FTM voice Deed / FTM voice Undertaking / MTM voice Undertaking / SMS Undertaking
2009/10* / 15cpm / / 15cpm / 9.5cpt
1 April 2010 / 14.4cpm / / 14.4cpm / 8.9cpt
1 April 2011 / 14cpm / / 14 cpm / 8.3cpt
1 April 2012 / / 13 cpm / 13 cpm / 7.7cpt
1 April 2013 / / 12 cpm / 12 cpm / 7.3cpt
1 April 2014** / / 11 cpm / 11 cpm / 7.0cpt
*Undertaking will commence on registration by the Commerce Commission **or until expiry date

[1] Telstra Annual Report : 2007-08 financial year, average retail revenue per minute for FTM calls 35.5 AUD cents per minute (cpm) or 43 NZD cpm. Telecom Quarterly Management Commentary: average retail revenue per minute for FTM calls during the June 2008 was 30.5 NZD cpm - see http://www.telecom.co.nz/binarys/q10809_management_commentary.pdf
2ACCC, Draft MTAS Pricing Principles Determination and indicative prices for the period 1 January 2009 to 31 December 2011, November 2008, pps. 18 – 19 – see http://www.accc.gov.au/content/index.phtml/itemId/848783

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