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Cablegate: New Zealand's Mobile Termination Rates Under

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 WELLINGTON 000598

SIPDIS

STATE FOR EB/CIP FOR AHYDE AND EAP/ANP FOR TRAMSEY
STATE PASS TO USTR FOR BWEISEL AND AMLEWIS
COMMERCE FOR 4530/ITA/MAC/AP/OSAO/GPAINE

E.O. 12356: N/A
TAGS: ECPS ECON ETRD NZ
SUBJECT: NEW ZEALAND'S MOBILE TERMINATION RATES UNDER
SCRUTINY

REF: WELLINGTON 428

1. (SBU) Summary: The New Zealand Commerce Commission has
launched an investigation into whether a lack of competition
has placed the country among nations with the highest rates
for terminating mobile phone calls. The commission could
recommend regulation of termination charges. Telecom, the
former state-owned telecommunications provider, argues that
its termination rates are justified by the high cost of
maintaining infrastructure in mountainous and sparsely
populated New Zealand. Vodafone, the country's only other
mobile operator, also opposes regulation of termination
rates, contending that the marketplace is working and that
rates have steadily dropped over the last six years.
Meanwhile, TelstraClear -- which now resells Vodafone's
mobile phone services but is developing its own mobile phone
network -- welcomes the investigation and hopes it will
result in mandatory price reductions. End summary.

Inquiry begins
--------------
2. (U) New Zealand's anti-monopoly watchdog, the Commerce
Commission, on May 13 began investigating the fees that
mobile phone companies charge other carriers to terminate
calls on their networks. The commission on June 22 released
an issues paper and invited submissions from interested
parties, due July 19. AT&T, which pays what it claims are
exorbitant rates on calls it handles to New Zealand, plans
to make a submission. The commission is expected to publish
its decision in mid-November. (The issues paper can be
viewed on the commission's web site, www.comcom.govt.nz.)

3. (U) Vodafone and Telecom currently charge US 18 cents to
20 cents (NZ 27 cents to 30 cents) per minute to terminate
calls to each other's mobile networks. Generally, the two
companies set mobile termination fees at the same rate.
However, they may charge different mobile termination rates
to other carriers. AT&T reported that the termination
charge to it for calls to New Zealand is US 23.5 cents (NZ
35 cents) per minute and that TelstraClear is seeking an
increase to US 30 cents and Telecom, to US 25.6 cents.

4. (U) The mobile termination charge can be the most
expensive component of prices paid by callers to mobile
phones, accounting for 30 to 60 percent of the per-minute
cost of such calls. The Commerce Commission's
recommendation on whether to regulate mobile termination
rates could have significant impact in a country where there
are 2.8 million mobile phones, along with 1.7 million fixed
lines. The Communications Minister could accept the
commission's recommendations, reject them or refer them back
for further consideration.

The industry's views
--------------------
5. (U) TELECOM: The former state-owned monopoly, Telecom New
Zealand, has a 45.4 percent share of the mobile phone market
and roughly 75 percent of the fixed-line market. In its
submission to the Commerce Commission, Telecom plans to
argue that its mobile termination rates are not excessively
high. Bruce Parkes, Telecom's general manager of government
and industry relations, said the submission would make two
principal assertions. First, the cost of infrastructure
needed to provide mobile telephone service to a relatively
small population -- 4 million people -- is high in per-
capita terms because a large number of cell tower sites are
required to cover the nation's mountainous terrain,
especially in comparison to countries such as Australia and
the United Kingdom. Second, the higher mobile termination
rates "cross-subsidize" lower mobile phone service prices,
making the telecommunications market more efficient.

6. (SBU) VODAFONE: The company has a 54.6 percent share of
the mobile telephone market and has been gaining new mobile
subscribers faster than Telecom. Vodafone New Zealand
asserted that mobile termination rates have steadily dropped
from US 33 cents (NZ 50 cents) in 1998 to less than US 20
cents (NZ 30 cents) this year and that the market should see
that trend continue without regulation. Roger Ellis,
Vodafone's public policy manager, also contended that it is
unfair to compare termination rates in New Zealand -- where
the calling party pays for making calls to mobile phones --
to those in the United States -- where the receiving party
pays. He said New Zealand's rates would not be viewed as
particularly high if they were compared to rates in Europe,
where the calling party also pays.

7. (U) TELSTRA CLEAR: Telecom's main land-line competitor,
TelstraClear believes mobile termination rates in New
Zealand are excessively high and therefore endorsed the
Commerce Commission's investigation. Grant Forsyth,
TelstraClear's manager of industry and regulatory affairs,
said the rates should be more in line with those recommended
by the Australian Competition and Consumer Commission
(ACCC), which decided in June that termination fees in the
country should be lowered gradually from US 14.6 cents (AUS
21 cents) per minute to US 8.3 cents (AUS 12 cents) on
January 1, 2007.

8. (SBU) The comments by Telecom and TelstraClear have been
relayed to AT&T, which requested that post contact the two
companies on the mobile termination rate issue.

Comment
-------
9. (SBU) The Commerce Commission has been inconsistent in
its approach to regulation, most recently reversing the
decision in its draft report and recommending against local
loop unbundling (reftel). The commission, nonetheless, has
tended to favor increased regulatory pressure in situations
where it might increase competition in the
telecommunications market. This tendency suggests it may
recommend regulating mobile termination rates. Telecom's
Parkes, even as he defended the current rates, implied they
probably would face mandatory reductions. Parkes said that
he expected the ACCC decision to influence the Commerce
Commission and that if the commission decides to regulate
rates, the outcome would be similar to that in Australia.

SWINDELLS

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