Mobile Termination Rates cut

May 5th, 2011 at 12:00 pm by David Farrar

At long last, we have a final decision from the Commerce Commission.

The termination rate for mobile phone calls between networks is going to reduce as follows:

  • Today – 15c to 17c
  • Tomorrow – 7.48c
  • 1 Oct 2011 – 5.88c
  • 1 Apr 2012 – 3.97c
  • 1 Apr 2013 – 3.72c
  • 1 Apr 2014 – 3.56c

And the termination rate for text messages between networks will reduce as follows:

  • Today 9.50c
  • Tomorrow 0.06c

This move is long overdue, and congrats goes to the Commission and Steven Joyce who made the decision to regulate.

It will be interesting to see the impact on retail prices. It won’t be immediate, but it means we should eventually see people choosing their network based quality and price, not based on which network their friends are already on.

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32 Responses to “Mobile Termination Rates cut”

  1. decanker (222 comments) says:

    Honest question, how would ACT approach NZ’s high termination rates?

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  2. Viking2 (11,348 comments) says:

    More private property rights trampled on.
    Don’t like the cost don’t use the bloody things.
    Life is better without them.

    Would you like your services or wages price controlled controlled?
    Muldoon all over again.
    Bloody socialists.

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  3. kaya (1,360 comments) says:

    Congratulations to those responsible.

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  4. MajorBloodnok (361 comments) says:

    Mobile termination rates are like Cold War border guards… designed to keep you in your designated area.

    And foster enthusiasm for your wonderful mobile company — no matter how bad it is — because that’s where all your friends are. (Any others you used to have are beyond the borders, so you don’t communicate very much, and thus they’re not such good friends, anymore!)

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  5. BlairM (2,317 comments) says:

    Honest question, how would ACT approach NZ’s high termination rates?

    The NZ Government’s whole approach to telecommunications has been to discourage infrastructure investment either by nationalising/regulating the infrastructure that already exists, or by promising to subsidise/roll out infrastructure themselves. So what company in their right mind would start up a new phone network under those conditions?

    This protection of the existing corporates discourages competition and encourages price gouging, leading to the high termination rates we see.

    Far from congratulating Steven Joyce on regulating a problem he was partially responsible for creating, we should tell him to get out of all aspects of the business altogether, and let the market do what it is supposed to do.

    As for what ACT would do, well I hope their new leader would agree.

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  6. MyNameIsJack (2,415 comments) says:

    Here we go again. I wonder if DPF can spell hypocrisy?

    yesterday cheering on free markets and demanding a lowering of tarrifs. All gung ho for free trade.

    Today, cheering on regulation, and congratulating a government for market interference.

    Just what was wrong with the current situation where capitalism, free enterprise, the invisible hand, etc. set thet pricing? If the government wants to set the price, then do the right thing and nationalise telecoms.

    [DPF: You may be unable to think an issue through beyond slogans. I do not suffer from your disability. MTRs are a barrier to competition and choice. A free market only works when you have competition and choice]

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  7. MyNameIsJack (2,415 comments) says:

    Or, to put it another way –

    If I have a product that costs $1 and the market will pay $10, what price should I charge? And what price should the government force me to charge?

    If the government truly wanted to foster competition in utilities markets it would forget about pricing and prohibit predatory contracts that lock people in, it would enforce rapid changeovers from one provider to another.

    THAT would encourage greater competition, allow consumers true freedom of choice and reduce prices.

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  8. krazykiwi (9,189 comments) says:

    I estimate that less than 1% of carrier’s mobile revenues are generated from customers who choose a network based on ‘which network their friends are already on’.

    [DPF: You are absolutely wrong. Ask any under 21 year old in Auckland and Wellington. I've done research on this. This is why Vodafone has huge market share in Auckland and Telecom huge in Wellington]

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  9. krazykiwi (9,189 comments) says:

    MNIJ – those ‘predatory contracts that lock people in’ are a figment of your far-left, anti-business mindset. Term agreements are offered for that customers who voluntarily to commit their business to a carrier in return for subsidised handsets. Don’t want a term agreement? Fine, don’t sign up to one. Don’t want a monthly commitment? Fine, choose pre-pay.

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  10. Cobolt (91 comments) says:

    Slashing the termination rates won’t make one iota of difference to cell-to-cell retail call rates. Why? because while Telecom may charge Vodaphone to terminate their calls Vodaphone also charge Telecom so at the end of the day the net money actually changing hands doesn’t really change.

    All this does is make it easier for new players to enter the markets without having to jump the hurdle of termination costs that everyone else is able to charge for.

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  11. Ed Snack (1,833 comments) says:

    Although in practice I’d actually support MNIJ’s contentions about hypocrisy & the “free market”, termination costs are it seems to me a tricky problem. They are primarily an anti-competitive mechanism meant to discourage new entrants as any new entrant will almost certainly have far more users calling people on other networks than vice-versa. Once the idea is embedded it helps maintain a cosy duopoly although 2 Degrees has shown that there is enough money in the market to support a third entrant.

    Thus the primary justification for regulating termination rates would seem to me to be on anti-competitiveness grounds or anti-monopoly (or duopoly/oligarchy) grounds. Only extreme free marketers do not acknowledge issues that arise with monopoly (or near monopoly) suppliers, and that regulation is sometimes necessary to avoid the worst distortions of such situations. I don’t in principle like market interventions but I do accept that in some cases there are advantages. So, reluctant support, if Telecom and probably Vodafone in particular were sensible, it would not have been needed.

    In this case, I have little doubt that consumers will make little if any savings ultimately from this directly. The big advantage is the prospects for added competition that it will engender. The reason I believe that little direct advantage will accrue is that Telecom, Vodafone, and 2 Degrees will modify their overall offerings to maintain their profitability, so probably as an example, less generous subsidies on handsets etc. However we should see some changes especially as 2 Degrees will better be able to compete and a full 3-way competitive environment is less stable than a duopoly which should reduce the “excess rents” from being so readily extracted.

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  12. Dismal Soyanz (58 comments) says:

    @MNIJ

    Don’t conflate belief in the efficiency of markets with believing that every market is efficient. Markets work best when everyone is on a level playing field and market power is not abused. Where that is not the case, regulation may be warranted.

    Given your obvious hostility to anything market related, you would have more credibility if you used a bit of ECON101 in your comments.

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  13. dime (9,799 comments) says:

    “I estimate that less than 1% of carrier’s mobile revenues are generated from customers who choose a network based on ‘which network their friends are already on’.”

    no way. I read an article in the economist last year. it was about software development and how the phone companies use it to figure out who the “leaders” were in groups of friends. they say that if the leader/ trend setter/ whatever moves to another carrier, then a bunch of their followers will move too. basic language i know, but thats the idea.

    they then identify the leaders and target them with specials, free upgrades etc.

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  14. krazykiwi (9,189 comments) says:

    Only extreme free marketers do not acknowledge issues that arise with monopoly (or near monopoly) suppliers, and that regulation is sometimes necessary to avoid the worst distortions of such situations.

    That’s fair enough Ed. So I’d like to choose which hospital provides the care I need without paying twice. Ditto schools.

    If one is looking for the largest monopoly to restrict, then look no further than our government.

    @dime – trust me on this. I’ve worked in the mobile industry for more than a decade and I’m all over the data. 1% is being generious.

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  15. krazykiwi (9,189 comments) says:

    [DPF: You are absolutely wrong. Ask any under 21 year old in Auckland and Wellington. I've done research on this. This is why Vodafone has huge market share in Auckland and Telecom huge in Wellington]

    Asking under 21’s doesn’t constitute research DPF. Looking at the hard data, which I do, does.

    [DPF: How do you explain the huge market shares in Auckland and Wellington then?]

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  16. dime (9,799 comments) says:

    krazy – maybe its higher overseas?

    i know that in my 20’s i stayed with vodafone because my buddies were all on it. became a pain when i switched to telecom.

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  17. Ruth (178 comments) says:

    DPF is correct. The 3 young people in my family refuse to use any other than Vodafone, despite other networks being cheaper. The complaint is “No one will text you back.”

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  18. ben (2,418 comments) says:

    Yes, congratulations, looters. As a statement of the security of property rights in New Zealand, it is hard to beat this as a blatant renegotiation of rights. All potential investors in fixed assets in all industries will look twice at New Zealand, and ask whether their industry could be next in the sights of Joyce and his colleagues. The local loop unbundling decision – and look at the enormous benefits that’s brought – achieved the same ends.

    That’s the cost. The upside of all this is that we’ll pay a bit less for calling and a bit more for handset prices. So basically there is no upside, and there is no free lunch: the surplus the Commission takes will have to be recovered in other less efficient ways. There’s no way around it.

    For its next trick, the Commission should nationalise Telecom, preferably using the army to do it. We could get $5 a month off monthly bills right there! What’s not to love, people?

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  19. ben (2,418 comments) says:

    David I don’t think it is correct to characterise mobile termination rates as a barrier to competition. Even if rates above cost produce economic rents, the question is whether those rents are being competed away elsewhere. If they are not, then there is a barrier to competition (which, by the way, is not alleviated by regulating termination). If they are being competed away, there is not. Whether competition occurs via termination rates or handset prices or features or something else, who other than consumers are in a position to say the form of competition which is most valuable?

    Of course if competition is not occurring, regulating termination rates isn’t going to solve this, and the end point of the Commission’s approach is operational control of Vodafone and Telecom.

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  20. BlairM (2,317 comments) says:

    Only extreme free marketers do not acknowledge issues that arise with monopoly (or near monopoly) suppliers, and that regulation is sometimes necessary to avoid the worst distortions of such situations. I don’t in principle like market interventions but I do accept that in some cases there are advantages. So, reluctant support, if Telecom and probably Vodafone in particular were sensible, it would not have been needed.

    Usually if you have a “near” monopoly, you have to ask some hard questions as to why that is the case. Microsoft is a good example – they hold a huge market share because (as in the case of Vodafone and Telecom) being compatible with everyone else saves time and money. But that doesn’t mean that the market should be regulated. If the US government had broken up Microsoft, it would have discouraged investment in that market, and the end result would be that we would be paying a lot more for software. Instead, we have Linux, which I am using right now and didn’t pay a dime for.

    With the Vodafone/Telecom duopoly, it exists because nobody is prepared to invest in telecommunications infrastructure because of either fear that the government will confiscate it, or hope that the government will subsidise it. It’s not a case of those two companies being sensible at all – they are just following the money. It’s the government that should have been sensible, and the regulation is now required because they have caused the problem in the first place.

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  21. krazykiwi (9,189 comments) says:

    [DPF: How do you explain the huge market shares in Auckland and Wellington then?]

    Carriers spend more on localised marketing and have more staff ‘evangelists’ in their home cities. I know of business segments in the South Island who buy from one carrier because that dislike the city that the other is based in. (I kid you not…). I’m not doubting there are ‘tribal’ forces at work between some personal customers, but with less than 1% of revenues attributable to the demographic that is most likely to behave that way, it’s not sensible to suggest that MTR’s are in any way a mechanism for maintaining that tribalism (aka reducing churn). There are much smarter startegies for that!

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  22. Ed Snack (1,833 comments) says:

    Ben, I’d disagree. Inside a duopoly there can be significant competition in certain areas whilst a significant barrier to entry is maintained. That’s because as others have pointed out, in a stable situation with reasonably equal market shares, the access payments more or less balance out amongst existing participants, but new entrants are for a time at a significant disadvantage. This is not quite your usual monopoly situation but duopoloies (and as far as I’m aware 2 Degrees supports the reduction, by regulation if necessary, so it’s Telecom & Vodafone who want high rates), and cosy duopolys can be just as extractive as monopolies. So take a minimal interference approach and regulate just the most obvious barrier to market entry. Your “slippery slope” fantasies unfortunately distract from your message.

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  23. Pongo (371 comments) says:

    Brilliant and about time too, not keen on government regulation but the market has clearly failed here and you can lay the blame at the door of the hopelessly managed Telecom with vodafone taking advantage of the behemoths lethargy (Telecom dont even source and distribute their own handsets ffs and use brightstar !).
    My old man is on vodafone in the UK and the gave him a blackberry and its 15 quid a month for unlimited txts and calls to any network, Vodafone have similar deal in Australia so why do they rape us here ?
    Well done Mr Joyce, about time a NZ government started looking after consumers rather than the usual lets look after the corporates who knows these things could be popular with voters, hell we could even form a party called say the association of consumers and taxpayers.

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  24. MyNameIsJack (2,415 comments) says:

    DPF thinks [DPF: You may be unable to think an issue through beyond slogans. I do not suffer from your disability. MTRs are a barrier to competition and choice. A free market only works when you have competition and choice]

    There are many barriers to entry in many market segments, why should mobile phones be the only one to get special treatment?

    There is competitiona and there is choice, and then there’s the government doing soemthing to be seen doing something. I am sure there are far bigger fish for the ComCom to fry than MTR.

    For example, why does text messaging cost so much while email is so cheap? A few bytes compared to a few meg.

    Or, why is it almost impossible to buy a PC without paying a Microsoft Tax? Ever tried buying a name brand without being forced to pay for Windowze?

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  25. Dave Mann (1,200 comments) says:

    DPF I’m staggered that you are advocating such socialistic anti-business sentiments. How many bloody mobile phone companies do you think a country of 4million plus people can support? Geez… Vodafone recently encouraged me to re-sign halfway through my term for double the minutes at the same price… without any re-sign fees – AND they gave me three months’ worth of 100megs data free too! No doubt Telecom offers similar deals to their long term customers as well…. which is called healthy competition. What do you and Stephen fucking Joyce want to do…. destroy the market’s profitability so that all the players just sell up and leave? Bloody socialists.

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  26. James (1,338 comments) says:

    MNIJ was spot on with his observation re DPF’s blatant hypocrisy on this issue…….I suppose we also had to “destroy that village to save it” too did we Dave?

    To claim that Free Market Capitalism can only survive by violating the basic tenets of it is appalling bad reasoning and a blank out denial of rights and principles and therefore reality itself.Telecom and Vodafone,nor any other business have any obligation to impoverish or disadvantage themselves for any pathetic “common good” rational offered as an excuse to do so.

    Sure I’d love cheaper rates and easier,more flexible conditions too but not at the expense of acting like a thug to get them.To set a tinpot socialist bunch of shithouses like the Communist Commission (Fascist is actually a more accurate description of what they are) upon your fellow man because you want to use his lawfully owned resources without paying his freely set market price is disgusting and shameful.

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  27. Anthony (789 comments) says:

    Nearly every other country in the world regulates mobile termination rates because they are a monopoly price – if another supplier wants to put a call through to the Vodafone network then they absolutely have no choice but to pay what Vodafone wants. It is totally idiotic to call such regulation socialist! Fixed network interconnection has been regulated for years!

    The first time mobile regulation was proposed, the benefit on which it was justified was cheaper fixed-to-mobile calls which are still incredibly expensive. Telecom still charges a standard 63 cents a minute for such calls although other retailers like Slingshot charge as little as 26 cents. Once termination rates come down I am sure the price of fixed-to-mobile calls will drop over the next year or so. Anyone here want to bet that Slingshot will still be charging 26 cents a minute in a years time????

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  28. slijmbal (1,231 comments) says:

    Markets work if cartels and the various ‘opolies’ can be avoided. Truly efficient markets are just a theory and this is an area where the market cannot be trusted on its own. NZ is exeedingly vulnerable to such because of its small size and geography. Vodafone NZ was one of the top performing subsidiaries in terms of returns on capital revenue etc when I did some work there. People I worked with international experience in telcos expressed how flabbergasted they were by what NZ telcos were allowed to do eg termination rates. It is very likely they managed to take some cartel like profits out of NZ as did Telecom.

    @krazykiwi – I can absolutely promise you the telcos measure the relationship between tactics that take advantage of high termination rates and churn, acquisition of customers etc. There is an undisputable and strong correlation. They spent a lot of time when I was there inventing products/packages to leverage off high termination rates and measuring the success thereof. Ditto telecom and to a lesser extent TCL but they have always been hamstrung by the fact they on-sell so many of other people’s products.

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  29. James (1,338 comments) says:

    Markets just “are”..its simply people interacting in consensual trading arrangements. Coercive monopolies can ONLY exist in State controlled markets…they are impossible in a free market.Telecom and Vodafone are not coercive monopolies….they are just trading in a field with a limited number of participants. That’s just too bad if you are a consumer wanting more choice…..you have no right TO it at gunpoint.

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  30. Anthony (789 comments) says:

    You need to study network economics James. Everyone regulates interconnection between networks if its not working as well as it should.

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  31. slijmbal (1,231 comments) says:

    @James – coercive monopolies or cartels aren’t the only type of monopoly and, yes, we are impinging on the rights of the telcos to maximise the right of their product ownership. But we look to do this where some of the major benefits of free markets are significantly lessened by ‘opolies'; efficiency and price to the purchaser. There, the cartel, opoly has such influence they can, in effect, greatly reduce competition. We make a social decision to regulate opolies precisely because of that. This is even more important in infrastructural services as they have large wide reaching effects

    Termination rates (and I am aware of the costs to terminate to someone else’s network) have little relationship to the true costs of termination but are used to reduce churn as it becomes more expensive to move telco if your common contact ‘group’ is on one network. Increased churn tends to lower prices if profits are high as providers then fight for more market share (yes a bit of a simplification). NZ has ludicrously low cross network traffic by international standards and that can be directly attributed pricing policies that use termination rates as a driver. This low cross network traffic is even more unusual as NZ has very high mobile penetration.

    It’s a social and not a market decision but markets aren’t perfect. They’re just good.

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  32. RightNow (6,966 comments) says:

    I recently stumbled across the involvement of T Mallard in 2007 when as Minister for Economic Development he rejected the Commerce Commission’s recommendation to regulate mobile termination rates in favour of allowing the industry to set their own rates:

    In April 2006 the Commerce Commission recommended regulation of mobile termination rates – which are the fees that mobile phone companies charge other carriers to terminate calls on their networks. These fees are a significant influence on the cost of providing retail services of fixed-to-mobile calls, so have potential flow-on effects to customers.

    “My decision to reject the Commerce Commission’s recommendation in favour of an industry solution has followed a process of consultation, review and analysis. I have studied submissions from interested parties and briefings from officials. I have also sought advice on Vodafone’s and Telecom’s offers, so that I could make an informed decision under the Telecommunications Act 2001,” Trevor Mallard said.

    http://www.med.govt.nz/templates/MultipageDocumentTOC____26538.aspx

    Nice one Trev.

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