Lower mobile rates to benefit consumers

15 March 2011

Ofcom today announced a reduction in mobile termination rates - the wholesale charges that mobile operators make to other operators to connect calls to their networks - designed to benefit UK consumers.

From 1 April, Ofcom will place a cap on the rates charged by all four national mobile network operators - 3UK, O2, Everything Everywhere and Vodafone. This will lead to around an 80% reduction in termination rates over the next four years.

Benefitting consumers and promoting competition

Lower termination rates are designed to benefit landline and mobile customers in two ways:

• Cheaper landline services: Lower termination rates reduce the cost to landline companies of passing calls to mobiles. Ofcom expects these savings to be passed on to consumers in the competitive UK landline market. Some operators have already promised to lower their charges.
• More choice: Lower termination rates promote competition in the mobile market, providing customers with more choice. Operators will have more pricing flexibility and will be able to increase the range of packages available to consumers.

Continued investment and innovation in mobile

Over time, the way that consumers use mobile devices has changed. Data rather than voice calls today form the majority of traffic over mobile networks. This is as a result of increased use of SMS messages and most recently the growth of internet-enabled smartphones. According to Ofcom research, the volume of data traffic over mobile networks has increased by 104% over the last year.

As mobile termination rates only apply to calls rather than data, over the four year charge control period, they are likely to become a less significant element of mobile companies' revenue.

Data revenue increased by 90% between Q4 2007 and Q4 2009 and Ofcom expects continued data revenue growth in the future. Therefore Ofcom expects that investment in the UK mobile sector will be driven increasingly by the growing appetite for data services, smartphones and mobile broadband. Ofcom does not expect lower mobile termination rates to materially change this trend.

Changes to termination rates

Following consultation, Ofcom has also changed how the rates are set:

• For the four national mobile operators, Ofcom will only take into account costs that are incurred directly from terminating calls from other networks; and
• For 28 other mobile communications providers, such as smaller or new entrant operators, rates will need to be set on a fair and reasonable basis.

In many cases, Ofcom expects this regulation to result in rates that are in line with the four national mobile operators' rates, increasing regulatory certainty for all landline and mobile operators.

Mobile Termination Rate caps (pence per minute)*

*in real (2008/09) prices The new rates will apply from 1 April 2011 and end on 31 March 2015. Ofcom's statement can be found here.

The graph below shows falling termination rates since 2004.

NOTES FOR EDITORS

1. In 2007 Ofcom set wholesale termination rates to fall annually until March 2011. This resulted in termination rates falling by around 35% (in real terms) over that four year period.

2. The UK mobile market has changed significantly since Ofcom last set termination rates in 2007. Today there are many smaller communications providers offering mobile services to consumers including voice over IP providers (VOIP) as well as the four mobile operators with national mobile networks (3UK, O2, Everything Everywhere and Vodafone).

3. Under section 3 of the Communications Act 2003, Ofcom has a primary duty to further the interests of citizens in relation to communications matters and to further the interests of consumers in relevant markets, where appropriate by promoting competition. When setting a charge control, Ofcom must also consider how to promote efficient and sustainable competition, and how to deliver the greatest possible benefits for consumers.

4. In May 2009, the European Commission published a recommendation that member states should aim to set mobile termination rates in a way that only takes into account costs that are incurred directly from terminating calls from other networks. Ofcom has also taken account of this recommendation when setting out these proposals. The Commission has indicated that it expects rates to be between around 1.5 to 3 cents by the end of 2012 across member states.