Ofcom has told mobile phone operators that they must reduce the termination charges for calling mobile phones from other networks and landlines.
Over the next four years Ofcom has said that termination charges will fall 80%. A termination charge is the amount mobile phone companies bill other companies for handling calls from their network.
At the moment O2, Vodafone and Everything Everywhere (Orange & T-Mobile) charge 4.18p a minute to connect calls from other phone companies. But after Ofcom’s announcement this will drop to 2.66p from the beginning of April and by 2014 it will be 0.69p.
As a result, if operators act as Ofcom wants them to, landline customers will benefit from savings and it will also mean that mobile operators will be able to provide more choice. The hope is that small mobile phone operators will benefit and will be more able to offer more competitive prices – and therefore customers will benefit too with cheap mobile calls.
Ofcom said mobile operators are making money from data services so the reduction in income from termination charges should be outweighed by this new and growing form of income. More and more people, especially business mobile customers, use their phones to access the internet and for text messaging rather than using mobile phones for telephone calls. Ofcom said that last year data traffic increased by over 50% and that it now makes up the majority of traffic over mobile networks.
The managing director consumer for BT retail, John Petter said “Ofcom has made some worthwhile reductions in mobile termination rates, which will benefit customers in the near future”.
However, the European Commission had wanted these reductions to be in place by 2012 rather than 2014 so this directive from Ofcom is a compromise. Mobile operators have ignored the advice from the European Commission and customers will have to wait until 2014 to fully benefit from a reduction in termination rates.
But there are concerns that mobile phone operators will simply put up charges elsewhere rather than pass the savings on to customers. It could be that operators introduce charges for paper billing as a way of making up for lost income.
Meanwhile, a spokesman for Everything Everywhere which has 28 million customers, said they were “disappointed” with this decision from Ofcom and would consider an appeal.
He added “Our concerns focus on the impact of the decision to our vulnerable pay-as-you-go customers. Ofcom has suggested we recover a larger share of our costs from retail charges. This may force us to change the pay-as-you-go model as we know it as a large number of these customers will now become uneconomical – making the way our consumers currently buy, use and enjoy their mobiles radically different”.
Despite termination charges not falling to 0.69p until 2014, consumer groups are claiming victory after their campaign for cheaper mobile phone calls. The question now is whether these savings will actually be passed on to the customer or whether mobile phone companies will make the lost revenue up elsewhere.