Minister of Communications David Cunliffe today requested the Commerce Commission to reconsider its recommendations on mobile termination rates.

"I agree with the Commissioner's report that mobile termination rates are too high and must come down," said David Cunliffe.

The Commission recommended regulation of mobile termination rates on second generation (2G) but not third generation (3G) networks in its final report on 9 June.

“I have asked the Commission to reconsider three issues," Mr Cunliffe said.

"First, I have asked the Commission to give further consideration to issues concerning the 2G/3G split in the light of questions about definitions and workability. I am advised that a distinction between circuit switched (voice) and data services might be feasible, among various alternatives.

"Second, I would like the Commission to consider two commercial offers put to me by Telecom and Vodafone following the Commission’s final report. These include an early start to rate reductions, a blended 2G/3G rate and an undertaking by Telecom to pass through 100 percent of reductions to its fixed to mobile callers.

"Finally, I want the Commission to give further consideration to how best to ensure that end-users benefit from reductions in wholesale mobile termination rates. At present, there is no guarantee that any reduction in wholesale mobile termination rates would be passed on to people calling mobile phones from fixed lines. I would like to see further consideration given to the 'pass through' issue.

“The Commission’s report clearly shows that mobile termination rates are far too high in New Zealand. The Commission has presented a thorough and comprehensive analysis that in my view shows that action on mobile termination rates is required. I am determined to see mobile termination rates reduced in a way that is workable and that benefits end users.

“I have asked the Commission for a timely response to my request for reconsideration in the light of the benefits to end-users from lower mobile termination rates.

A copy of the Minister’s request for reconsideration is attached.

Contact: Julian Kersey, Advisor, 04 471 9116, 021 811 999 julian.kersey@parliament.govt.nz

Background

Regulation of Fixed-to-Mobile Call Termination Rates
The Telecommunications Act 2001 (the Act) aims to promote competition in telecommunication markets by regulating the supply of certain telecommunications services between service providers.
The Act provides a process under which the Commission can investigate the case for regulating further services, and make a recommendation to the Minister of Communications (the Minister). The Minister can only act on the Commission’s recommendation.

The Commerce Commission commenced an investigation on 13 May 2004 into the case for regulating mobile termination rates (MTR) under the provisions of the Act.

The price of call termination on a service provider’s cellular network is a major factor in the retail price of fixed-to mobile calls. MTR rates are currently about 27 cents per minute (cpm).

The Commission concluded that although fixed-to mobile call prices have been declining, prices are still above the Commission’s estimate of the cost for such services.

In this respect the Commission reviewed the cost of mobile termination in other OECD countries and concluded that the likely cost in New Zealand could be ~15 cpm.

The Commission commissioned a report from Argo on the Competitiveness of NZ Mobile Services that concluded “New Zealand’s mobile tariffs remain some of the highest in the OECD”.

The Commission concluded that although there is more than one mobile network, mobile termination rates are not subject to competitive pressure because the caller pays. Regulators in other countries have also reached this conclusion.

The Commission reported to the Minister on 9 June 2005 under the provisions of the Act and recommended the designation of mobile termination rates for termination of fixed to mobile calls on non-3G networks.

On 15 June the Minister invited interested parties to provide comments on any new matters, and on any other relevant information that was not addressed in the Commission's report, by 1 July 2005.

The Minister has three options under the Act:

• reject the Commission’s recommendation;
• accept the Commission’s recommendation;
• require the Commission to reconsider its recommendation for any reasons specified by the Minister.

Douglas Webb
Telecommunications Commissioner
Commerce Commission
Po Box 2351
WELLINGTON

Dear Douglas

Investigation into Regulation of Mobile Termination

Thank you for your final report of 9 June 2005 under the Telecommunications Act 2001 entitled “Schedule 3 Investigation into Regulation of Mobile Termination”. I appreciate the Commission's thorough analysis and I agree that mobile termination rates are too high and must come down to the benefit of end users.

However, pursuant to clause 6(b) of Schedule 3 of the Telecommunications Act 2001
I require you to reconsider your recommendation for the reasons set out below:

1.I would like the Commission to give further consideration to the definitional and implementation issues concerning 2G and 3G which have been identified by submitters and independent technical advice. As part of the consideration I would like you to consider what alternatives are workable and have merit and dynamic efficiency benefits.

2.I would like the Commission to consider the commercial offers made to me by Telecom and Vodafone following the Commission’s final report, in comparison to regulation. I attach an appendix that incorporates, without endorsement, the essential features of the offers. The offers were made to me on a commercially confidential basis but I expect the Commission to apply its usual processes to such offers.

3.I would like the Commission to give further consideration to how best to ensure that end-users benefit from reductions in wholesale mobile termination rates.

In addition, as part of its consideration, it would be useful if the Commission could consider any other significant points made in submissions to me on the Commission’s final report.

I would appreciate a timely response to my request for reconsideration in the light of the benefits to end-users from lower mobile termination rates.

Yours sincerely

Hon David Cunliffe
Minister of Communications