Voluntary cuts 'would cost $340m'

Vodafone says the value of the mobile market is set to fall and voluntary cuts it has proposed to mobile termination rates would knock $140 million off its pre-tax earnings over five years and reduce revenues over the same period by $340m.

The company made the estimate in a submission to Communications Minister Steven Joyce, arguing he should accept offers from Vodafone and Telecom to cut rates rather than impose regulation, which could further eat into its profits.

A spokeswoman for Mr Joyce has said he will make a decision "in due course".

Vodafone corporate affairs manager Tom Chignell said the cut to its profitability would have consequences, "particularly against the backdrop of a shrinking mobile market". Those consequences had not been considered by the Commerce Commission. "It appears to be taken for granted that somehow Vodafone will simply absorb them, unaffected, as if it will have no bearing on Vodafone's future appetite for investment."

Vodafone said it did not believe regulation was likely to come into effect until 2012 if its offer was rejected.

2degrees, which stands to gain from the regulation of mobile-to-mobile termination charges, asked Mr Joyce to set aside the majority view of the commission and regulate. It was confident the charges could be regulated by early next year and said it was time to deal with the issue "once and for all".

The Telecommunications Users Association also appealed for regulation, fearing that without it, Vodafone and Telecom would continue to have an incentive to charge more for "off-net" calls and texts to customers of other networks than they charged for "on-net" calls and texts to customers of their own networks.

Telecom said the Commerce Act – which outlaws certain types of anti-competitive behaviour – might be the best tool for resolving any problems associated with on-net discounting.

It said all members of the commission agreed the voluntary offers would deliver between 78 per cent and 99 per cent of the benefits that would be achieved by regulation, but without its costs.

- © Fairfax NZ News