ComCom's dance of the 7 cents

OPINION: The Commerce Commission dropped strong hints to Vodafone and Telecom on how they could avoid the regulation of mobile termination charges at a briefing in Wellington on Wednesday that telecommunications commissioner Ross Patterson described as delicate and unusual.

Telcos have been given till Friday to submit voluntary undertakings to cut termination charges, which the commission believes are artificially pushing up the cost of calls to and from mobiles and stifling competition. Hundreds of millions of dollars are at stake.

Dr Patterson gave the clearest signal yet that the commission would prefer a voluntary agreement to drop rates, instead of regulation, which could take two years to take effect. "We do sense a wish among all parties this whole issue can be resolved by undertakings. It is certainly our wish," he said.

The commission said it was up to telcos to decide what offers to put forward, but gave a series of teasers as to what might be acceptable in its attempt to shepherd them toward a voluntary deal.

While stressing, rather unconvincingly, that everything was still up in the air and no decisions had been made, the commission indicated its current thinking was that:

Charges for routing voice calls to mobiles should be immediately cut to no more than half the retail price mobile operators charged for calls to and from customers on their own networks, minus a "retail margin" of 18 per cent.

Charges should "glide down" to levels charged overseas. It currently estimates the appropriate benchmark rate at 7.2 cents a minute, about half current rates.

Termination charges should apply by the second, rather than by the minute. As many mobile calls are very short, that could have the effect of cutting charges by 23 per cent over and above any reductions to per-minute charges.

Carriers might agree not to charge one another to route text messages to each others' customers, instead agreeing to some form of "bill and keep" regime.

Areas of discretion in the undertakings could include:

The length of a glide path to the final rate, likely to be years.

Any charges that might apply if carriers' customers received far more text messages than they sent.

It would probably be no surprise if Telecom and Vodafone chanced their arm by proposing a minimum one-minute termination charge, reflecting Telecom's claim that there are fixed as well as variable costs in routing calls to customers.

One observer said the difficulty of marrying up different voluntary offers could scupper the chances of a deal. Ironically, telcos might not be able to mutually agree acceptable voluntary undertakings to put to the commission, as that might amount to collusion (the commission is unclear on that point), and might not want to put their best foot forward in case their offer proved more generous than those they received.

Dr Patterson said the commission could accept a voluntary offer from one telco and impose regulation on others, and it would not be acceptable for telcos to make their offers conditional on undertakings by others.

But he said the commission was "live to the issue" effectively asking telcos to put their faith in the commission and a workshop it plans to hold to iron out any inconsistencies, should it receive any acceptable undertakings.

"We have not ruled out the possibility there may be an ability to discuss price. We haven't ruled it in, and there are issues about that. We need to do more thinking about that, quite frankly."

The chances of a voluntary agreement looked slimmer the longer the meeting progressed.

It began in good humour, but grew increasingly fractious as the commission repeatedly rebuffed attempts by Vodafone to relitigate assumptions the commission had made when estimating the benefits regulation would bring.

Dr Patterson also rebuffed attempts by Vodafone to query the international pricing benchmarks the commission had presented in a draft report in July that recommended regulation.

Telecom has less at stake and will strive to make a deal. But Vodafone is belligerent, and the commission has left it so little room to manoeuvre, it may calculate it is in its best interests to drag the process out a couple of years.

The risk for Vodafone, though, is that if the commission does go down the regulatory path, by the time it rules on termination rates in perhaps 18 months time, the international benchmark pricing will have dropped sharply and Vodafone will find itself facing even steeper cuts than envisaged today.

The decision of whether to cut a deal may be made in London, rather than Auckland, determined by the precedents Vodafone wants to set and the politics it is playing in bigger markets than this.

- © Fairfax NZ News