UK operators appeal Ofcom ruling on termination rate cuts

Vodafone and Everything Everywhere lodged appeals with the UK's Competition Appeal Tribunal against Ofcom's ruling in March that will cut mobile termination rates by over 80 per cent in the next four years. Telefónica's O2 has plans to do the same, according to the Financial Times but 3UK has lodge papers suggesting that termination policy is too lenient for all four years.

In March, Ofcom, the UK telecoms regulator, outlined plans that would see the MTRs paid to O2, Vodafone and Everything Everywhere fall from as much as 4.48 pence per minute to 0.69 pence by 2015. MTRs are the fees charged by operators for terminating each others' calls.

3UK, the country's smallest operator, will also have to cut its rates by 85 per cent, but its position is dictated by the fact, that as the UK's smallest operator, it is a net payer of MTR's and therefore would benefit from lower price proposals.

The opposition of the big three centres around the regulator's use of a pure 'long run incremental cost' (LRIC) model and not the 'LRIC+' model. They claim that Ofcom should have used adopted the LRIC+ mode because it would take into consideration future investments, such as the cost of radio spectrum.

The UK's operators spent a massive £22.5bn on spectrum in an auction in 2000 and struggled to recoup the costs. According to the Financial Times, MTR charges represent about 10 per cent of operators' turnover, and have helped prop up the companies' revenues. The reduced fees are therefore putting strong downward pressure on revenues.

According to Mobile Business Briefing, Everything Everywhere also believes the watchdog's future data forecasts are flawed. Vodafone had proposed to Ofcom, that, under a worst-case scenario, the charges should fall only to 1.25p by 2014, according to the FT.  However, lawyers said they believed the operators had a limited chance of overturning Ofcom's decision.

For more:
- see this FT article
- see this Mobile Business Briefing article

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