A study on pan-European mobile termination rates conducted by Cerna, the Warwick Business School and WIK-Consult and sponsored by COLT Telecom and Cable & Wireless, has found that mobile network operators have benefited from high mobile termination charges on fixed to mobile calls in France, Germany and the UK to the tune of €19 billion over the five year period from 1998 to 2002.
The study, which set out to address 'How termination charges shape the dynamics of the telecom sector' found that this sum has been transferred to the detriment of fixed mobile operators.
It is the first study of its kind to investigate termination rates and their effect on the scale and prosperity of both the mobile and fixed markets and key amongst its findings were that fixed network operators are usually required to set call termination rates at a reasonable and regulated level whereas mobile networks have not generally been subject to price control. They can therefore set termination rates which greatly exceed estimates of actual termination costs.
The result of this, the survey claimed ,is that fixed network customers and operators have been adversely affected.
Furthermore, competition within the fixed market has been damaged and competition between mobile and fixed operators, distorted.
Martin Cave, Professor and director of the Centre for Management under Regulation at Warwick Business School, and one of the four authors commented, "Most calls to mobile phones have been very expensive because mobile operators have been allowed to charge too much for mobile termination. Most European regulators have failed to respond to this. This report shows that the time is right for regulators to put in place arrangements that are equitable for both mobile and fixed operators and their customers."
Cave concluded, "Taking these steps will help to rekindle investment and competition in fixed networks, where it has faltered in the past few years."
This is just the latest attack on the share taken by mobile operators from interconnect charges. There is little question that it has been a lucrative source of revenue but legislation to control costs could backfire. Indeed, following legislative intervention in the UK, O2 cited anticipated revenue reductions as a reason for delaying its 3G implementation. All four UK networks have also moved to reduce handset subsidies, particularly on pre-pay, as a result.