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Sat, Apr 03, 2010 - Page 10 News List

Industry condemns plan to cut UK cellphone costs

THE GUARDIAN , LONDON

Mobile phone industry executives have condemned plans by the UK’s communications industry regulator, the Office of Communications (OFCOM), to slash the cost of calling a mobile phone.

They say the move could stifle investment in the next generation of super-fast mobile broadband networks, end free mobile (cellphone) handsets for contract customers, price millions of pay-as-you-go users out of the market and lead to a flood of job losses.

The regulator on Thursday prepared for a fight with the UK’s big four networks — O2, Orange, T-Mobile and Vodafone — by proposing a 90 percent drop in mobile termination rates, the charge the operators levy on each other and on fixed-line companies to connect calls, when the current price cap regime ends next year.

The move could save UK consumers and businesses almost £800 million (US$1.2 billion) a year from 2015, and lead to cheaper calls for Britain’s 32.7 million homes and businesses with a landline.

However, mobile phone industry executives accused OFCOM of trying to grab headlines with its second ­consumer-friendly move of the week following its call for satellite broadcaster Sky to drop the cost of Sky Sports, to fend off a threat from the Conservative party — if successful in the forthcoming UK general election — to reduce its powers.

“This is a backward step for Britain,” a spokesman for Orange said. “If these measures are put in place they will stifle innovation.”

A Vodafone spokesman said: “A cut of this magnitude deters future investment, makes it less likely that the UK will continue to lead in mobile communications and is at odds with the government’s vision of a Digital Britain.”

OFCOM is adamant that the mobile phone companies should be allowed to use mobile termination rates only to recoup the actual cost of carrying other people’s calls.

The rates had been subsidizing other parts of their businesses but operators will now have to recoup the cost of activities such as investing in new networks from the retail market.

That could mean higher bills and an end to contract customers getting a new phone.

OFCOM admits it could even lead to customers being charged to receive calls — as they are on some US networks. In practice, however, mobile networks are likely instead to slash costs — possibly through job losses — and increase call charges, especially for pre-pay users who make up 60 percent of UK customers. The last time OFCOM reduced mobile termination rates, several networks increased prices for pre-pay users.

Morten Singleton, analyst at Collins Stewart, said: “One of the consequences of this move is the decreasing profitability of the prepaid customer.”

When OFCOM last cut rates, several operators warned that the price caps would lead to an end to subsidized handsets. Instead, price caps have led to the introduction of longer-term contracts with customers having to sign up for 18 months or two years.

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