Regulating termination rates introduced ten years ago kick-started mobile market competition in New Zealand. Now it’s time to review the rules. Don’t expect to see much change.
To no-one’s surprise the Commerce Commission’s draft review of mobile termination rates recommends they stay regulated.
A termination rate is the price one phone company charges another when a call from one network is made to a customer on another network. Mobile termination rates affect calls between the Spark, Vodafone and 2degrees networks.
Until a decade ago mobile termination rates were unregulated. Carriers could charge what they liked. And they did. New Zealand termination rates were high.
This stifled competition and meant mobile calls were expensive by international standards. That in turn meant people here didn’t use their phones as much as people overseas.
Calls between networks
Before regulation Telecom NZ, now Spark, and Vodafone, would charge customers less to call others on the same network than the cost of calling another network.
In the jargon of the time they offered have different prices for on-net and off-net calls.
Mobile termination rates mean customers on the least popular network end up, over time, paying more to use their phones.
This acted to stop people choosing 2degrees, in part because potential customers feared friends might call less often.
In 2010 the government stepped in. Termination rates have been regulated since then.
The move triggered a dramatic drop in call prices to the point where New Zealand moved from being an expensive place to use a mobile phone to a relatively cheap place.
Flat playing field
Most of all, the regulation flattened the playing field. This meant the third mobile network, 2degrees, could grow beyond being a niche player.
In turn this further boosted competition and paved the way for cheaper calls more innovative price deals.
Today we have a vibrant, competitive and innovative mobile market.
Mobile termination rate regulation almost didn’t happen. Ten years ago Telecom NZ and Vodafone negotiated a voluntary agreement with government to lower charges. The Commerce Commissioned agreed.
It was all set to go. Then Vodafone began selling the most aggressive on-net plan ever seen in New Zealand. The Commerce Commission reversed its earlier decision.
The case against mobile termination rates
Fast forward to today. The Commerce Commission now says there may be a case for dropping regulation of termination rates for SMS text messages. That’s because of the popularity of alternative over the top services like WhatsApp.
This external pressure has reduced txt prices to the point where many plans offer customers unlimited texting at no extra cost. High charges are unlikely to return.
The Commerce Commission says voice call termination rates should remain regulated because there are few competitive alternatives.
That’s true on one level, but it’s not straightforward because today’s mobile battleground is all about data. With lots of data, customers can make voice calls using free or cheap over the top services.
And anyway, voice calls are not as popular as they were ten years ago.
If, in a world without regulated mobile termination rates, a carrier attempted to charge higher voice call rates, the move to data calls would accelerate. The trend away from voice calls would speed up. So, it’s possible we no longer need to regulate.
On the other hand economist Donal Curtin thinks the regulation needs another look.