Mobile termination rate revision not pressing

Competition and regulation economist Donal Curtin says in a blog post there may be unfinished business with the mobile termination rate.

The mobile termination rate is the sum one cellphone company pays another for calls going from network to network.

Curtin is responding to the Commerce Commission annual report on the telco market.

He writes:

I speculated last year that maybe it is time to revisit our regulated mobile termination rate: it’s still unrevisited, at a left-high-and-dry level by comparison to current overseas rates, for no obvious reason that I can see. And there’s an ongoing issue with the high cost of mobile data downloads to data-only devices.

It’s a good point. Some see the MTR as done and buried. Yet there were always plan to reset the rate. As Curtin points out, the charge in New Zealand is high by international standards.

Yet, I’d argue this is far from the most pressing piece of telephone industry regulation. I’ll write more about what should worry the Commerce Commission in another post.

Mobile termination rate

The mobile termination rate is a financial transfer between the three cellphone companies. Vodafone, Spark and 2degrees pay each other.

This was of vital importance when 2degrees was still a fledgling cellular company as it meant the company ended up paying a larger slice of its revenue to its rivals. This made it a barrier to market competition. In effect, the MTR rate penalised 2degrees for being smaller than its rivals.

What matters most about MTRs is not the total payment from one company to another but the net payment. As 2degrees’ market share increased, the net handover of MTR money decreases.

Competition barrier

If you had three players with identical market share, the net MTR transfers would be zero. We’re not at that point, but the market is moving towards it.

It speaks volumes that 2degrees hasn’t sought to raise the issue again in recent years. During the company’s early years it did a lot of lobbying about MTRs. That can be distracting to a business and imposes a different set of costs.

The lack of noise from 2degrees is not the only reason that MTRs are of less interest.

Curtin mentions mobile data. The cellular market is switching from voice calls to data use at a clip. Data is already more important than voice. In other words, the MTR has less impact. When the Commerce Commission last regulated the MTR, calls were close to 100 percent of the cellular business. Today they might account for 50 percent at most.

Underlining this switch, all three mobile carriers offer affordable unlimited voice plans. Skinny has unlimited calling plans starting at $30 a month. Spark’s and Vodafone’s start at $60. With 2degrees unlimited call plans covering New Zealand and Australia start at $50.

If carriers can deliver all-you-can-eat mobile plans at these prices, the MTR doesn’t seem to be a barrier to competition.

Sure, reducing the MTR would mean a flatter playing field, but in many respects the New Zealand cellular market works fine.