Mobile rate proposal puts 2degrees plans in doubt

2degrees says it may rethink plans to expand its national cellular network if the Government accepts a Commerce Commission proposal on the termination rates the mobile phone operator pays competitors Telecom and Vodafone.

Communications Minister Steven Joyce is considering a recommendation from the commission that, rather than regulating termination rates, he accept voluntary undertakings put forward by Telecom and Vodafone.

Termination rates are the charges telcos pay each other for passing calls across their respective networks.

2degrees argues the rates proposed by Telecom and Vodafone remain high by international standards and will stifle its ability to attract customers.

The company launched New Zealand's third mobile network last year, but has so far only built its own cell sites in major centres and relies on a roaming agreement with Vodafone to supply its customers with national coverage. It has said it plans to eventually extend its own network to cover the entire country.

2degrees' chief commercial officer, Bill McCabe, said yesterday the future build-out of the network would depend on a range of factors.

"But this [mobile termination rate ruling] is the biggest decision, we think, for competition in this country, and our ability to compete."

McCabe said Joyce's decision in regard to termination rates - which is expected in two or three months - would "impact on our plans, and more significantly it will impact our ability to pick up customers, and the more customers we get, the more we can invest".

He said an unfavourable decision would "confine" 2degrees.

"We're not going to be able to compete efficiently. New Zealanders will suffer as a result. They will not get the lower prices they deserve."

He also criticised the process used to set termination rates, saying it was too dependent on political agendas.

The previous Labour Government rejected two earlier Commerce Commission recommendations related to attempts to set termination rates.

"The question is, having been rejected twice by the politicians, whether the commission is actually making the recommendation they think is right for New Zealand or whether it is the recommendation that they think has the best chance of getting through because [the process] is so broken," McCabe said.

"The structure of how the commission interacts with the politicians is unique to New Zealand and it may not be the best for New Zealand to have it in such a politically intense way."

The commission was split on its recommendations to Joyce, with one commissioner arguing the Telecom and Vodafone undertakings should not be accepted.

Lobby group the Telecommunications Users Association has also urged the minister to reject the proposal and has sent the issue back to the commission for further consideration.