Rate cut won't lower prices, says 2degrees

2degrees CEO Eric Hertz. Photo / Brett Phibbs

Mobile phone operator 2degrees says it will not immediately lower the price of calls when mobile termination rates are cut, despite saying in December it could afford to if the fees fell.

Rivals Vodafone and Telecom also said it was unlikely they would lower prices as a direct result of the cuts.

A decision on the termination rates was expected today. However, yesterday afternoon the Commerce Commission pushed back its final announcement to May 5.

Termination rates are the fees telecommunication companies charge one another for the termination of a call or text message originating from a rival network. So if a Telecom customer calls a Vodafone mobile, Vodafone charges Telecom the fee.

A draft decision from the commission in December suggested rate cuts of around 10c a minute, from 14c to 4.68c, effective in April.

In the draft, rates would be cut as low as 3.91c by April 2014. The draft slashed text message rates from 9.5c to 0.16c, effective immediately.

After calling for the rates to be lowered, claiming it would lower prices and bring more competition to the market, 2degrees chief executive Eric Hertz said his customers were unlikely to see any price reductions in the short term after the drop.

This was because the company had already factored the anticipated termination rate cuts into its existing pricing plans, he said.

But after claiming 2degrees had already included the reduction in its price structure, Hertz went on to say he could not confirm any price reductions because he "didn't really know exactly what's coming".

"Will the termination rates change? Over what time will they change? We don't really know," he said.

The reluctance to guarantee price cuts follows Hertz telling the Herald in December that if the rates were cut, telcos could reduce call charges.

"If you lower the costs, I can afford to offer lower prices and afford to continue to extend an aggressive pricing plan across more cities in New Zealand," he said.

Hertz said this week that with lowering the rates 2degrees will be able to offer better value for money to customers, but could not give specifics on pricing.

He still stressed that slashing termination rates would strengthen competition in the market and this would bring the price of calls down.

But Telecommunications Users Association chief executive Paul Brislen said if costs are going down then those savings should be passed on to consumers.

"I've got some sympathy for [2degrees] because they've pulled prices down already, but I don't think they were factoring the reduction in from today 18 months ago when they launched and revealed their prices to the market. On the one hand, they are the price leader in the market, but on the other, this is now a reduction, their costs are going down, their margins will increase and I would like to see all telcos pass this on to customers," he said.

Vodafone's Hayden Glass said other telcos were also unlikely to drop prices as a result of the rates cut.

"I don't think you'll find anybody who's said they expect there to be direct changes in retail mobile prices [after the commission's decision]," he said.

Glass has previously said there was no direct relationship between mobile termination rates and the price of calls.

He warned that the proposal could lead to revenue gains shifting from mobile to fixed-line providers and "causing direct damage" to the mobile industry.

"What we don't see is that as fixed-line to mobile termination rates come down, retail pricing coming down the same amount. That question of how much retail fixed-to-mobile prices will come down when mobile termination rates come down, is one of the key questions that we don't yet know [the answer to]," he said.

A Telecom official said the company was already offering low mobile pricing to customers but would look for ways to pass on the reductions to users through various packages.