Regulating rates 'no guarantee of cheaper calls'

The regulation of controversial mobile termination rates will not necessarily mean a drop in retail prices for millions of consumers, an advisory service says.

The comment comes after the Commerce Commission's about-face on whether termination rates should be regulated.

In February, the commission recommended Communications Minister Steven Joyce accept Vodafone and Telecom's joint proposal favouring a commercial solution over regulation.

Yesterday it reversed that decision, citing Vodafone's highly competitive on-network prepay Talk plan.

Commissioner Ross Patterson said the aggressive plan, which offered cut-price rates for calls within the Vodafone network, had undermined the initial assumptions of the commission.

At the heart of the issue is what this means for consumers and how much termination rates will drop if they are regulated.

Termination rates are the wholesale fees mobile phone companies charge one another for taking calls or texts from other networks.

IDC telecommunications research manager Rosalie Nelson said many factors were built into retail pricing, and slashing termination rates would not automatically mean cheaper voice calls.

She said regulation would mean new mobile player 2degrees would have an opportunity to grow its businesses and it would encourage competition.

"Termination rates are not the only thing that determines the cost of voice calls. There are handset subsidises and marketing. What it does is provide a path over the next five years for some certainty."

She said the draft proposal for termination rates was in line with international standards.

Forsyth Barr analyst Guy Hallwright said Vodafone made a lot of money from termination rates. How much the mobile companies would suffer depended on how far rates were dropped.

Vodafone and Telecom proposed to drop rates to 6c a minute for voice costs in their undertakings and drop text rates to zero. Vodafone has said this drop would cost the company about $80 million a year.

2degrees is campaigning for zero termination rates on voice and text.

Hallwright said it would be hard for Vodafone to increase its retail pricing as the market was extremely competitive.

"There is a third player [2degrees] in the market now."

In April last year, rates were 15c per minute across networks on top of the price of the call.

Telecom spokesman Mark Watts said the company wanted to see the issue resolved so that the industry "could get on with it". Telecom maintained regulation was not necessary because the market was already extremely competitive and dynamic.

Watts would not disclose how much Telecom stands to lose. But he said Telecom paid Vodafone more than Vodafone paid it, as more calls were terminated on Vodafone's network because it had the most mobile customers in New Zealand.

The commission's final report is expected to be ready by the end of the month.