Since the end of July, mobile phone companies have had to reduce their charges because of a ruling by the Competition Commission. But it looks as if many mobile customers are not going to see lower prices as a result. How can this be?
Most phone customers are unaware of "wholesale call termination charges". The mobile phone operators levy these charges for connecting calls to phones on their networks: for mobile-to-mobile calls and fixed-to-mobile calls. The charges account for about two-thirds of the retail price charged by fixed phone operators for calling a mobile, and about 40% of the retail price of calling from one mobile network to another.
The Competition Commission said that these charges should be price-capped, with a 15% cut before the end of July, and further cuts until 2006. BT intends to pass on the price cuts at the beginning of October. A spokesman said the reason for the delay was that mobile companies waited until the last moment to let BT know their decision about these charges. However, while the mobile operators have cut their wholesale charges by 15%, they are not passing this on directly in the form of retail price reductions for their customers who call another mobile network.
Oftel - the telecommunications regulator - does not have powers to force them to do so. However, as an Oftel spokesman says, in a competitive market, one would assume that these savings would be passed on to consumers. Last year, the mobile phone net work operators rejected proposals by Oftel in favour of price cuts.
This led to the Competition Commission inquiry, which backed Oftel. Both Oftel and the commission found that termination charges were in excess of cost, and the commission concluded that they operated against the public interest. Vodafone says that it already made changes in April to "off-net calls" (calls from one mobile network to another) in its prepay and Perfect Fit tariffs. Other operators also say they previously lowered tariffs.
They put forward a number of arguments for not passing on the wholesale price cut. First, they state that there are no savings to pass on, as they have lowered their wholesale charges to each other and to BT. The result, they claim, is either neutral or a net loss. They also consider that the market has to be looked at as a whole, and mobile customers benefit from services being bundled together. Plus they need finance for innovation.
These arguments do not impress consumer bodies. James King, National Consumer Council competition policy spokesman said: "The mobile companies are displaying contempt for their customers in failing to pass on the benefit of lower charges. In competitive markets, it is reasonable to assume that significant reductions in wholesale costs will lead to a reduction in retail price."
It's been a long and complicated saga in which many complex arguments have been batted around by Oftel, the Competition Commission, and the mobile companies. Consumers don't necessarily want long explanations but they need to know why a price cut isn't a price cut.
