IHS Global Insight Perspective | |
Significance | While the initial proposals have been somewhat watered down, the European Union (EU) has stuck to its goal of cutting rates by a full 70%. |
Implications | While operators complain the cuts will leave less money for important investment, the EU sees termination rates as one of the last bastions of incumbent dominance, which needs to be levelled if competition is to continue to flourish. |
Outlook | IHS Global Insight believes there will be little opposition to these new guidelines from member states, meaning a fall in termination rates and an improved competitive environment in the EU. |
The European Commission has announced a fresh set of guidelines, which could see mobile termination rates (MTRs) cut by up to 70% in the EU over the next three years. The Commission has not published an exact pricing structure, but says it wants the fees to drop to between 1.5 and 3 euro cents by the end of 2012, with MTRs based on "real costs" to operators for connecting calls. EU Telecoms Commissioner Viviane Reding has proposed the guidelines, which could see customers' bills cut by 2 billion euro (US$2.7 billion) across the EU to spur competition and give consumers a better deal.
MTRs, which operators charge each other to connect incoming calls, average around 8.5 euro cents (US$11.3 cents) in Europe, but vary wildly across the bloc, ranging from 2 euro cents in Cyprus to 15 euro cents in Bulgaria.
While the domestic regulators in the bloc's 27 countries cannot be forced to adopt the new measures, member states are obliged to take the "utmost account" of them and could face pressure and penalties if they ignore them completely.
Outlook and Implications
- Commission Aims for Better Deal for Customers: The European Commission has pushed ahead with the proposals to slash MTRs despite stiff opposition from operators and member states (see Europe: 19 February 2009: Mixed Support for Termination Rate Cuts Could Force Changes to EU Plans). Reding says the cuts are necessary to give consumers a cheaper deal, stating, "The Commission decided to intervene today against these distortions of competition in the single market, which deter investment into upgrading fixed networks to fibre and for which in the end consumers are paying the price." Even though the initial proposals, drawn up at the end of last year, have been watered down, with the guidelines to be adopted by the end of 2012 (later than planned) and more flexibility offered to regulators concerning the methods used to calculate fair MTRs, the Commission has stuck to its goal of cutting rates by the full 70%. However, the proposals have attracted criticism, with the European Telecommunications Networks Operators' Association (ETNO) pointing out that MTRs are already falling in the bloc and would likely come down by around 40% over the next three years anyway.
- Operators Lash Out at "Incomprehensible" Move: Unsurprisingly, many of Europe's major operators have slammed the guidelines, claiming that the loss of revenue will jeopardise future investment in telecoms in the bloc. MTRs can provide up to 20% of revenues of Europe's larger operators, but the Commission says they unfairly penalise smaller operators as more of their calls will terminate on a rival's network and therefore the rates are anti-competitive. However, Germany's Deutsche Telekom has called the guidelines "incomprehensible", saying, "It is the wrong kind of signal ... at a time of an economic crisis when investments need a boost." Other operators, including Telefónica and Vodafone, have been vocal in opposing the cuts. Industry body the GSM Association has been less damning, admitting that greater harmonisation of termination rules would reduce regulatory uncertainty, but it sees no justification or confidence that the cuts will benefit consumers. The Commission has recently welcomed a decision by the Slovak regulator to bring MTRs under price regulation and Spain has also moved to lower the fees, but the Commission still believes that domestic regulators are not doing enough (see Slovakia: 6 May 2009: European Commission Welcomes Proposal for Cost-Based Mobile Termination Rates in Slovakia and Spain: 13 April 2009: Spanish Regulator Announces Lower Mobile Termination Rates). While operators complain that the cuts will leave less money for important investment in new, faster broadband infrastructure, and accuses the EU of penalising them in the middle of a recession, the Commission has pointed to continuing healthy revenue growth as evidence that this argument does not hold water. MTRs are seen by the Commission as one of the last bastions of incumbent dominance by large operators, thus stifling the growth of competition in the EU.
- Commission Presses Ahead with EU Regulation: European Commission plans for wide-ranging reforms to regulation in the EU took a serious blow yesterday (7 May) when an amendment was tabled to proposals, meaning they are now unlikely to be adopted this year (see Europe: 7 May 2009: EU Telecoms Reforms in Doubt After Amendment on Internet Rights). Reding expressed disappointment, adding that there are now "strong doubts" over fresh proposals for the regulation of investments in next-generation networks in the bloc. However, strong price caps on roamed mobile voice calls, data downloading and texting have recently been adopted and the Commission feels it is the right time to push for similar cuts in MTRs (see Europe: 23 April 2009: EU Approves Mobile Roaming Price Cuts, Will Begin in July this Year). The Commission's relationship with the European parliament has always been one of brinkmanship: putting forward strong proposals that are then watered down until a compromise is reached. Despite pleas from the operators, IHS Global Insight believes there will be little opposition to these new guidelines from member states, meaning a fall in termination rates and an improved competitive environment in Europe.