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UK Regulator Lowers Mobile Termination Rates

March 25, 2011

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UK telecoms regulator Ofcom will enforce a reduction in mobile termination rates (MTRs) across national mobile networks in the UK over the next four years. These rates will be over 80 per cent lower by the end of March 2015. The initial cap comes into place from April 1st 2011.

The operators affected are Everything Everywhere (previously Orange and T-Mobile), Vodafone, O2 and 3. The initial price change reduces 3's MTR cap from 4.48 pence to 2.66 pence per minute, and for the other operators from 4.18 to 2.66. Prices will be reduced to 1.70 pence, 1.08 pence and 0.69 pence on April 1st 2012, 2013 and 2014 respectively. For the UK's 28 smaller operators, MTR's will be determined on a "fair and reasonable" basis.

Mobile Termination Rates were last reviewed in 2007, when operators were able to change MTRs at will, provided they kept below an average charge.

The move has been anticipated by the UK mobile industry. In 2009, EU guidelines recommended that MTRs be cut across the EU by the end of 2012; Ofcom announced its review in April 2010.

One of the winners from the announcement will be landline operators and their customers. MTRs are currently up to ten times the cost of landline termination rates in the UK. IHS Screen Digest expects some of the cost reduction for landline operators as a result of the regulation to be passed onto consumers.

Also benefitting from the change are the 28 small mobile operators in the UK.  These have fewer users, and as such a large proportion of their outgoing calls are to the big four networks. If effective, the new regulation will reduce their costs allowing them to lower prices. This change gives scope for greater consumer choice, as smaller operators can price plans at a competitive level.

Operators are no able to longer implement previously observed pricing strategies. Known as "flip-flopping", operators could inflate the price charged for termination during a month in which there were a greater number of weekends than the year prior, exploiting a loophole in the average price system. Ofcom found this could increase MTR revenue for mobile operators by up to 5 per cent.

IHS Screen Digest expects Ofcom's new regulations to provide long-term benefits to consumers, landline operators and smaller UK operators. For the big three network operators the move will likely accelerate the decline in the proportion of their revenues that come from voice services; IHS Screen Digest Mobile Media Intelligence research indicates that voice services' contribution to UK mobile ARPU (average revenue per user) fell from over 71 per cent in to 2008 to 65.8 per cent in 2010. At the same time, IHS Screen Digest believes that UK mobile data revenues grew from £179.5m in 2008 to £1522m in 2010.

Find Out More > iSuppli | Screen Digest Mobile Media Intelligence Service

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