Mobile termination charges to be cut by 80% – but will it mean cheaper phone bills?

Mobile termination charges, or the amount mobile companies charge each other for dealing with calls stemming from other networks, will fall 80% over the next four years. The move is expected to cost the telecoms industry £2 billion.

But what will this mean for our bills?

Smaller operators will benefit from this move, as they should be able to offer more competitive deals. More choice is what telecoms regulator Ofcom is hoping for, in other words, although mobile groups have warned they might have to resort to recouping this lost income elsewhere. Telecoms groups are facing intense pressure on their networks as people are waking up to the possibilities of the mobile internet, and the cost of network upgrades is significant.

From voice to data
According to Ofcom research, the volume of data traffic over mobile networks has increased by 104% over the last year. This means that with voice calling actually being in decline, mobile internet use now accounts for the majority of traffic over mobile phone networks, and this trend is set to continue.

Intense competition in the UK market, however, means there is little scope to increase prices. All the while mobile operators are seeing their bills for laying cables and building phone masts increase. While Ofcom’s rule on termination charges means Vodafone and its peers have to obey, there is nothing stopping them from increasing prices for other services to make up the difference. Pre-pay customers are expected to bear the main brunt of price increases, should there be any.

Pay-as-you-go to suffer?
Pre-pay customers usually receive more calls than they place, meaning the phone company generates proportionally more of its money from termination rates. According to the Independent, network operators have now warned they PAYG model could become uneconomical, or at the very least it means they could stop subsidising handsets for PAYG customers. Alternatively operators could start demanding minimum monthly payments for pre-pay contracts.

Ofcom is hoping the ruling will result in cheaper landline services, however, as the lowering of termination rates will reduce the cost for BT and peers to pass calls on to mobiles. Some operators have already promised to lower their charges, Ofcom points out. The European Commission has recommended termination rates should only cover costs incurred directly from terminating calls from other networks.

Happy landline owners
Comments from John Petter, managing director consumer of BT Retail, suggests landline users should have cause to celebrate:

“Ofcom has made some worthwhile reductions in mobile termination rates, which will benefit customers in the near future. Our focus is now on developing an all-inclusive package that will enable people to call mobiles from their landlines at no extra cost, with no fear of ‘bill shock’. This will be incredibly good news for BT’s customers.”

The mobile termination charge is currently set at 4.18p a minute by the main three mobile operators: Vodafone, O2 and Everything Everywhere. This charge will drop to 2.66p next month, telecoms regulator Ofcom has ruled, and the charge will fall even further, to 0.69p, by April 2014.