Oftel refers mobile firms to Competition Commission

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Oftel, the telecoms regulator, is today expected to refer the UK's four mobile phone operators to the Competition Commission over the cost of making calls to their networks.

The referral follows the failure of the mobile operators to reach a compromise with the regulator on planned price caps that could save consumers £800m.

David Edmonds, Oftel's director-general, is understood to be standing by early recommendations and feels new price controls are a necessary evil.

Two months ago, Oftel proposed all four operators cut the cost of calling a mobile phone by inflation minus 12 per cent a year for the next four years.

The proposal centred on the firms' "termination charges" – the fees that mobile phone operators charge other telecoms companies for connecting calls on their networks. The price cap was not planned to apply to calls carried over third generation, or 3G, mobile phone networks.

A formal referral to the competition watchdog, however, is not expected until next month, according to sources within the mobile phone industry.

"Oftel will put out a statement tomorrow but formal reference won't happen until January, perhaps, purely on timing," one industry source said.

As of next month, the Competition Commission will have to launch its own inquiry into the issue that should be concluded within a six-month timeframe, although the process could take much longer.

Mr Edmonds' new measures, which were planned to replace existing controls levied only against Vodafone and the mmO2-owned Cellnet, were due to come into force next spring.

However, Vodafone, mmO2, Orange and the Deutsche-Telekom-owned One2One all balked at the new price cap and meetings with the regulator failed to produce any compromise.

Representatives from all four companies are thought to have met with Chris Kenny, Oftel's director of regulatory policy, just over a week ago to try to thrash out a deal. Neither the mobile phone firms nor Oftel, however, were willing to back down. Oftel was said to have taken the view that no significant new information had come to light to make it change its mind.

Another mobile phone source said: "The industry has failed to agree so he [the regulator] has no alternative but to refer to the Competition Commission. It seems highly unlikely that he'd change his mind [on the proposed controls] and say he'd been barking up the wrong tree."

Oftel estimates the so-called termination charge makes up about two-thirds of the price that a fixed-line operator charges its customers for calling a mobile phone. The same charge, it believes, accounts for about 40 per cent of the cost of calling from one mobile network to another.

The referral of its investigation to the Competition Commission is the second Oftel has had to make. Oftel's recommendations were upheld in 1998 when the Competition Commission, then known as the Monopolies and Mergers Commission, found the level of charges for calls made to mobile phones on Cellnet's and Vodafone's networks was against the public interest.

Consequently, both Vodafone and Cellnet had to cut their average charges by 25 per cent followed by a cut of inflation minus 9 per cent for three years.