Regulators to cut cost of calls to mobile phones

The cost of making calls to mobile phones is set to drop as the telecoms regulator Oftel and the European Commission prepare to force companies to cut their prices.

The regulators are focusing on so-called "call-termination" charges, which mobile phone operators charge each other and the land-based telephone companies for connecting to users on their networks.

The EU competition commissioner, Mario Monti, is investigating Vodafone, Europe's largest mobile phone company; the German phone company Deutsche Telekom, and competitors over suspicions they colluded on charges between networks in Britain and Germany. Companies found guilty of abusing a dominant position or fixing prices can be fined as much as 10 per cent of their sales, although such a punishment has never been meted out.

Yesterday, the Commission said it could fine Royal KPN Telecom, the biggest Dutch telephone company, for raising the cost of calls from other networks to its mobile customers.

Vodafone is not the only British mobile operator facing such pressures. Oftel has cited call termination charges as an important area that needs regulation. When calls are made from a fixed to a mobile phone, the amount charged is split into three parts: the cost of connecting to the local exchange, the cost of carrying the call over the main fixed network, and the "call-termination" charge on reaching the mobile operator's network and the person being called.

Oftel said the call-termination cost on a land-based network was about 0.5 pence per minute compared with about 10p a minute for a mobile network. Furthermore, the call-termination element of a phone call is regulated on fixed-line networks such as BT's, and must fall by a set amount each year. But that is not the case for mobile phones and can account for more than 60 per cent of the cost of making a call from a fixed to a mobile phone. Even with calls between mobile networks, which may only require a short hop on the main trunk network, the call-termination charge is up to half the cost to the user.

Even cutting the termination charge by 3 per cent would save British mobile phone users £200m annually, Oftel said. But the mobile networks have rejected its calls to cap prices on the charge. The Competition Commission is now adjudicating on the matter.

Morten Singleton, an analyst at Williams de Broe, said: "The EU proposals seem to indicate a move to regulate mobile as if it were fixed."

Michael Tscherny, an EU competition policy spokesman, said "very high" charges were a "general problem" in the EU, and were up to 10 times the average cost for fixed-to-fixed interconnection. "That cannot be explained by objective factors," he said. "This results in undue barriers for newcomers to the market and high prices for consumers."

If call-termination charges were capped, mobile phone operators would look for other ways to boost income, such as through text-messaging, which is outside regulation. The mobile phone companies want to reduce the amount of free messaging they offer and increase the price of individual messages, as the sector has grown rapidly.