Lower mobile rates to benefit consumers
15 March 2011
Ofcom today announced a reduction in mobile termination rates - the wholesale charges that mobile operators make to other operators to connect calls to their networks - designed to benefit UK consumers.
From 1 April, Ofcom will place a cap on the rates charged by all four national mobile network operators - 3UK, O2, Everything Everywhere and Vodafone.
This will lead to around an 80% reduction in termination rates over the next four years.
Benefitting consumers and promoting competition
Lower termination rates are designed to benefit landline and mobile customers in two ways:
One minute guide to mobile termination rates
What are mobile termination rates?
They are the fees mobile operators charge other networks (both fixed and mobile) to terminate calls to their own customers.
How do they work?
If you’re with Vodafone, for example, and you call a friend on O2, Vodafone has to pay O2 a charge for connecting the call to a customer on O2’s network. If your friend calls you back later on, then the opposite would happen and O2 would have to pay Vodafone.
How much are mobile termination rates?
They’re currently around 5p a minute although at one time they were as high as 20p a minute.
What’s happening now?
Ofcom wants to continue to limit termination rates for all four national mobile network operators - 3UK, O2, Everything Everywhere and Vodafone - bringing them to under 1p per minute in three years time.
How will this help consumers?
This should help lead to cheaper calls to mobiles - particularly if you’re calling a mobile from a landline. The proposals will also give landline and mobile operators more flexibility in designing competitive call packages and increase competition in the mobile market.
- Cheaper landline services: Lower termination rates reduce the cost to landline companies of passing calls to mobiles. Ofcom expects these savings to be passed on to consumers in the competitive UK landline market. Some operators have already promised to lower their charges.
- More choice: Lower termination rates promote competition in the mobile market, providing customers with more choice. Operators will have more pricing flexibility and will be able to increase the range of packages available to consumers.
Continued investment and innovation in mobile
Over time, the way that consumers use mobile devices has changed. Data rather than voice calls today form the majority of traffic over mobile networks. This is as a result of increased use of SMS messages and most recently the growth of internet-enabled smartphones.
According to Ofcom research, the volume of data traffic over mobile networks has increased by 104% over the last year.
As mobile termination rates only apply to calls rather than data, over the four year charge control period, they are likely to become a less significant element of mobile companies’ revenue.
Data revenue increased by 90% between Q4 2007 and Q4 2009 and Ofcom expects continued data revenue growth in the future.
Therefore Ofcom expects that investment in the UK mobile sector will be driven by the growing appetite for data services, smartphones and mobile broadband. Ofcom does not expect lower mobile termination rates to materially change this trend.
The new rates will apply from 1 April 2011 and end on 31 March 2015.