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back to article Lower termination rates will bring pricey data

Ofcom has proposed a steep decline for termination rates, hitting a ha'penny a minute by 2014, but can a measure that saves consumers £800m a year be all good news? Not according to Orange, which reckons the change will stifle innovation, stall investment and lead to customers having to pay to receive phone calls. This …

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  1. Anonymous Coward
    Anonymous Coward

    valuation

    "Operators ...and have long argued that the rate should be based on what they paid for their 3G frequencies"

    What they paid for their frequencies doesn't come into it. That was their choice, and if they paid too much well it was their decision.

    If they want higher revenues they should charge their customer's more, and let the customers decide.

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    1. Paul Shirley
      Reply Icon

      charge more

      They already do! With PAYG rates @20p/min a 4.3p termination charge already has no connection to the call rate, odds are absolutely nothing will change for mobile 2 mobile calls by 2015. Contract rates are already theoretically below the termination charge if you look hard enough (and spend enough monthly).

      The only foreseeable improvement will be call rates on VOIP lines. Currently I pay 8.9p/min to call a mobile (in fact I don't, its cheaper to call with my mobile!), its extremely likely all of the termination charge reduction will be passed on and that's likely to displace mobile originated calls.

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    2. Anonymous Coward
      Reply Icon
      Thumb Down

      Or

      The macro picture is that the market is competitive and costs and decreasing. They should be free to market services how they choose. Whilst flat cost + pricing structure sounds nice I doubt whatever business you work in would be so enthusiastic, such a formula it is unlikely to have attracked the investment to build the networks. OFCOM pricing regulation is already fairly penal and compares with banks that can charge as they please. Whilst operators chose to invest billions in licenses (how many hospitals?) they did so on the basis that there would be a good return and with limited interference from populist politicians and hangers on in Brussells and the South bank. If you work internationally you will be amazed how other counties have leapfrogged the UK in digital communications this trend is set to continue.

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  2. Anonymous Coward
    Flame

    " what they paid for their 3G frequencies"

    "Operators ... have long argued that the rate should be based on what they paid for their 3G frequencies"

    Excuse me?

    The end users did not choose what the mobile operators paid for their 3G licences. The taxpayer did not choose what the mobile operators paid for their 3G licences.

    The people who chose what the mobile operators paid for their 3G licences were the clearly innumerate idiots in the mobile operators HQs. These people were clearly incapable of working out a realistic average revenue per user, multiplying it by a realistic number of users over a realistic payback period, and basing their bids on that. Instead they went into a ludicrous bidding war, far beyond the realistic limits of affordability.

    The mobile operators made those ridiculous decisions, they need to live with them.

    If I buy something and then find I paid far far far too much, I don't usually get any sympathy from the supplier, never mind a financial consideration if I choose to buy anything else from the same place.

    Why should the mobile operators get any sympathy ?

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    1. Ross 7
      Reply Icon

      Not quite that simple

      "The end users did not choose what the mobile operators paid for their 3G licences. The taxpayer did not choose what the mobile operators paid for their 3G licences"

      The operators were free to pay what they wished for 3G spectrum, but they are NOT free to charge what they wish for termination charges. That's the issue they have.

      Remember that 3G spectrum is extremely finite, whereas the crap you and I buy in the shops is not. Example - you own an art gallery. If you want people to visit your art gallery and pay for the privilege and thus keep your business afloat you need stuff your customers want. So, you enter into a bidding war for an original van Gogh. You pay what you have to and are free to do that.

      So you;ve got your picture, but the Government won't let you charge more than 50p for a ticket to your museum! How do you make ends meet? You had to buy the picture 'cause otherwise nobody would come to your gallery and you'd go bust, but your turnover is artificially limited by the Government so it looks pretty darned difficult either way.

      The operators put faith (and a **** load of cash) into a system to help the UK improve its comms and associated businesses. In return they expect some kind of improvement to their own bottom line, seeing as they took the risk and all that. If you don't give them something back, why the hell would they look to take any risk in the future? That means el Gov building the 4G networks at its own expense, rather than making a fat load of cash out of spectrum sale as it did last time around.

      So, pay for 4G with your taxes, pay for it through your phone bills or don't have it? Your choice.

      PS - yes, the operators paid over the odds for 3G spectrum, but that;s the Governments fault for using a system designed entirely to maximise their revenue. If the operators had met up in a hotel room and said "right lads, you bid £200 on that segment, we'll do the same on the next segment etc..." they would have fallen foul of competition law. They HAD to fight each other and artificially inflate the price or be left out.

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  3. Alex Walsh

    Handsets

    Any cut in termination rates will just lead to an cut in the subsidy on handsets, bringing us more in line with the rest of Europe.

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    1. Anonymous Coward
      Reply Icon
      Anonymous Coward

      Europe

      You mean Belgium this is the only country where there is no subsidy on handsets.

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  4. Anonymous Coward
    FAIL

    Pay to receive calls?

    yeah, works in the states, but over here?

    The first operator that tries that will go bankrupt within weeks as it's customers leave en masse. If they all do it simulatiously, then that's an illegal cartel and I'd expect the OFT to come down like a ton of bricks.

    Maybe they just simply f88ked up thinking we'd all want to watch eastenders on a 2x3 screen and do our work for £100 a hour through data rates....

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  5. Tom Chiverton 1

    Torange

    can't take anything Torange says seriously after it claimed that post-merger it would have better customer service. Because that's what happens when you have less staff-per-user. Ummm ?

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  6. jonathan rowe

    the future is data

    mobile voice telphony becomes a commodity - that's no surprise really, since it's just a stream of data, albeit with strict quality of service requirements and low bandwidth requirements

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  7. D@v3

    bundled free calls

    How do these termination costs work considering so many call plans come with sooo many 'free' minuets that the monthly bill is rarely any more than the price of the line rental.

    or is that just me?

    I remember when it used to be £20pm, then another £20-30 on top of that for calls and texts, now its £20pm with more 'free' calls, texts and internet than I could ever hope to use

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  8. sleepy

    taxation by another name

    These charges for something that actually costs little to nothing are a form of indirect taxation, and the sale of spectrum was actually the government borrowing money against future taxation entirely "off the books" by licensing the carriers to collect that tax direct by calling it a service charge.

    Nevertheless, it is tax; tax rates are higher than you think, and government borrowing is higher than you think.

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  9. JohnG

    Charging other networks' customers

    With special prices or flat rates for calls made within a customer's home network, termination charges are really a measure of how much a network can charge the customers of other networks.

    I never understood why the operators paid so much for 3G frequencies when surveys suggested that customers would not accept higher monthly charges, expecting their monthly outlay to remain the same with new technologies offering them more features for the same money.

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  10. Rob Crawford
    Grenade

    How many people want 4G?

    TBH if the phone companys are not earning enough from 3G (not enough users) then what makes them think that the world needs 4G

    If I'm away from the office & home I can get along perfectly well with 3G, what's the rush (probably selling new handsets to everybody I suppose)

    Just because something is possible and a small number of people have decided that they have to have it dosn't mean it's worth doing.

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  11. Andy Watt
    FAIL

    what they paid DOES enter into the equation...

    ... wether you want it to or not is irrelevant. I was frankly disgusted by the bidding war which went on, and we can discuss what it's done to the "digital dividend", etc 'till the cows come home (HMG got utterly greedy didn't it? And look! There are consequences! Who'da thunk it?), but this doesn't alter the fact that these companies will seek to ensure their public balance sheets continue to show revenue consistent with growth compared to the previous quarter.

    Normally I'm a proponent of the EU but in this case I think they stuck their noses in, rocked the boat and will actually make the whole lot worse for most of us, apart from those who are on PAYG and "only put a tenner on every 6 months because why bother with anything else...." lazy bastards, get a landline, you've just meant that the era of (conceptually) unlimited wireless data will come to an end...

    Pissing and moaning (anonymously) that "the mobile operators are to blame" is to bury your head in a leftist sandpit. They don't care. They want to make money.

    We should (once again) shout at the utterly incompentent governmental system we have (the tories would do the same with RF spectrum, it's called "getting the best deal for the taxpayer" most of the time and usually also forgets to think things through properly), and the EU for clearly either omitting or ignoring the existing setup and the ramifications of pissing about with termination charges.

    1 3
    1. Anonymous Coward
      Reply Icon
      Thumb Down

      Meet some lazy bastards

      well, my 10 year old daughter and wife are - according to you. Guess what, we have a landline - and they have PAYG moblies 'cos....well they're MOBILE. Sorry if thier usage is too low for you, and that we don't want to subsidise your connection.

      When my daughter gets home from school I will let her know that you think she is a lazy bastard. "But why?" she'll ask. "'cos some twat on the internet, who undoubtedly can't find his arse without a GPS iPhone app, says so". Some of us still only use phones to make calls.

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    2. david wilson
      Reply Icon

      @Andy Watt

      >>"I think [the EU] stuck their noses in, rocked the boat and will actually make the whole lot worse for most of us, apart from those who are on PAYG and "only put a tenner on every 6 months because why bother with anything else...." lazy bastards, get a landline, you've just meant that the era of (conceptually) unlimited wireless data will come to an end...

      Surely, people who only put a tenner on a PAYG phone every 6 months do that largely because that covers how much they use the phone?

      Maybe you think they should donate an extra tenner or two, not for themselves, but to subsidise someone else's unlimited wireless data?

      Still, thanks for what you wrote.

      It''l give me a lovely warm glow inside whenever I do my near-annual £10 topup.

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    3. Dino Saur
      Reply Icon
      Stop

      Another LB

      I'll stick my hand up as another person who only tops up a PAYG twice a year. Two main reasons:

      1) when I'm working I use my work mobile

      2) when I'm at home I use the land line

      My personal mobile is useful for those few occasions e.g. when my wife and I go out separately and need to contact each other. Since my O2 top up gives me an extra bunch of free minutes, I find it hard to burn up more than £2 - £3 a month.

      Of course the other reason is that I don't actually have the time to download pr0n and other stuff, or call my mates every five minutes. That's the trouble with being a 'lazy bastard' who spends too much time working and the rest trying to have a family life.

      Oh, one more thing. I pay O2 £10 or £15 and then don't use the service. They hardly need a network at all to serve people like me and I'm hardly likely to move operators. That means they make more profit from me than those people who try to use their full bundle of free minute or MB every month, or rate tarts who jump around every 12 months. The people who are killing 'unlimited' mobile broadband are the heavy users who don't pay for their excesses (don't start me on iPhones and BBs).

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  12. Dale 3

    Saving consumers £800M

    Saving consumers £800M is a fallacy. The ultimate ambition of any for-profit company is to pay dividends which increase year-on-year to its owners (investors). There are three ways to do that:

    1. Cut costs while the income stays the same, so that a larger proportion of income is clear profit that can be paid out to investors. There is a limit to how much of this you can do before services begin to suffer.

    2. Increase income by attracting more customers while costs stay the same, so there is more income that can be paid out to investors. The market is effectively saturated so generally any new customers one network gains are losses to another network and investors are no better off.

    3. Increase income by extracting more cash out of the existing customers, so there is more income that can be paid out to investors.

    Bottom line is that if they lose £800M in termination fees and still want to keep paying out increasing dividends to investors, they will have to make it up some other way. By method #3 that means consumers in general cannot be saving anything. Some individuals might end up better off, but others will be worse off to compensate.

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  13. Jamie Kitson

    What you think remains a matter of opinion.

    Hmmmmm

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  14. Anonymous Coward
    Unhappy

    Transparency

    "Without the income from termination rates the mobile operators will need to be more transparent..."

    This has always been a problem with the telcos - no other industry gets away with the mind boggling array of prices and service levels that the telcos try to flog us. Do you know two people that pay the same rate for their mobile phones? And then it changes (often without notice, or with notice that you received 18 months ago) on the fly to some other price. It's bonkers!

    And why should I be tied into an 18 month contract. It's my phone (I've had it years and it's long sence been paid for), but every 18 months I have to negotiate a new "package" with the telco. How did it ever come to this? Fair enough if you're getting a subsidised phone from them, but of not then there is no excuse for this. Ofcom should stop it.

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    1. Thomas Bottrill
      Reply Icon
      FAIL

      RE: Transparency

      "And why should I be tied into an 18 month contract. It's my phone (I've had it years and it's long sence been paid for), but every 18 months I have to negotiate a new "package" with the telco. How did it ever come to this? Fair enough if you're getting a subsidised phone from them, but of not then there is no excuse for this. Ofcom should stop it."

      You don't - you get a SIM-only tariff that you only have to give a month's notice to cancel.

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      1. Annihilator
        Reply Icon
        FAIL

        Short term

        Thomas is correct, you can easily get rolling monthly contracts. But don't be surprised if you pay more for it. What 18-month'ers are doing is committing to a specific spend, which the telco's reward.

        If you've been foolish enough to sign up for an 18 month package, that's your look-out, not OFCOM's

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  15. Eddie Edwards
    WTF?

    Utter twaddle

    "Our 3G networks were built on the basis of predicted income, money effectively borrowed from future customers - which would be us"

    As opposed to other massive private capital expenditure, which is built on the basis of love for one's fellow man.

    And the money is "effectively borrowed" from each company's investors.

    I'd *love* to read El Reg's in-house Guide to Economics.

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  16. Sebastian Brosig

    Utter Twaddle #2

    "Our 3G networks were built on the basis of predicted income, money effectively borrowed from future customers - which would be us"

    it's really more like "money effectively lent to future customers", though that's just a roundabout way of saying "capital investment". Thanks Eddy for pointing that out to an uncritcal reader.

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  17. Anonymous Coward
    WTF?

    Operators want lower costs and more transparency?

    If the operators want lower costs and more transparency, there's something they could do for themselves very easily very quickly. Stop subsidising handsets in return for contract lock-in.

    But then of course the operators would have no long term contract lock-ins, and customers would be free to change operators as and when. Operators would then have to compete not just on things like call costs (or these days, bundle prices), but things like service quality (meaning coverage, and quality of customer service).

    But to do that, they'd have to invest, and invest is a Bad Word.

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  18. Secretgeek
    Thumb Up

    Less for the same.

    "Overall we'll probably end up spending a little less on our mobile telecommunications, at a cost of delaying the deployment of next-generation networks. Whether you think that is a good thing remains a matter of opinion."

    Yes it is.

    Yes I do.

    I don't know what benefit 4G will give me but seeing as I'm happy with the capability I've got at the minute, I'll be happy to continue with 3G for now and to pay less for it is a bonus.

    Works for me.

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  19. A J Stiles
    Thumb Down

    Number portability hasn't helped

    Number portability across networks has done nothing to help the situation.

    It was a flawed idea from the start. One routing table entry per STD code is manageable, but one routing table entry per *subscriber* would be in-freaking-sane. When you call someone who moved their number from provider A to provider B, provider A still have to route that call most of the way.

    It would have been much better for all concerned, had the providers just put their foot down in the first place, said "no way, José" and gone for the obvious compromise solution -- you can keep your "local number", but the "STD code" changes to reflect your new provider.

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  20. Anonymous Coward
    WTF?

    What's wrong with 2G

    I'm all for the lower termination fee as they don't then have an excuse to charge much to those of us who just want a phone to make the odd call and send a few texts. As far as I'm concerned we don't need 3G now, and having tried it I can say that it doesn't yet work properly as it's just about impossible to make a phone call without getting cut off, so why would they start work on 4G before making 3G work...?

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  21. Anonymous Coward
    WTF?

    What's wrong with 2G??

    I'm all for the lower termination fee as they don't then have an excuse to charge much to those of us who just want a phone to make the odd call and send a few texts. As far as I'm concerned we don't need 3G now, and having tried it I can say that it doesn't yet work properly as it's just about impossible to make a phone call without getting cut off, so why would they start work on 4G before making 3G work...?

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  22. Dino Saur
    Go

    Is this really going to have such a big effect?

    El Reg, while you were looking at the (soon to be made obsolete) OFCOM website, you could have checked out the additional data available e.g. http://www.ofcom.org.uk/research/cm/tables/q3_2009/

    A quick analysis would show that mobile interconnection call volumes for the big 4 operators (which I admit I only assume is the same as terminated calls) is around 12 billion minutes, but the calls to mobiles from the big fixed operators is 3 billion minutes.

    I'll take a wild guess here and say that the remaining 9 billion minutes of terminated calls are mobile to mobile cross-net calls using bundled minutes. That means that the operators are paying each other termination fees and if e.g. Vodafone customers call O2 customers the same number of minutes that O2 customers call Vodafone customers, then the net result is no cost to either company, but a big plus on the reported revenues.

    So a reduction in termination fees is likely to have more effect on headline revenue figures than profits, and the operators will have the same amount of cashflow if they want to invest in 4G (or just renew those ancient things they call 2G networks).

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  23. Goat Jam
    Flame

    ummmm?

    "why build a 4G network when you can't charge a premium for calls carried over it?"

    What? Is a 4G voice call somehow better quality than another one carried over 2G or 3G? What exactly does the call gain by being carried over an alleged "premium" network?

    The mind boggles at the crap these corporations come out with in order to convince us that the continual arse raping of their customers is necessary or justified.

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