MTR  SNAPSHOT
Mobile termination rates (MTR) are what phone companies pay each other when a call or txt connects to another’s network. The Commerce Commission says this wholesale pricing regime needs to be regulated, which will in turn save the average mobile customer $250 to $300 per year.

Commerce Commission proposal
Voice calls: immediate halving of MTR on voice calls from 14 cents to 7.5 cents. Glide path to 3.8 cents by 2015.
Txt: immediate cut from 10 cents to 3.8 cents. Further cuts to 0.5 cents by 2015.

Vodafone
Voice: Looking to head off regulation with offer to cut MTR on voice calls to 12 cents per minute from April 2010, with glide path down to 3 cents a minute by 2015.
Txt: 1.2 cents from April 2010.

Telecom
Voice: cut to 12 cents per minute from January 2010. Glide path down to 7 cents per minute by 2015.
Txt: no offer
Expresses support for bill-and-keep, an alternative to MTR that sees the a phone company whose network initiates a call pay all costs.

2degrees
Wants MTR scrapped on all voice calls and txt. Prefers bill-and-keep model (initiating caller's telco pays all cost). If that's not possible favours immediate drop to 6.54 cents per minute for voice, falling to 3.45 cents by 2015.

The gate closed at 5pm today for Telecom, Vodafone, 2degrees and others to make their final effort to convince the Commerce Commission to sway their way on mobile termination rates.

In their revised undertakings, both companies have offered to slash mobile termination rates (what one telco pays another when one a call connects to its network).

The cuts constitute a last-gasp effort to forestall a Commerce Commission recommendation for mobile price regulation - which communications minister Steven Joyce will in turn consider during December before making a final ruling in the New Year.

However, it seems the telcos' best chance is to influence regulation rather than forestall price-controls altogether (as they did with a last-minute deal with the Labour governmet); Mr Joyce has indicated that he has run out of patience and thinks the time has passed for a commercial offer in lieu of regulation.

Vodafone has offered MTR of 1.2 cents on TXT and 12 cents on voice from April 2010 with a glide-path down to 3 cents for voice (the equivalent to the ComCom’s 3.8 cents per minute allowing for differing methodology; Vodafone uses a minute plus second formula).

In its previous pitch to the commission, the telco only offered to bring voice call MTR down to 11 cents a minute by 2015 - the same glide path as in the current, voluntary deed signed by Telecom and Vodafone to head-off the previous government's attempt at wholesale price regulation.

$450 million hit
“This will take our rates well below those in Australia, the UK and Ireland,” said Vodafone corporate affairs manager Tom Chignell.

He added: "This reduces our wholesale revenues by $50 million in the first year, growing to more than $450 million over five years against prevailing rates."

Telecom has offered an immediate cut to 12 cents a minute per voice, with a glide path down to 7 cents a minute for voice by 2015. As in previous submissions, the telco has not addressed txt.

Bill-and-keep
Telecom's numbers are close to those of its previous submission. More noteably, the telco has also expressed support for bill-and-keep - an alternative to MTR in the US and elsewhere that sees the phone company that initiates a call paying all costs.

Tuanz has estimated that Vodafone earns tens of millions in net gain on Telecom in the MTR equation each year (each company keeps figures confidential). Up until now, however, Telecom has conspicously resisted calling for MTR reform - with its critics assuming it looked to make up the difference elsewhere.

On June 30, the Commerce Commission issued a draft determination on mobile termination rates (what telcos pay each other when calls cross between their networks). It called for MTR on voice calls to immediately halve to 7.5 cents per minute on voice calls, with further cuts taking it to 3.8 cents by 2015.

For txt messages, the commission wants an immediate drop from 10 cents per message to 3.8 cents, with further cuts taking the rate down to 0.5 cents per txt by 2015.

2degrees is lobbying for interconnect charges to be wiped altogether.

Organisations in the 2degrees corner - including Tuanz and Consumer - say MTR inflates the average mobile phone bill by $250 or $300 a year.

The commission sees MTR as a barrier to new entrants, and says its proposed rates reflect the true wholesale cost of connecting calls between networks.

Although in theory MTR should roughly even out as calls pass between each mobile network, Telecom and Vodafone have used their scale to create so-called "on-net" contracts such as TXT2000 and Best Mates, which offer much lower calling and txt rates for customers who call a circle of friends and family on the same network - avoiding interconnect charges. As a new entrant, with relatively few customers so far, an on-net contract is not a practical option for 2degrees.

Vodafone: wholesale cuts not always passed on
Vodafone has repeatedly pointed out that a similar regulatory effort in Australia saw Telstra pocket most of the MTR savings. Like New Zealand's Commerce Commission, Australia's ACCC can only regulate wholesale pricing, leaving it up to phone companies whether they pass on the saving to consumers at retail.

The commission has rebutted that looking at the world as a whole, 80% of MTR cuts are passed on to consumers. Most commentators say that if Telecom and Vodafone did not pass on cuts, they would be inviting further regulation.

Death of pre-pay?
Mr Chignell today also reiterated that countries without MTR - such as the US - typically introduce a monthly minimum fee for mobile customers.

Asked if this was a possibility for Vodafone New Zealand if MTR price regulation was imposed on it, Mr Chignell replied that it was.

Vodafone NZ country manager Russell Stanners has previously told NBR that hundreds of thousands of his company’s subscribers (around 72% are on prepay) are “glovebox customers” - on pre-pay plans that they only top up when they need to make the odd call.

It would be uneconomic to keep some of those customer with lower MTR said Mr Chignell. A minimum monthly payment, as instituted by US carriers, would be one solution.