[UPDATED with Vodafone comment; see end of story]
As expected, the Commerce Commission has recommended Communications Minister Steven Joyce reject voluntary price cuts offered by Telecom and Vodafone, and instead regulate mobile termination rates (MTR).
On February 23, the watchdog recommended, in an unusual split decision, against regulating MTR (the rates phone companies charge each other when a call, or txt, terminates on a rival network).
But on April 26, Communications Minister Steven Joyce, seemingly riled by an aggressive new Vodafone $12 Talk offer (which reserved its cheapest pricing for mobile calls to other Vodafone customers), asked the commission to reconsider its finding.
On May 12, the commission duly released a draft revised determination - agreeing with the minister that Vodafone's $12 offer changed the game, and that regulation was now required.
On May 20, Vodafone made a last-gasp bid to avoid regulation, pulling its $12 plan from the market, and replacing it with one that extended discounts to calls to people on all networks, rather than just rewarding calls to other Vodafone customers.
A Vodafone spokesman denied the move was any kind of ploy, saying the "replacement" plan was long in the works, and that it would have been senseless to keep $12 Talk in the market in its current form given "the telecommunications commissioner plan to spike it".
Today, telecommunications commissioner Ross Patterson was not buying that argument.
"While a plan like Vodafone's Talk Add-on, which has now been withdrawn, might provide short term benefits to consumers on larger networks, in the commission's view, such plans are likely to result in longer term detrimental effects on competition in the mobile services market," said Dr Patterson.
"In the long term, the commission expects that its recommendation of regulation will ensure that all mobile users will benefit from greater competition, which is expected to result in access to more competitive prices and services."
Aint over yet
So is the multi-year MTR battle final over?
Mr Joyce will now take submissions, closing June 29, then hear cross-submissions, closing July 6.
It could then take months more for the commission to calculate MTR pricing.
“We won’t see change until this decision is accepted by the minister and the price-setting process is concluded. That leaves plenty of opportunity for Vodafone to stall the process, so we’re hoping for a quick decision and a fast process that allows 2degrees to put even better prices in the market,” said 2degrees chief operating officer Bill McCabe shortly after the commission's decision was released this morning.
How much will MTR be cut?
The commission originally asked for the immediate halving of MTR on voice calls from above 15c today to 7.5c with a glide path to 3.8c by 2015 – faster and steeper cuts than Telecom and Vodafone offered in their undertakings for voluntary cuts.
For txt, it called for a immediate cut from 10c to 3.8c. Further cuts would take that down to 0.5c by 2015.
However, Forsyth Barr analyst Guy Hallwright - who sees Telecom taking an earnings hit of up to $30 million from the changes - notes that these proposed benchmark rates are several months old now. "With rates continuing to fall globally, an updated benchmarked rate would be likely to be lower," the Forsyth Barr analyst said.
Will the cuts flow through to customers?
"I think over time the kind of pricing Vodafone offered in its new [$12] plan is about where the market will settle, but with the big difference that it will apply to off-net calls [those to customers on other networks] as well as on-net ones," Telecommunications Users Association chief executive Ernie Newman told NBR at the time of the commission's draft MTR decision.
"That will be driven by the increased competition once the distortion of above-cost MTRs is eliminated," the Tuanz boss said.
He added, "This does not necessarily mean a huge loss of revenue for the dominant players. There is a lot of elasticity in demand and the upshot is people will make more and longer calls once this flows into retail prices."
Mr Hallwright also sees cheaper calls spurring more demand, which will likely limit the impact on Telecom and UK-listed Vodafone's profit.
Vodafone reps have muttered darkly about the fact that, across the Tasman where similar regulation has already taken place, Telstra simply pocketed most of the MTR cut rather than passing it on to customers (for like the Commerce Commission here, the ACCC can only regulate wholesale pricing).
However, most analysts think Telecom and Vodafone would not dare to try on a similar stunt here as it would only invite further regulation.
Vodafone: regulation will delay price cuts
"The difference between the regulated rate and the Undertakings [Telecom and Vodafone's suggested voluntary cuts] is likely to be minimal at best – perhaps two or three cents per minute better for voice and almost no difference for TXT," said a Vodafone spokesman.
Voluntary cuts would kick in during October but, by Vodafone's take, it could take another year for regulated cuts to kick in.
The Commerce Commission has maintained that what it sees as above-cost MTR, in concert with on-net plans like Best Mates that encourage calls to customers on the same network, blocks new competitors.
Vodafone counters that 2degrees, which six months after its launch claimed 206,000 active customers (around 4.5% of the market) ""is not having any trouble competing, so the commission's efforts to protect it, whilst theoretically elegant are completely unnecessary from a practical point of view."
Telecom shares (NZX: TEL) were up 1.05% to $1.92 in late morning trading in line with a broader market rise.
Wed, 16 Jun 2010