Vodafone calls mobile price regulation 'extreme'; likely to seek review

Vodafone says the Commerce Commission took an "extreme view" in its position on mobile termination rate regulation, announced this morning.

The commission has taken arbitrary benchmark rates which are far below cost., the company said in a statement.

The watchdog has always maintained that it is looking to set mobile termination rates at cost.

Earnings hit
Whichever side is correct, Vodafone is in for some financial pain.

Forsyth Barr analyst Guy Hallwright told NBR he estimated the ebitda impact would be $50 million to $70 million per year, depending on the extent to which Vodafone passes on the price cuts to customers, and demaind elasticity (the degree to which lower mobile prices spurs new business).

But back to that extreme argument ...
The 4 cent per minute voice rate in New Zealand looks extreme in comparison to current termination rates in Australia at 10c and 11c in Europe, Vodafone maintained.

It is half the rate indicated by the only available estimate of cost in New Zealand which was provided to the commission during the STD process. SMS is unregulated in most countries but the Commission has chosen to regulate and has set a cost which is around a third of our best estimate of cost, the company said.

Vodafone General Manager Corporate Affairs Tom Chignell said that below-cost pricing is bad for investment in the telecommunications sector and will, in the long term, impact competition through dampening innovation and technology differentiation. This comes at a time when the government is looking for the industry to step up and invest in next generation broadband networks.

Likely to seek a review
“Competition in the New Zealand mobile market is very healthy. There are three strong mobile operators and 11 brands. 2degrees' remarkable success is testament to this. No one, including 2degrees, is saying that lower mobile termination rates will mean lower mobile calling prices.”

“Vodafone is likely to seek a review because the evidence shows that the price is significantly below cost.”

Last week, a Commerce Commission spokeswoman told NBR that under the Telecommunications Act, a regulation could stay in force while Telecom, Vodafone or any other carrier sought a Hight Court appeal.

Asked to elaborate on what he meant by seekinbg a review, Mr Chignell responded:

"There are two options. A price review which involves the commission building a proper cost model (like the one we gave them). We have indicated that because the prices set by the commission are about half (for voice and a third for SMS) what we estimate cost to be we are likely to call for a price review.

"The second option is judicial review. I have no view on that option. The report is 338 pages long and requires considerable study before Vodafone decides on next steps."