During May, there were some significant developments in relation to mobile and fixed-line termination charges across Europe.
A termination charge arises when a call is made from the network of one operator to the network of another. The charge is payable by the operator of the network from which the call is made, and is paid to the operator of the receiving network. The price of the termination charge is also set by the receiving operator. Termination charge prices are currently regulated in all Member States.
The European Commission has adopted a recommendation regarding the regulation of termination charges
Currently, Member States do not all deal with regulation of termination charges in the same way. On 26 June 2008, the European Commission published a draft recommendation for consultation relating to regulation of fixed and mobile termination rates. On 7 May 2009, the Commission adopted the final version of the recommendation. Every National Regulatory Authority (“NRA”) must take “utmost account” of the recommendation (for example this includes Ofcom in the United Kingdom).
Significant elements of the recommendation include:
- NRAs should set symmetric termination rates based on the costs incurred by an efficient operator.
- Principles for the evaluation of efficient cost levels, and the circumstances in which there can be deviation from those principles
- A new mobile phone entrant may, in certain circumstances, be allowed to apply different regulated termination rates in order to recoup higher costs. The period in which it can do this should not exceed four years from entry to the market.
- The general deadline for implementation is 31 December 2012, but in exceptional circumstances NRAs will have until 1 July 2014 (for example where NRAs have limited resources).
The Commission expects its proposals to reduce termination rates considerably.
Ofcom has published a consultation relating to mobile termination charges
The current caps set by Ofcom for mobile termination rates will expire on 31 March 2011. On 20 May 2009, Ofcom published a preliminary consultation regarding the regulation of mobile phone termination rates after March 2011. The consultation sets out six options, one of which is the removal of regulation of termination charges. The other five are different methods for calculating the rates and are set out below:
- Long Run Incremental Cost + - under which the rates take into account operators’ fixed and common costs for the service.
- Long Run Marginal Cost - which would not allow for recovery of common costs. Under this system, common costs would need to be recovered from other types of charges.
- Capacity Based Charges - under which charges would be based on the capacity required to carry traffic.
- Mandated Reciprocity - under which each operator would have the same termination charge irrespective of the underlying network or cost structure.
- Mandated “bill and keep” - under which termination rates would effectively be set at zero.
Parties have also been invited to propose alternative options. The consultation will continue until 29 July of this year. As stated above, Ofcom will need to take “utmost account” of the European Commission’s recommendation in this area.
Competition Appeal Tribunal and Ofcom’s UK decisions relating to termination charges
On 26 May 2009, a ruling was published by the Competition Appeal Tribunal (“CAT”) granting permission for two appeals relating to termination charges to be made to the Court of Appeal. The appeals are the appeals of British Telecommunications plc and Hutchison 3G Limited to the CAT against Ofcom decisions in 2007 about mobile call termination charges. The CAT had directed Ofcom to change termination charge price controls for the period of 2007-2011 including the period between 2007 and 2009 that had already elapsed.
The first permission to appeal was in relation to a CAT decision to allow Ofcom to reset the price controls for the whole period of 2007-2011. Permission to appeal was sought by all four parties intervening in the action: Telefónica O2 (UK) Limited, T-Mobile (UK) Limited, Vodafone Limited and Orange Personal Communications Services Limited. The parties sought permission to appeal on the basis that the CAT could not direct Ofcom to change price controls for the 2007 – 2009 period which had elapsed by the time of the CAT’s judgment. They are contending that such a direction could only be made in relation to the remaining period that had not elapsed.
The second permission is only effective if the first appeal is unsuccessful. If so, Vodafone and T-Mobile will appeal on the ground that, if it were found that the CAT did have the power to direct Ofcom to change price controls for an elapsed period, it nevertheless should not have done so on the facts.
The tribunal accepted that the use of retrospective power was a difficult issue and therefore granted the permissions to appeal. The appeal is likely to be heard within the year.