“maintain it with some little cost”*: Termination Rates Recommendation

Posted on May 20, 2009 | Filed Under communication technologies 

Today, the Commission Recommendation of 7 May 2009 on the Regulatory Treatment of Fixed and Mobile Termination Rates in the EU (2009/396/EC) was published in the Official Journal. Presenting the recommendation two weeks ago, Commissioners Reding and Kroes were excited with the prospect of “cutting the price of phone calls” and “ending the fixed-mobile-subsidy“, even though on the face of it it is just a recommendation that should lead to a more harmonized approach of national regulatory authorities (NRAs) in applying remedies in the fixed and mobile-termination-markets, and especially in the cost models that NRAs use to set the appropriate rates.

The Commission’s approach is laid out in greater detail in an explanatory note, and there is additional information in a further staff working document on implications for industry, competition and consumers.

Summing up the recommendation:

  • NRAs are expected to “set termination rates based on the costs incurred by an efficient operator. This implies that they would also be symmetric.”
  • The evaluation of efficient costs should be “based on current cost and the use of a bottom-up modelling approach using long-run incremental costs (LRIC) as the relevant cost methodology.”
  • It is, however, ok to “compare the results of the bottom-up modelling approach with those of a top-down model which uses audited data with a view to verifying and improving the robustness of the results and may make adjustments accordingly”.
  • Any deviation should be “justified by objective cost differences which are outside the control of the operators concerned. Such objective cost differences may emerge in mobile termination markets due to uneven spectrum assignments.”
  • The “appropriate efficient scale of the modelled operator” is set at 20 % market share for mobile operators .
  • “In case it can be demonstrated that a new mobile entrant operating below the minimum efficient scale incurs higher per-unit incremental costs than the modelled operator, after having determined that there are impediments on the retail market to market entry and expansion, the NRAs may allow these higher costs to be recouped during a transitional period via regulated termination rates. Any such period should not exceed four years after market entry.”

Also today, Ofcom published its consultation document on future regulation of wholesale mobile voice call termination (consultation website).  

In addition, and probably not directly linked, Ofcom today also announced a pay freeze (Ofcom’s “CEO” Ed Richards, by the way, made GBP 417.581 [around € 473.000] in 2007-08, according to the Taxpayers’ Alliance - even if the the freeze for him means missing out on the bonus, he won’t really feel cold, I presume).

I am still waiting, however, for Ofcom’s bottom up-model of an efficient regulator.

*) Shakespeare, King Richard III, Act III, Scene 2

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