Mr Chairman

There is posted on the INTUG web site a document sent to the ITU in May as a delayed contribution on the question of international calls to mobile networks. There is also an earlier contribution originally made at the end of last year. INTUG, as a matter of course, makes as many documents public as it can.

I apologise for not having been able to attend the Rapporteur’s Group last week. I was attending OECD meetings and my colleague, our Vice-Chairman who frequently attends Study Group 3, was elsewhere on urgent company business.

INTUG is extremely concerned about the very high costs of termination, both domestic and international. These are absorbing telecommunications budgets that would otherwise be spent on new and more innovative services.

Let me confine myself today to international termination prices, since that is more directly the concern of the ITU.

Our experience from the markets, from the bills we pays, is that the costs of international telephony have been declining over recent years. The benefits of this are now being wiped out by the mobile operators. We are being taken back many years, since the prices we have to pay look like those of a five, ten or fifteen years ago.

If I take as an example a call to mobile telephone in Belgium where I have my own subscription. The additional cost, that is over the price of a call to a fixed telephone in Belgium, is US$ 0.20 per minute from the USA, NZ$ 0.40 per minute and £ 0.15 per minute from the United Kingdom.

In those countries where the prices for fixed call termination are the most competitive we see the biggest price differentials.

The fixed operators assure us that they are merely passing on the costs charged to them by mobile operators.

When we ask the mobile operators about this we are told on the one hand that these prices are not negotiatable and that the higher price represents the greater value to us of ensuring that our call reaches the individual concerned when we wish to.

We consider the first argument to be anti-competitive and an abuse of dominance, while the second argument is spurious and without merit.

The question raised by BSNL (the Indian incumbent operator) concerning an approach which is technology specfic misunderstands. The problem is that termination on mobile networks is a non-competitive market.

Financial analysts recently identified the potential regulation of termination prices as the subject of concern. They estimated that leading mobile operators were earning one quarter of their income from termination prices. Consequently, any regulatory action to reduce this would have considerable effects on the Average Revenue Per User (ARPU).

We believe that the cause of the problem lies in the total absence of competition, at least in countries using Calling Party Pays (CPP). The only way to complete a call to a particular individual is through their mobile operator. From this it follows that operators can raise their prices substantially without incurring any financial loss.

We believe that the operators elect to extract revenues from the termination market where they face no competition as an alternative to charging more in the origination market where they face their rivals. Having made a success of this in the domestic market, they have extended it abroad. Here their inflated tariffs are easier to conceal and harder to regulate.

The ITU has a long established principle of cost orientation. We believe that this must be applied to international calls to mobile networks, regardles of whether the call orginates on a fixed or a mobile network.

In competition law terms the operators are leveraging their market power from their call termination market in one country into the call origination markets of other countries. We would contend that this leverage is illegal and an abuse of dominance.

We believe that many administrations have obligations under the World Trade Organisation commitments. This requires that they provide cost oriented interconnection to all major operators. This includes all mobile operators, since they have essential facilities and hold one of a very small number of licences.

We have provided some really quite disturbing data on the price differences. These data were taken from Arbinet, one of the spot markets, at end of April. This avoids some of the problems of data gathering.

I will give only a very few examples.
 

In Europe we see call termination rates of around one or two cents a minute for fixed networks. Moreover, those prices are relatively consistent. By comparison, the costs of mobile termination are very much higher and much more variable. They range from 10 cents up 16 cents per minute. So that the percentage price differences are typically of 800 to 900 per cent and go as high as 1400 per cent.

These prices come from late April, but are typical of the first half of this year.

We are not pre-specifying a particular level of costs, nor even a specific methodology, merely insisting that cost orientation be applied and be applied quickly. The abuses in the market have been going on for some time now.

The operators are asking foreign callers to accept all sorts of costs, including their own bad practices and incompetence.

For example, the wording they propose asks the ITU to allow the inclusion of customer management costs. However, these are largely driven by churn, that is by their own inability to keep more than three-quarters of their customers in any one year results in massive customer acquisition costs. So foreigner callers must pay towards bad management and poor operations.

The operators are also attempting to pass off the costs of their speculative acquisitions of licences in one market onto customers in foreign markets. This is something which is both iniquitous and self-defeating. It would have the effect of driving up the cost of calls to 3G, discouraging customers from switching to IMT-2000. In Germany and the United Kingdom it might make calls to IMT-2000 networks beyond the reach of even the wealthy.

Vodafone has made complicated arguments concerning network externalities. I am at a loss to see why these have been raised. The effect is well known and applies to all networks in the same way, to fixed and mobile alike. There is no theoretical reason why they should be applied only to mobile.

I should make a comment on countries such as Canada and the USA where the use of RPP creates a special problem. Callers in the USA are not expecting higher prices for calls to mobile and so are more vulnerable to the abusive practices of foreign operators. Consequently, they are more in need of protection.

Finally, the aim of users is to move spending from call termination rates to more exciting applications those which add value to the businesses and individuals and which make economies more competitive and yield productivity gains.
 

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Last updated 12 June 2002.