Mr Chairman
 

Thank you very much for the opportunity to speak once again on the question of termination charges. I made many of the points yesterday so I will endeavour to be brief.

The documents in question, the contribution originally made at the end of last year, a delayed contribution with further arguments and data concerning international calls plus my interventions yesterday and today, are all on the INTUG.net web site. The delayed contribution will be resubmitted as a white document to the next meeting. However, a further delayed contribution may be necessary for that meeting and to the rapportur's group, since we expect important developments.

Let me start from where I left off yesterday.

Governments are concerned to achieve economic growth and increased productivity. These arise in part from the telecommunications sector, but much more from the use of telecomunications in other sectors of the economy. Governments have an important role in removing barriers that would otherwise restrict diffusion of technologies in the economy at large.

As I indicated, INTUG is extremely concerned about the very high costs of termination, both domestic and international. The effect is to distort spending on telecommunications. It stops the adoption of new services and the wider adoption of mobile telephones. It forces companies to adopt policies restricting the use of telecommunications by their employees.

Our experience from the markets, from the bills that we have to pay, is that the costs of international telephony have been declining over recent years, sometimes quite sharply. However, the benefits of this are rapidly being wiped out by the mobile operators. Over the last two years, we have seen an increasing number of calls to mobile networks charged at higher rates. 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.

INTUG has raised the subject of these excessive charges with:

• Federal Communications Commission
• European Commission, to Commissioner Erkki Liikanen
• CITEL

We are also due in the very near future to meet with the European Commission's Directorate-General on Competition to discuss these matters.
 

Higher prices

They sold their souls to the financial markets. They promised growth and eventually super-profits. To achieve growth they had to acquire customers, despite churn rates of one quarter.

They gave away hand-sets, they offered free on-net calls, they did anything to sustain growth.

With the dot bomb everything changed, they found they were no longer trusted, they were to be measured on ARPU  on the shortest time frame.

They had two hidden sources of income, from what might be called "markets", except that there was no competition there was a monopoly. These were roaming, about 10 per cent of mobile operator income, and call termination, about 25 per cent of income.

The mobile operators relied on human weakness. We select our mobile services by considering the cost of the outgoing calls we make. We seldom consider the cost that others must pay to reach us.

The termination prices have been unregulated in the majority of cases. Nonetheless, we have seen useful recent decisions on domestic termination prices by the regulators in Sweden and in Greece, plus a very important outcome of a long proceeding by the European Commission concerning termination rates in the Netherlands.

When users complain to fixed operators we are assured that they have merely been passing on the costs charged to them by mobile operators. They quietly ignore the fact that they are often both the mobile and the fixed operator in question.

The position of the mobile operators is that they rely on the income, they are addicted and cannot give it up without upsetting the financial markets. Consequently, they must engage in convulted arguments try to justify why a call to a mobile network really costs 10 or 15 cents a minutes, ten times as much as on fixed networks.

The mobile operators offer a mechanism of diverting calls from a PBX directly onto the their network at the price of an on-net call. Prices around the level of the Sprint and Analysys studies, perhaps 4 or 5 cents..

We are told that the higher price represent the greater value to us of ensuring that our call reaches the individual concerned when we wish to. We consider this argument to be spurious and without merit.

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.

It is not practicable to move to CPP, especially in countries with many pre-paid cards. It is not possible.

We cannot introduce more competition with the present limits on spectrum. This is not helped by the present sentiment of the financial markets which has little taste for more telecoms.

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.

The European Commission has already explained why the relevant market is a single operator and not a national market. This has been supported by the Independent Regulators Group in a very useful document.

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 licen
 

Conclusion

INTUG has heard no argument against this. Indeed we have heard a lot of very sophisticated arguments, I could call them sophistry, but very little to suggest that we need further delay in applying cost orientation and beginning the process of reducing these grossly inflated prices which arise from the abuse of market failures and an abuse of dominance.

One immediate measure we would like to see is where administration have taken action to regulate domestic call termination prices that they extend this to call from other member states.
 

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Last updated 13 June 2002.