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Wednesday, 26 September, 2001, 16:53 GMT 17:53 UK
Mobile call costs set to fall
mobile phone
The cost of calls to mobiles from fixed lines should drop about 20%
The price of calls to mobile phones should fall by an average of four pence a minute within four years, the UK's telecoms regulator Oftel has said.

In its long awaited review into mobile phone pricing, the watchdog singled out operators Vodafone and BT Cellnet, now called MMO2, for pricing calls too highly.

It also said people were paying too much for calls made to mobile phones from fixed lines.

As a result, Oftel extended controls on wholesale charges which it said should save consumers a total of 800m ($1.2bn; 1.3bn euros) over four years.

These controls have also been extended to the Orange and One2One networks for the first time.

Three times more expensive

In the report, Oftel said it could be three times more expensive to make a call to a mobile phone than to call someone with a standard fixed line connection in their home.

Oftel review of mobile market

Costs of making calls to mobiles to be reduced

Price controls extended to Orange and One2One for first time

Vodafone & BT Cellnet singled out for high prices

No price controls to be brought in for calls made on mobiles

Concern expressed over costs of international roaming

It said costs incurred by operators had fallen, but consumers had not seen the full benefit.

"Customers on all four networks should benefit from these reduced costs," said Oftel director general David Edmonds.

Although Oftel did not announce direct controls on retail prices, it said consumers should see an average four-pence-a-minute reduction within four years in the price of calls to mobile phones, whether the calls were made from fixed lines or other mobiles.

This would reduce by about 20% the cost of a peak-rate call to a mobile from a fixed line, Oftel said.

Wholesale controls

Price controls announced on Wednesday were for wholesale prices and toughened existing measures.

Oftel ordered operators to reduce the amount they charge each other for connecting to their networks by retail price inflation (RPI) minus 12 percentage points a year for four years.

Calling another network: Monthly contract
BT Cellnet 50p a minute peak rate, 30p off-peak
One2One 25p peak and off-peak
Orange 30p and 12p
Vodafone 50p and 30p

Orange and One2One were also included in the controls, when previously Vodafone and BT Cellnet only had been held to RPI minus 9%.

But the regulator decided against imposing a one-off reduction in prices, which it had done the last time it reviewed mobile costs, in 1999.

Fair balance?

Oftel said the new price controls should save consumers about 800m over the four year period.

Calling another network: Pay as you go
BT Cellnet 50p a minute peak rate, 25p off-peak
One2One 30p peak and off-peak
Orange 50p and 25p
Vodafone 50p and 30p

It said operators would see their revenue cut by about 600m because of the measures - with the difference reflecting the likelihood of increased profits from higher call volumes after prices had been reduced.

"This strikes a fair balance between the needs of consumers to be protected from high prices in this market and the ability of the operators to make fair returns," Oftel said.

Analysts said the controls would take about 1% off the revenue of UK operators over the four years.

What do other countries charge?
France: Orange to Orange (pay as you go) - 19p
Orange to other network: 31p to 37p
Germany: T-mobile to T-mobile - 31p to 48p
Group revenues for Orange would fall 0.3% while Vodafone would see 0.1% shaved off revenue, said Mark James, analyst at Japanese bank Nomura.

"I think on balance this is positive news for the sector," said Chris Godsmark, telecoms analyst at Investec Henderson Crosthwaite Securities.

"[The control] is clearly a little bit tougher than we might have expected but the good news for the four operators is that the threat of a one-off price cut and the longer term threat of increased regulatory intrusions have been removed".

Consumer reaction

Oftel's announcement was welcomed by consumer bodies.

"This is good news for consumers who should see mobile phone call charges for all four big operators come down more steeply over the next few years," said Anna Bradley, director of the National Consumer Council.

"But we believe there is still a case for an additional one-off cut in charges because they are still above costs," she added.

The Consumers' Association said any price cut was welcome but said Oftel was placing "too much faith in the 'prospect' of competition".

"The next few years will create as many problems as solutions as companies look to recoup their massive expenditure on 3G [third-generation] licences," a spokesman said.

Not effectively competitive

Oftel maintained competition in the mobile market had increased and said this had helped cut the cost of mobile telephony by about 30% since 1999.

But despite the competition in the sector, the regulator singled out two operators for criticism.

"Our review found that over a period of time, on average, Vodafone and BT Cellnet priced calls at levels higher than would be seen in a truly competitive market place" said Mr Edmonds.

"This means I cannot yet conclude that the mobile market is effectively competitive."

 WATCH/LISTEN
 ON THIS STORY
The BBC's John Moylan
"Consumer groups claim Oftel could have done more"
Oftel spokesman Chris Kenny
"We've come up with a balanced package"
See also:

26 Sep 01 | Business
Picking the right mobile phone
07 Sep 01 | Sci/Tech
3G mobile phones: Will they deliver?
05 Sep 01 | Business
BT sets mobile float date
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