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EDITIONS
 Wednesday, 22 January, 2003, 07:52 GMT
Mobile phone firms ordered to cut rates
Woman speaking on mobile phone
Calls to other networks will be cheaper
Mobile phone companies have been told they must cut the price of calls to their networks.

The regulator Oftel announced the cuts following a year-long investigation by the Competition Commission.

Cost of calls to mobiles
Vodafone 20p
Orange 20.5p
O2 19p
T-Mobile 22.5p
(Cost per minute of daytime call from BT landline to mobile. Source: Oftel)
The cost of some calls should come down by up to 30% over three years, and Oftel said the new rules could save consumers 190m each year until 2006.

But already some of the UK's leading mobile operators, have protested against the decision.

Vodafone said the decision was "fundamentally flawed" and that it would be seeking a judicial review into the commission's proposals.

Irony

The investigation by the Competition Commission was prompted by the mobile phone operators' refusal to accept cost reductions proposed by Oftel in 2001.

Cost cuts
15% immediately
30% over 3 years

They referred the case to the commission themselves after objecting to Oftel's call for a reduction of inflation minus 12% over four years.

But the findings are thought to go beyond those earlier recommendations.

Oftel said operators are currently overcharging customers by up to 40% on so-called 'termination rates' - or calls to different mobile networks.

The price of a two minute peak rate call from BT to a Vodafone customer could come down from 40p to 35p by the end of July.

David Edmonds, Oftel director general

"Callers to mobile phones have no choice but to pay the termination charge set by the mobile operator, which means there is little incentive for the operators to reduce their charges towards their actual costs," Oftel said in a statement.

The regulator said operators will face an immediate one-off cut of up to 15% on prices charged to connect calls to mobile networks, which will start from 25 July 2003.

Reverse effect?

Similar reductions are expected to follow in the subsequent three years until 2005-6.

But Gavin Darby, chief executive of Vodafone UK, said: "The primary beneficiaries of the report will be the five million households in the UK who do not own a mobile phone, at the expense of the 49 million mobile phone customers."

The mobile phone operator said it would now seek a judicial review in order "to protect the interests of our customers".

Rival network operator Orange, controlled by France Telecom, said it was also considering requesting a judicial review.

Oftel argued that consumers would see immediate benefits from the changes.

David Edmonds, Oftel's director general of Telecommunications, said: "For example, the price of a two minute peak rate call from BT to a Vodafone customer could come down from 40p to 35p by the end of July.

"BT have indicated that they will pass on the savings in call termination charges to their customers."

Mr Edmonds said he did not believe the cuts would jeopardise the mobile operators' business plans.

'Job cuts'

But suggestions of the price cuts had already caused jitters in the stock market last week amid suggestions that tough price controls would force operators to axe jobs and reign back their investment in 3G networks.

News of the investigation's findings frightened investors and shares in Britain's major mobile phone operators slipped.

Mm02, the former mobile arm of BT Group, is considered to be the most vulnerable as it generates two-thirds of its calls in the UK.

Analysts suggested any fall in revenue would hamper plans to invest in new multimedia technology and gain the edge on rivals.

  WATCH/LISTEN
  ON THIS STORY
  Sir Richard Branson, Virgin Group Chairman
"I believe it will lead to higher prices"
  The BBC's John Moylan
"Major price cuts could be on the way"
  Chris Kenny, OFTEL
"We consulted extensively with the industry and consumer groups"
See also:

18 Nov 02 | Business
15 Nov 02 | Business
07 Nov 02 | Business
16 Dec 02 | Business
01 Jan 03 | Technology
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