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Last Updated: Thursday, 24 July, 2003, 07:47 GMT 08:47 UK
Q&A: Mobile phone price cuts
The cost of some mobile phone calls is set to fall over the next three years. BBC News Online looks at why the price cut is happening and how much you may save.

I have a mobile phone - will this decision save me money?

Yes, bills for most mobile phone users and many landline users will be cut.

A Competition Commission ruling, backed by a High Court decision last month, that mobile phone networks should cut their "termination charges" by 15% from Thursday.

People calling from a landline or a rival mobile phone network have to pay this termination charge for the privilege of being put through to the mobile operator's customers.

The National Consumer Council estimates that these termination charges account for two-thirds of the final cost of a mobile phone call.

Why has the Competition Commission acted?

Oftel, the telecoms watchdog, launched an investigation into termination charges back in 2001.

The watchdog concluded the mobile phone companies were charging at least 40% more in termination fees than they were incurring in costs.

Oftel said there should be an immediate price cut and that mobile firms would have their termination charges gradually phased out.

As a result of the Oftel findings, the Competition Commission launched its own investigation last year.

In January, the commission announced that it agreed with Oftel and adopted its formula for the slashing of charges.

Vodafone, Orange and T-Mobile challenged the Competition Commission ruling on the grounds that the regulator was attempting to act outside his powers under both EU and domestic legislation.

So the July price cut is only the beginning?

In theory, if everything goes to plan, termination charges will be capped at the inflation rate minus 15% for mmO2 and Vodafone, and inflation minus 14% for Orange and T-Mobile each year until 2006.

The difference in capped rates between operators represents the differing costs incurred by mobile firms.

In total, Oftel estimates that consumers will see bills fall by an average of 18 a year by 2006.

The latest estimate from Oftel is that by 2006 the cost of a call from a BT fixed line to a mobile will fall from 17p per minute to 12p per minute on average.

As for cross network mobile phone calls, the average cost will fall from 24p per minute to 19p per minute.

How have the mobile phone firms reacted?

T-Mobile has warned that the ruling would inevitably push up the costs of mobile phone handsets.

At present, handsets are sold in the UK at a substantial loss and operators recoup the money through higher phone charges.

The cheap handsets are the bait to lure customers, who rarely add up the call charges incurred over a full year of phone usage.

The logic is simple. If the costs of making calls are driven down, consumers will have to pay more for new phones.

However, the first mobile operator to blink and raise the cost of its handsets may find that consumers desert them in droves.

In addition, any hike in handset costs may work against the mobile firms, with consumers becoming become less keen on upgrading their phones.

As a result, mobile phone firms could miss out on attracting consumers to take up next generation services such as picture messaging.

So is it a total victory for the hard-pressed consumer?

This may not be the end of the story.

Mobile firms may decide to fight the phased price cuts planned for the next three years, as and when they are due to kick in.

In short, this story could run and run and all the time consumers may find that the prices they are paying for handsets start to mount.




SEE ALSO:
UK mobile bills set to fall
24 Jul 03  |  Business
Phone charges to be cut
27 Jun 03  |  Business
Mobile call charges too 'high'
23 Jul 02  |  Business
Watchdog probes mobile phone firms
02 Apr 02  |  Business


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