Ofcom cuts mobile connection fees

Ofcom hope the changes will lead to lower bills for consumers

People calling mobile phones from landlines could enjoy lower bills after industry watchdog Ofcom told mobile firms to cut their connection fees.

Following a review, Ofcom has announced limits on the amount mobile phone companies can charge other operators for connecting calls on their networks.

Limiting tariffs is expected to lead to an annual cut of between £400m and £500m in wholesale charges.

The move should mean a saving of £8 per year for landline users, Ofcom said.

However, while charges for calls to mobiles from fixed lines are set to drop, mobile to mobile call tariffs are unlikely to be affected.

And BT said that the cuts on calls from landlines to mobiles had not been severe enough.

Experts said that because mobile phone companies were not expected to make any net revenue gains from the move, there would be little or no change in charges.

The new limits on termination charges are set to come into force on 1 April and will last for four years.

'Significant power'

Termination charges are the amounts that mobile operators charge each other for taking calls to their networks.

Such charges account for £2.5bn, or 15%, of the UK annual revenues of mobile phone operators.

Ofcom's charge controls will apply to Hutchison Whampoa's 3 unit and other providers of 3G services, as well as 2G network operators who were previously subject to regulation.

The regulator said that 3 would be subject to charge controls of 5.9 pence per minute - a reduction of 45% from existing charges.

The average wholesale charges for Vodafone, O2, Orange and T-Mobile will be cut to 5.1p a minute - a reduction of about 20% for Orange and T-Mobile and 10% for O2 and Vodafone.

Ofcom said that its investigation of the sector had found that the five firms had "significant market power".

It said it expected the savings from the lower charges to be passed on to customers.

BT said it felt Ofcom had not gone far enough and that savings for landline customers should be closer to £16 per year.

"It seems strange that UK landline customers will have to subsidise the cost of the 3G data services but get no benefit from them," said BT's chief operating officer John Petter.

"The mobile call termination rate has been too high for too long and will force UK landline customers to continue to subsidise the mobile industry."

Tariffs targeted

Regulators across Europe, including Ofcom, have been taking aim at expensive termination charges for a number of years, resulting in significant falls in the cost of calling a mobile phone.

However, Ofcom's latest controls remain higher that the European Commission would have liked as they were based on the prices paid by mobile phone companies for 3G licences in 2000, rather than their current value.

UK mobile operators spent a total of £22.5bn on 3G licences in 2000, the height of the technology bubble.

The Commission had wanted Ofcom to base its calculations on the current value of the licences, which is likely to be less than the amount paid seven years ago.

However, the settlement may be welcomed by mobile phone operators who are already braced for a cap on the roaming charges that mobile users pay to make and receive calls in other EU countries.