The Commerce Commission has recommended to the Minister of Communications that the termination of fixed line voice calls on a cellular telephone network should be regulated. However, the Commission has specifically excluded from its recommendation voice calls using third generation (3G) mobile technology.

Telecommunications Commissioner Douglas Webb said the Commission considers that limited competition in the market for mobile termination has resulted in mobile network operators setting mobile termination rates for fixed-to-mobile calls significantly above the level required to cover costs, including a reasonable return on capital.

"We have estimated the cost of mobile termination to be around 15 cents a minute, in comparison with around 27 cents a minute which is currently being charged. There is an obvious and significant impact on prices charged to users calling mobiles from a landline...

"The Commission considers that a regulated reduction in the price of terminating fixed line calls on a cellular network is likely to lead to increased competition and lower prices for fixed-to-mobile calls," said Mr Webb.

"The Commission believes there will be substantial benefits to consumers and business from regulating mobile termination rates, despite the likely upward pressure on the price of mobile phone services that may result from the regulation" Mr Webb said.

"We have deliberately excluded the new 3G (or later) technology from our recommendation to the government because we were concerned that regulation in this emerging market may affect investment. The planned investments of the mobile operators in 3G are large and it is important that they have the opportunity to make them without facing the risk of returns being restricted by regulation."

"Regulation needs to strike a balance between promoting competition through providing access for competitors to network assets, and maintaining the incentives for operators to invest in new networks " Mr Webb said.

"The Commission's technical analysis has demonstrated that Telecom's 027 network does not provide voice calls using 3G technology, and therefore, termination of fixed line calls on Telecom's CDMA network would be regulated under the Commission's proposals, along with calls terminating on Vodafone's GSM network."

The Commission's recommendation is for the initial price for mobile termination to be set by benchmarking against other comparable countries and the final price by TSLRIC (forward-looking cost based modelling).

Though the Commission's recommendations relate only to fixed-to-mobile calls, the Commission has considered the overall price levels of mobile services. Mr Webb said that mobile services prices in New Zealand are relatively high compared to other OECD countries, even after making allowances for the characteristics of the New Zealand market. A comparison of New Zealand prices with those in other OECD countries shows that New Zealand is one of the most expensive countries in the OECD for users of mobile phones, and that the comparison becomes even less favourable as usage levels increase.

The Commission began its investigation into mobile termination in May last year after considering complaints that a potential lack of competition in the wholesale market for terminating mobile calls may be resulting in unreasonably high retail charges for fixed-to-mobile calls.

A copy of the Commission's final report on mobile termination is available on www.comcom.govt.nz (select Telecommunications and then Investigations).