Commerce Commission recommends regulation of mobile termination access services in draft report

In a draft reconsideration report issued today, the Commerce Commission has indicated that its preliminary view is to recommend that the Minister for Communications and Information Technology regulate mobile termination access services, and not accept undertakings from Telecom and Vodafone.

Following the Commission's final report released in February 2010 Vodafone announced a new Talk Add-on product. The Minister then requested that the Commission reconsider its earlier recommendation that Telecom and Vodafone's final undertakings should be accepted in light of that and any other relevant retail offers released since the Commission's final report.

The Commission's preliminary view in this reconsideration is that, in light of the new Talk Add-on plan, the mobile termination rates contained in the final undertakings offered by Vodafone and Telecom will not address the competition concerns identified by the Commission during its mobile termination access services (MTAS) investigation.

"The on-net retail pricing component of Vodafone's new Talk Add-on plan, offered since the final MTAS report, perpetuates the barrier to expansion that the final undertakings, if accepted by the Minister, were designed to remove," said Dr Ross Patterson, Telecommunications Commissioner.

"While lower retail prices are generally good for consumers, the competition concern which arises in relation to the Talk Add-on plan is the combination of low on-net retail prices and above-cost wholesale mobile termination rates which creates a barrier to efficient expansion by a new entrant," said Dr Patterson.

"In light of such developments, the Commission's preliminary view is that if cost-based mobile termination rates were put in place, then all mobile operators would be able to vigorously compete in the retail market and provide consumers with competitive and innovative calling products," said Dr Patterson.

"Our preliminary view is that the introduction of Vodafone's Talk Add-on plan is evidence that the assumptions made by Commissioner Gowan Pickering and me in the Commission's final report, in respect of Vodafone's future behaviour, have been undermined. As a consequence, the conclusion that 'the competition concerns identified by the Commission would be addressed in a timely manner by acceptance of the final undertakings', which was based on those assumptions, cannot stand," said Dr Patterson.

The Commission is now inviting submissions on the draft reconsideration report. Submissions are due with the Commission by 5pm on 19 May 2010.

The Commission's draft reconsideration report and associated documents are all available on the Commission's website at www.comcom.govt.nz/mobiletomobiletermination

Indicative Timeline for Reconsideration Process

Background

Mobile termination prices are the wholesale charges mobile phone companies charge for terminating calls or texts from other fixed or mobile networks.

Undertakings. Under the Telecommunications Act 2001, parties can submit undertakings, which are an offer of terms and conditions for the supply of a service as an alternative to regulation.

Requirements of the Telecommunications Act. The Act requires that the Commission makes a recommendation which best promotes competition for the long-term benefit of end users.

Reconsideration of Commission's recommendations. Under clause 6(2)(b) of Schedule 3 of the Act, the Minister can require the Commission to reconsider its recommendation or any aspect of its recommendation, for any reasons specified by the Minister.

MTAS investigation. On 6 November 2008 the Commerce Commission commenced an investigation under Schedule 3 of the Act into mobile termination access services (MTAS). The MTAS incorporates mobile-to-mobile voice termination (MTM), fixed-to-mobile voice termination (FTM) and short-message service termination (SMS). The investigation considered whether these services should become regulated services under Schedule 1 of the Act.

On 22 February 2010 the Commission recommended that the Minister accept undertakings from Telecom and Vodafone as an alternative to regulation.  

In April 2010 Vodafone launched a new Talk Add-on product offering up to 200 minutes to Vodafone New Zealand mobiles and landlines for $12 a month for certain pre-pay plans. This plan is promoted on Vodafone's website as "just 6 cents a minute to Vodafone NZ mobiles and landlines in New Zealand".

In April 2010, the Commission invited the Minister to take account of this new Vodafone product, Talk Add-on, in his assessment of whether Telecom's and Vodafone's final undertakings should be accepted, or whether it was appropriate to request the Commission to reconsider its recommendation in light of the potential impact of Vodafone's new Talk Add-on product. The Minister then requested that the Commission reconsider its earlier recommendation that Telecom and Vodafone's final undertakings should be accepted.

On 27 April 2010 the Commission announced its process for reconsidering its recommendation     following a request from the Minister for Communications and Information Technology under the Telecommunications Act 2001.

The Minister requested that the Commission consider the implications, if any, of any relevant retail offers on the Commission's recommendation that the Minister accept the undertakings put forward by Telecom and Vodafone. Retail offers to be considered are those that have been released since the Commission sent its report to the Minister on 22 February 2010, or that may be released before the Commission finalises its reconsidered recommendation.