By June 29, 2010

Four million users will disconnect as mobile prices rise, says operator

Around four million mobile phone users will be forced to disconnect their mobile phones if Ofcom goes ahead with proposals to cut mobile termination rates, Vodafone warned today.

The warning comes as Ofcom moves to implement proposals to cut mobile termination rates (MTR) from 4.3 pence per minute (ppm) to 0.5 ppm between 2011 and 2015.

Vodafone chief Guy Lawrence warned: ‘Ofcom’s proposals to slash our incoming call revenues are likely to mean that low income families will start paying more to use their phones because the money we receive from incoming calls will disappear. 

‘This revenue has allowed us to support low spenders.  We see these proposals as unnecessary intervention which tax low income families and should be reconsidered.’

Vodafone argues that the cut would force operators to increase mobile prices.

In a statement taken from its response to Ofcom’s consultation document on MTRs the operator says: ‘The right way to assess Ofcom’s proposal is to consider the impact of reducing termination rates below a level at which other mobile prices have to rise.  This is the level at which mobile customers are directly affected and potentially harmed. 

‘Termination rates can fall without harm to customers if they reflect increased efficiencies, but there comes a point at which the reductions in prices will outstrip reductions in costs.  We estimate that this occurs when termination rates fall below 3.7 ppm in 2014/15, or if prices fall by around 4% every year.’

Vodafone dismissed arguments that any price rises from the changes will not affect the poorest mobile phone users and that even if some mobile users do disconnect, the benefits of lower mobile call prices and cheaper fixed to mobile calls for those who remain will outweigh any disadvantages.

The operator estimates that ‘four million mobile users would disconnect their mobile phones when prices rise as a result of termination rates falling as low as 0.5 ppm.’

Of these users, Vodafone argues that 2.6 million spend less than £10 per month on their phones. 

‘They are disproportionately D and E in socio-economic terms and very few of them of them have multiple Sim cards,’ it claims.

It adds: ‘Those that will benefit from Ofcom’s proposals will need to be spending more than £25 a month on mobile services.’

O2 echoed Vodafone’s concerns. An O2 spokeswoman said: ‘Ofcom’s proposals on mobile termination rates are deeply flawed. At the heart of Ofcom’s arguments is the intention that prepay customers should pay a fixed fee. We think that this would be extremely damaging for our Pay & Go customers who want the flexibility to just pay for what they use. It may prompt some prepay customers to stop using their mobiles. We don’t think Ofcom has looked at the evidence yet but hope that it will change its position based on our consultation submission.’

Ofcom could face a legal challenge from UK operators if it goes ahead with its proposed level of cuts. The move has been met with concerted opposition from all network operators apart from 3.

The consultation period for the MTR proposals closed last week.

Posted in: Phones

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