Further reducing the wholesale cost of mobile calls

Tags: Ofcom

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The wholesale cost of connecting mobile phone calls is set to continue falling under proposals announced by Ofcom today.

The charges levied by operators for connecting calls to a different network - known as ‘mobile termination rates' - have fallen significantly in recent years, following intervention by Ofcom. Today's proposals would mean this trend continues in coming years.

When a consumer calls a mobile phone user on a different network - either from a mobile or a landline - the network operator they are calling charges a ‘termination rate' to the provider with whom they are placing the call. This wholesale charge is part of the cost of delivering calls that providers consider when they set retail prices for consumers.

Ofcom concluded its last review of the market for mobile termination rates in 2011, imposing a control on the rates charged by the four largest network operators.

Since then, industry rates have fallen by around 80%, from around 4 pence per minute (ppm) to around 0.8 ppm. This represents a significant fall from a decade ago, when termination rates were 14 ppm.

Ofcom is today proposing a new charge control, applying to all operators, which would mean termination rates would fall slightly further, to less than half a penny per minute by April 2017 in real terms.

A changing mobile market

The mobile market has changed significantly since Ofcom last reviewed these charges. The amount of spectrum available to provide mobile services has increased dramatically, following the release of 4G spectrum auctioned by Ofcom in 2013.

All four largest mobile operators have now launched competing 4G networks, with each aiming to cover around 98% of the country by next year. These networks are currently used for high-speed mobile broadband, but operators are expected in the near future to start using them for voice calls.

Mobile networks and technologies are also becoming more efficient, leading to lower costs. Ofcom has taken all these changes into account in reviewing termination rates. The new charge controls are designed to ensure that the charges levied by operators reflect these lower costs.

Brian Potterill, Ofcom Competition Policy Director, said: "Consumers in the UK benefit from a thriving competitive market, and mobile calls have never been cheaper. The average cost of a call bundle has fallen from £40 to around £13 in real terms over the last ten years.

"We want to ensure mobile users continue to benefit from competition, which will deliver affordable services in the years ahead."

Today's consultation on the proposals closes on 13 August 2014. Ofcom expects to publish its final decisions by March 2015.