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Summary

The European Commission (EC) has been relatively successful in getting national regulators to bring mobile termination rates (MTRs) down to pure-LRIC levels. However, some countries still fail to comply with the EC’s recommendation – Finland is the latest example. The EC has a number of challenges ahead. Measuring the benefit of reduced MTRs is increasingly difficult and operators would like to achieve more harmonization in MTRs across EU countries following the scrapping of roaming surcharges.

Despite the EC’s success in driving MTRs down, harmonization across countries will be a challenging issue

The approval of new mobile termination rates by Finland’s national regulator, Ficora, begins a new episode of the ongoing saga between the EC and national regulators.

The EC’s 2009 Recommendation on Fixed and Mobile Termination Rates, which required regulators to bring MTRs down to pure-LRIC levels by the beginning of 2013, now has a high degree of compliance. However, some national regulators are still departing from it, most notably those of Germany and Finland. Since 2008 the Finnish regulator has employed a fully-allocated cost model (FAC), in which operating and overhead costs are measured on the basis of historical costs and capital costs are measured on the basis of current costs.

Ficora’s latest decision is that MTRs will continue to be calculated using an FAC model. The EC has opened a Phase II investigation into its failure to use an LRIC approach, but the regulator argues that current national legislation makes it impossible to adopt an LRIC model, because the costs of an efficient operator should also include the overheads regarding production of products and services. In a conflict between national rules and the EC’s recommendation, Ficora has, unsurprisingly, attached greater importance to the former.

The resulting MTR (€0.0125) is above the current EU average (approximately €0.0114), although it is actually lower than in some countries that have adopted BU-LRIC cost methodologies. Two of the countries with the highest current MTRs, Ireland and Netherlands, have those rates because their courts struck down rulings of their respective national regulators that introduced much lower caps.

Despite some departures, the current and past recommendations on cost models have been quite successful in driving MTRs down over time. However, the EC should seek to tackle two issues in particular in the near future. First, it is increasingly difficult to measure the extent to which lower costs are passed on to consumers in the form of lower retail prices given that operators now commonly offer phone calls as part of bundles rather than pricing them per unit. Second, because international roaming surcharges will be removed in the near future, operators have voiced their concerns about the differences between MTRs across countries; many take the view that a harmonization of MTRs is now necessary. However, this will take time and the significant discrepancies in regulated prices within the EU28 will make it a challenging task.

Appendix

Further reading

Interconnect Benchmarks: 2Q15, TE0007-000917 (June 2015)

The Global Regulation of Mobile Termination Rates in 2015, TE0007-000883 (February 2015)

Author

Luca Schiavoni, Senior Analyst, Regulation

luca.schiavoni@ovum.com

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