Calling on your mobile phone is set to become a lot cheaper after Ofcom demanded this week that operators must reduce the amount they charge for connecting cross-network calls. It is estimated that these "termination rates" cost about £2.5bn in fees every year, most of which is passed on to customers in their bills.
The telecoms regulator has told mobile phone firms that they must cut the rates from their current high level of 4.3p a minute to just 0.5p a minute. The figures came as a huge shock to the industry as expectations had been that the rates would be cut to nearer 2p. The move will save Britain's 30 million mobile phone users some £800m, according to Ofcom.
That's great news, yes? Not quite. Ofcom has proposed to give phone operators four years to fall into line. Why the delay? The answer seems lost in the complicated regulatory world that mobile phone firms operate in. Not least is the fact that the current rate was set by Ofcom in 2007 and is due to last until 2011, which presumably means it would be unfair to impose the fee restrictions before that date. As a result the regulator has proposed to allow the phone firms to cut termination rates in stages, falling to 2.5p a minute by 2012, 1.5p by 2013, 0.9p by 2014 and, finally, 0.5p by 2015.
But Ofcom has given plenty of notice of this week's move. Just last year, it said it was considering "radical alternatives" to the current arrangement. In fact, it was responding to a European Commission recommendation that member states should aim to set mobile termination rates in a way that only takes into account costs that are incurred directly from terminating calls. The commission indicated that it expects rates to be between around 1.5 and 3 euro cents by 2012 across all member states. Ofcom launched a consultation in May 2009, which lasts until 23 June, and this week's proposals have taken account of the European Commission's recommendation. In other words, mobile phone firms have been given plenty of signals about the changes to termination rates and therefore had plenty of time to prepare.
Steve Weller, a communications expert at uSwitch.com, says: "This ruling is not before time but it's a shame that Ofcom has to force the issue. It would have been nice to see mobile companies taking this initiative through their own devices, but with millons of pounds at stake it is hardly surprising that some of the networks have been reluctant to co-operate."
BT has welcomed the proposals as it should mean calls to mobiles from landlines will come down. 3UK – as the smallest of the bigger operators – is also in favour of cutting rates. Kevin Russell, 3UK's chief executive, says: "Low mobile termination rates are great news. Consumers will benefit from better deals and we'll cut our prices significantly over the next two years."
But the three largest mobile networks – 02, Vodafone and the merged Orange/T-Mobile – are not so happy as they will be hit hardest by the rate cut in terms of lost revenue. It's also quite possible that they'll contest the new rates. That's the wrong approach, says uSwitch's Weller. "The key area of focus now should be making sure that the cuts are passed back to consumers. BT has already pledged to do this and it's our hope that other companies will follow suit."
The rate cut is, however, good news for competition. It should encourage smaller networks to come into the market and give the heavyweights a run for their money.
In another move this week, Ofcom said consumers will soon be able to transfer their existing mobile phone number to a new provider in just one working day rather than the current two days. If only lower rates could be brought in that quickly.
Heroes and Villians
Heroes: Consumer Focus
The Independent revealed this week that respected financial institutions such as Alliance & Leicester, Barclays, Halifax, Santander and Virgin have Isas paying a dismal 0.1 per cent. All had much higher rates when they were launched but dropped the rate some time later. So I welcome this week's super-complaint to the OFT about cash Isas. Consumer Focus points out that savers are losing between £1.5bn to £3bn a year because they are languishing in poor-paying interest rates. As Mike O'Connor of Consumer Focus, says: "Providers are using inertia and confusion to drop Isa rates faster than on other accounts." Not for much longer!
Staff at home delivery supermarkets can make unfortunate substitutions when the actual item ordered is unavailable. This week it was Tesco.com's turn. My father decided to send his two grandsons Easter eggs and ordered two to be delivered to us from Tesco.com at a fiver each. The eggs were unavailable at my local store and were substituted, but with the cheaper eggs, costing just 95p. With the delivery charge almost £7, they actually ended up very expensive. The net result is anger – which could have been avoided with some simple common sense from one of Tesco's staff.