Mobile phone operators escape more price cuts from regulator

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Mobile phone companies will this week celebrate escaping further price reductions being imposed by the industry regulator, Ofcom, in a move that will deliver welcome relief for shareholders.

Mobile phone companies will this week celebrate escaping further price reductions being imposed by the industry regulator, Ofcom, in a move that will deliver welcome relief for shareholders.

While the City will celebrate the news, consumer groups are expected to react angrily to the Ofcom proposals to be published tomorrow. These will recommend maintaining the current pricing regime at least until 2007.

Last year Ofcom forced mobile operators to cut the charges they levy for connecting incoming calls to their own networks, so-called termination rates. And companies including Vodafone, headed by Arun Sarin, Orange, O2 and T-Mobile were forced to cut charges 30 per cent from September. All the companies, when reporting recent results, have revealed top line sales figures and their average revenues per user numbers have been dented by Ofcom's controls, announced 12 months ago.

The measures were the culmination of a long-running process to address termination rates, which began in 2001 with Oftel, the previous regulator. But Ofcom said the regime that came into effect last year would only last to March 2006. After that it believed the fast-developing market would require a new regime.

Tomorrow, Ofcom will publish a consultative document on what the regime could be after March 2006. It will spell out a number of options. But it is understood that the regulator will signal that its preferred option will be to maintain the current regime with a further review in March 2007.

The other main options would be to opt for complete deregulation in termination rates or impose further price cuts. Deregulation, the most radical approach, would be designed to result in the increasing number of mobile operators in the UK competing on the promise of low termination rates, as well as cheap call tariffs.

Ofcom is likely to argue the mobile market has, in fact, not developed enough to warrant either full deregulation or further price cuts. Critics of this approach, contacted by The Independent, agreed to speak on the condition of anonymity. They believe the market has become sufficiently competitive to allow Ofcom to withdraw from the regulation of termination rates.

They cite the growth of new operators such as Tesco Mobile, Virgin Mobile and "3", as well as the launch of easyMobile and Carphone Warehouse's Fresh service as proof the market could support deregulation. Ofcom has also ushered in a liberalisation of the UK's radio spectrum, which is likely to result in more competition.

But other reasons are likely to be weighing on Ofcom. It is already in the middle of a strategic review of the telecoms industry and a separate, possibly quite radical, initiative on mobile phones could prove too complicated and unsettling.

The mobile operators will have been lobbying Ofcom hard, making it clear that they have already invested billions in their businesses, including the new third generation services that are exempt from the current termination rate regime.

Ofcom is also embroiled in a separate but parallel dispute with Hutchison Whampoa over whether the regulator should have the right to impose price cuts on Hutchison's "3" service.

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