Mobile phone giants ordered to cut millions from bills

Mobile phone companies were ordered yesterday to cut call charges, slicing millions of pounds off bills. Operators immediately said this was a heavy-handed way of dealing with a vibrant industry. Their critics claimed rip-off charges had finally been nailed.

Vodafone, Orange and T-Mobile had challenged the Competition Commission's decision in January to reduce the charge for calling a handset by nearly 50 per cent over three years. The cost of an average call to a mobile, from another land line or cell phone, is expected to fall by 5p a minute.

In a High Court case, rushed through with the first cut due to be introduced next month, the companies had said such moves would put them in a "financial straitjacket".

But yesterday Mr Justice Moses ruled the commission and the director general of telecommunications were entitled to take action and had adopted "a reasonable and justifiable approach". The court backed an initial cut next month with the phone regulators proposing three more annual drops until 2006.

Allan Williams, senior policy adviser at the Consumers' Association, said yesterday: "Perhaps mobile phone companies will get the message that they cannot continue to rip off consumers and must charge a fair price for calls to their networks."

The five-day hearing had centred on termination charges, the price mobile operators charge each other and BT for putting callers from rival networks through to their customers. These can take up to two thirds of the cost of a call. The commission said the companies were overcharging, estimating that customers could enjoy savings of at least £220m a year for the next three years.

John Swift QC, for T-Mobile, said the price controls recommended by the commission were "exceptionally severe" and would lead to a loss of between £1.5bn and £2bn for the operators.

Vodafone said the commission used a flawed economic model and took an irrational and unreasonable approach in deciding what was a fair charge, reaching a conclusion that had no basis in market-place reality. The regulator was accused of trying to act outside his powers under EU and domestic legislation.

One of the key arguments was that price controls could not be applied because the phone firms were not monopoly companies and did not have "significant market power".

But Mr Justice Moses said: "Under the Licensing and Interconnection Directives of 1997, the director is entitled to impose price regulation on those not designated as having significant marketing power."

The commission's calculation of the various aspects of a fair charge "was reasoned and not irrational", he added. Yesterday, in an ominous response, a spokesman for T-Mobile said: "People should be wary of seeing this as a good thing. The Competition Commission did not suggest mobile phone operators weren't untitled to recoup their investment, just not in this way. Subsidies will disappear and the price of handsets will go up considerably."

Orange said it was opposed to "the heavy-handed regulation which the old regulatory regime commits", adding: "The old regime ends on 24 July and Orange looks forward to the prospect of a new, lighter-handed and less interventionist regime that will encourage continued innovation and investment in mobile services for our customers."

A spokeswoman for the National Consumer Council said: "To see the mobile phone operators finally nailed is good news for consumers. The operators have dragged their feet and a real cut in termination charges is long overdue."

David Edmonds, director general of telecommunications, added he was pleased the High Court had upheld the commission's decision, which followed an Oftel investigation.

"These measures will bring major benefits to UK consumers," he said. "I hope the three companies, who have lost every challenge to Oftel's analysis and decisions, will now behave in the interests of UK consumers."

All the companies won permission to appeal.