Last week, the telco regulatory body in UK (Ofcom) instructed mobile operators to cut the connection fees they charge fixed line carriers for terminating calls to their networks. The price cuts vary from operator to operator and range from 10% to 45%.
At first blush, this seems like a move in the right direction (for the consumer) if we believe that such savings are passed on from the fixed line carriers to their subscribers. But will these savings be passed on to the subscribers? There is reason to wonder:
As long as fixed line carriers enjoy monopolistic pricing power, such regulatory price fixing is likely to have little effect on the prices charged to the consumer. After all, what incentive would the fixed line carriers have in cutting their prices if there is no competition that would offer a lower price?
What is likely to result, however, is just a transfer of wealth from mobile carriers to fixed line carriers, which would then cause the mobile carriers to turn to their subscribers to pay for the hefty 3G bills they paid in 2000 (say, by raising their prices for making calls on a mobile phone in UK!). The consumer would still end up paying the higher prices to the fixed line carriers AND be faced with a higher mobile phone bill on top of it, making the fixed line carriers richer and the consumer poorer. (That logic could explain well why some fixed line carriers are already up in arms about the fact that the reductions proposed by Ofcom are not as big as they were hoping...)
So, it seems that regulations like this would only be effective if there is a competitive market environment. Otherwise, they could end up leaving the consumer worse off!
In conclusion, if Ofcom really intends to make calling cheaper for the consumer (a goal passionately shared by jaxtr and other companies in the VoIP/Phone 2.0/Voice 2.0 space), then they should diligently follow up this ruling with others that make it easier for innovative and competitive telecommunications services to be offered in the UK to people using mobile as well as fixed line phones.
Touraj Parang
Co-founder
Sunday, April 01, 2007
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1 comments:
Nice post. In complete agreement with your argument. I submit a few points-
1. Reduction of mobile termination charges could be beneficial for alternate next generation fixed operators, MVNOs and low power GSM license awardees. If incumbents and others with large consumer base fail to transfer the cost reduction to the customers, their value proposition will become slightly weaker.
2. If the cost reduction is transferred to the consumers, it will increase the call volume and the overall revenue pie. Mobile operators stand to gain the most with any increase in call volume.
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