Network management Toolkit

UK mobile phone fee cuts will hurt operators

Tags:
Mobile

Sarah Randall, Ron Cowles Gartner

Published: 08 Jun 2004 12:10 BST

Event
On 1 June, 2004, Ofcom, the telecom regulator in the United Kingdom, ordered reductions in the fees mobile operators (Vodafone, O2, Orange and T-Mobile) charge for terminating calls on their second-generation (2G) networks. The reduction in termination fees varies by spectrum band: Vodafone and O2, which use the 900MHz band, must reduce charges by approximately eight pence per minute; T-Mobile and Orange must reduce charges on their 1800MHz bands by 9.5 pence per minute.

Analysis
Regulators and industry and consumer groups across Europe are demanding lower prices. Mobile operators in some European markets report reduced average revenue per user as a result of rate cuts, but increased usage of voice and data services has partly offset this drop.

The mobile operators that will lose the most from this decision are T-Mobile, because of its large prepaid customer base -- prepaid users typically receive more calls than they make -- and O2, because of its smaller international presence. The fixed-line operators will benefit most, because they pay the termination fees. The largest UK provider, BT, is required to pass its savings on to its customers; other fixed-line operators will probably do the same to remain competitive.

In the past, UK mobile operators have threatened to respond to mandated price reductions by increasing tariffs and reducing spending on infrastructure. However, such moves would likely trigger further regulatory action.

Recommendations:

Enterprises:

When negotiating with fixed-line operators, demand that their savings from mandated rate cuts be passed on to you.
Lock in prices with mobile operators, but be prepared to enter into negotiations to reduce the impact of potential rate increases if wireless operators choose to pass along increase costs resulting from the Ofcom decision.

Mobile operators:

In highly penetrated markets such as the United Kingdom, focus on new revenue opportunities. Mobile penetration in the enterprise market remains low, and operators also have an opportunity to move fixed traffic onto mobile networks.
Speed your migration to third-generation (3G) networks, which are exempt from the termination fee reductions. Don't overprice 3G termination fees, which could result in regulatory action.
Consider bundling services to increase revenue per customer (that is, partnering with wireline carriers).

Analytical sources: Sarah Randall and Ron Cowles, Gartner Research

Recommended reading and related research

"Telecom 'Bill of Rights' for Consumers Will Challenge Carriers" -- Telecom providers should mitigate the threat of renewed regulation by offering their own consumer protections. By Ron Cowles and Tole Hart

"Road Map for Mobile Markets in EMEA, 2004-2008" -- Regulatory changes and competitive pressures are reshaping the European mobile markets. By Sarah Randall and others

(You may need to sign in or be a Gartner client to access all of this content.)