Mallard blinks on New Zealand termination rates regulation

Termination rates for calls made from landlines to mobile phones will not be regulated, the Minister of Economic Development Trevor Mallard announced yesterday. Mallard was seconded by Communications Minister Cunliffe, accused by opposition MPs of bias in the matter, to decide on the matter and late yesterday said he has rejected the second recommendation by the Commerce Commission, to regulate the rates.

Instead of cutting the rates to 15¢ per minute as soon as regulation kicked in, Vodafone has now legally undertaken to drop the charge to 14.4¢/minute in steps over the next five years. Telecom too will drop its rates, to 12¢/minute over the same period of time. The telcos have promised that the lowered rates will be passed onto customers, something they said wouldn't happen under regulation.

As regulation of the rates, seen as one reason why mobile phone calls in New Zealand are amongst the most expensive in all thirty OECD countries, was widely expected to come into effect, Mallard's decision comes as a surprise to everyone, including the telcos.

While Telecom hasn't commented on Mallard's decision yet, Vodafone is predictably enough over the moon. Without a fixed-line network, Vodafone had the most to lose from rates being cut of the two mobile operators.

TUANZ, which championed the cause for rates reductions and took the case to the Commerce Commission in 2003, is livid over Mallard's decision. Slamming the deal with Telecom and Vodafone as "an extremely poor one" TUANZ chief executive Ernie Newman says it will take another five years, or nine years counting from the original complaint, for rates to go down to the level most international experts believe they should be at today.

It's hard to say what swayed Mallard to cut a deal with the telcos instead of going down the regulatory route. Despite being accused of interventionist policies, the government has in the past shown a marked preference for commercial deals rather than regulation, and this probably weighed heavily on Mallard. With studies and surveys showing that telecommunications services in New Zealand are priced far higher than most other countries, as Telecom and Vodafone have no incentive to truly compete with each other and there will be no third mobile provider in the market for the foreseeable future, pressure was on the government to act in the interests of customers.

The decision certainly places New Zealand in a unique position. Elsewhere in the world such as Australia, Korea and the EU, regulators have forced mobile operators to slash termination rates, pushing them down to cost levels. Australia for instance is heading towards 12¢/minute, based on cost rates of 5-6¢. The cost per minute in New Zealand is tipped to be roughly the same as in Australia, meaning MTRs are currently inflated by up to 400 per cent.

National, which has already had a go at Cunliffe over his handling of the issue, will no doubt seize the opportunity to make political hay over Mallard's back-down. For customers however, TUANZ is probably right in saying that no regulation means they'll continue to pay some of the highest calling charges in the world.

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