Mobile phone bills in the UK could fall by up to £800 million following a ruling by the telecoms regulator that would cut the cost of connecting from one network to another.“Termination rates” – the fee an operator charges a rival to switch a call from one network to another - currently cost companies up to £2.5 billion a year, raising costs for customers.
However, Ofcom is proposing that companies cut rates over the next four years, from 4.3p a minute to 0.5p a minute by 2015. It said it expected reductions to be passed on to consumers.
The current regime of termination charges was set by Ofcom in 2007 but is due to expire next year.
The price of mobile phone calls has already been falling, with rates declining from more than 23p a minute in 1995 to less than 5p today, but there have been ongoing concerns that the termination rates contribute to excessive profits.
Last year, the Ofcom said it was considering "radical alternatives" to the current arrangement.
In a statement, the watchdog said: "The proposals will also mean that both landline and mobile operators have more flexibility in designing competitive call packages, promoting competition for the benefit of consumers."
The move follows a consultation launched in May and will be finalised after the end of the consultation process on June 23 this year.
A spokeswoman for Ofcom said that the final decision would take into account further comment from industry stakeholders, but admitted that proposals at this stage did not tend to be “drastically altered” following further consultation.
The move is likely to be contested by the big operators, including O2 and Vodafone. Shares in Vodafone fell by 1.05p 150.95p this morning.
A spokesman for 02 said the company would be asking why Ofcom had changed its mind about the way it assesses the rates. The new rates do not allow operators to charge for so-called common costs, which include overheads.
However, it will benefit 3, the smallest mobile phone operator, and BT, the fixed line operator. BT has estimated that the extra cost of calling mobiles from landline phones comes to £750 million a year.
Stephen Lerner, director of regulator affairs at 3UK, said that the rates had acted as a barrier to smaller entrants into the mobile phone market. “It seems wrong that we have had to pay our competitors just to grow. This is a huge decision for us that will allow us to be a major competitor in the voice market.”
Almost 33 million households will be affected by the changes, the watchdog said.
The move comes after guidance from the European Commission which said that the rates at national level should be based only on the real costs an efficient operator incurs to establish the connection.
Ernest Doku of Omio.com, the mobile phone comparison website, said the ruling was "fantastic news" for mobile phone users on less popular networks.
However, he added: "It remains to be seen whether the major operators will attempt to recoup this loss in revenue from other sources, such as increased line rental fees or higher handset prices.
"Rest assured that the major carriers won't take this decision lying down and what the consumer gains on cheaper call costs, they may well pay for in other areas."
In a separate statement, Ofcom said that "subject to the outcome of a further short consultation" consumers will soon be able to transfer their existing mobile phone number to a new provider in just one working day, rather than the current two days. The watchdog said it expected the new system to be in place in the first half of 2011.
To read more: here
