Mobile phone firms overcharge by £1bn a year

Sunday, April 27, 2008

The "big four" mobile phone companies have been accused of overcharging their customers by £1 billion a year with artificially high surcharges for calling between networks.

The allegations are being made against Orange, T-Mobile, Vodafone and O2. In evidence to be submitted to the Competition Commission next month, BT and 3, the mobile phone company, have accused Ofcom, the telecoms regulator, of sanctioning the charge, which far exceeds the actual cost to the companies of connecting a call.

Tim Lord, regulatory director of 3, said: "High wholesale charges for calls to mobiles operate as a hidden tax on all consumers, limit the impact of competition and keep retail prices high.

"It's no great surprise that the incumbent operators are fighting tooth and nail to retain such a system. It is more difficult to understand why Ofcom appears to be on their side rather than supporting lower prices and more vigorous competition which would help the UK consumer."

A separate inquiry is also being conducted by the European Union. Recommendations to be published this summer by Viviane Reding, Europe's commissioner for information, society and media, could lead to a sharp cut in the charge and might enable consumers to enjoy the kinds of unlimited call packages seen in America.

The dispute centres on the so-called termination rate, which allows mobile phone operators to charge other networks and fixed-line companies such as BT to connect calls.

This is in addition to the charge that customers pay their own provider for making the call.

Ofcom allows the four main providers to charge consumers a termination rate of 5.1p a minute for each call routed through their network. BT argues that the amount should be reduced to 3.6p, which would save consumers £1 billion a year.

Reding has said she would like to see mobile termination rates drop to about 1p, roughly the same as charges levied by fixed-line providers.

The present fee includes an administration charge imposed by the companies and an additional 0.3p per minute intended to subsidise cheaper mobile phone contracts for people on low incomes. 3 is in favour of abolishing the charge altogether. It says that this could lead to an overall fall in customers' bills of 50%.

Ofcom defended the charges and said: "If the rates were too low the companies wouldn’t be able to recover their costs. The system is entirely fair."

This article was featured on The Times Online website.

Permanent link for this article