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Optus takes early stand in Australian fees war

Dominic White (Australian Financial Review) | April 11, 2011
The SingTel subsidiary claims only Telstra would benefit from mobile connection fee cut.

SYDNEY, 11 APRIL 2011 - Optus, a wholly owned subsidiary of SingTel, is warning the Australian Competition and Consumer Commission against cutting mobile connection fees, claiming consumers would lose out and Telstra would be the main beneficiary.

The regulator's existing price rulings expire at the end of this year and Optus argues that further reductions would damage industry revenues and margins except for those of Telstra.

Telstra will dispute Optus's reasoning, while Vodafone Hutchison Australia is in the final stages of finalising its position on the matter, setting the stage for one of the most important reviews of the year for the Australian telecommunications industry.

The ACCC has yet to announce its formal review of so-called mobile termination rates (MTRs) - the fees which telecommunications providers charge each other to put rivals' customers through to their networks - but it is widely expected to begin consulting on the matter shortly.

All providers may be fearful of a European Union-style clampdown on the lucrative fees, which are typically passed on to consumers but hidden from their bills.
In a pre-emptive strike, Optus, ­Australia's No. 2 telco, has commissioned a study by research group Covec into MTRs.

The ACCC has since 2004 reduced the fee from 21¢ to 9¢ a minute, where they have been held for almost four years.

Optus argues that the ACCC has previously sought to use a reduction in MTRs to improve competition in the supply of fixed-to-mobile calling but that this policy has failed.

"There is clear evidence that the dominant fixed-line player, Telstra, has simply pocketed the cost savings in mobile termination rates and not passed these savings on to consumers," it says of the Covec report.

"In fact, between 2008 and 2010, ­Telstra increased its retail fixed-to­-mobile prices from 29¢ a minute to 31¢ a minute. This has involved a transfer of value of many hundreds of millions [of dollars] from Optus and VHA to Telstra."

Optus is also putting forward an argument unsuccessfully used by Vodafone and others in the European Union: that mobile networks will be forced to make up lost revenues from lower MTRs elsewhere, in the form of lower handset subsidies, for instance.

Covec's analysis says that a reduction in MTRs will result in a "net ­welfare loss" (or loss to consumers) of $292 million and a transfer of value from the mobile operators to the fixed-line incumbent because the reductions in mobile termination rates are unlikely to be fully passed on to ­consumers.

"Mobile operators have a number of different revenue streams. One of those is mobile termination.If you drastically cut mobile termination revenue they will have to offset that, they may pull back on handset subsidies and data allowances, a whole series of things,'' Optus's general manager of regulatory affairs, Andrew Sheridan, told The Australian Financial Review.


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