ACCC decides on light-handed approach to mobile phone termination services

The Australian Competition and Consumer Commission has determined its final approach to pricing for the wholesale GSM mobile termination service. This service, used to provide fixed-to-mobile and mobile-to-mobile calls, has been the subject of a number of access disputes between fixed-line and mobile carriers.

"The ACCC will require price falls for the wholesale GSM mobile termination service at the same rate as price falls in the corresponding retail market," ACCC Chairman, Professor Allan Fels, said today.

The ACCC's approach is relatively light-handed and will result in the wholesale GSM mobile termination service being regulated less extensively than fixed line services. The ACCC has decided this approach is appropriate after considering the mobile and fixed-to-mobile markets.

"On the one hand, competitive forces on the wholesale GSM mobile termination service are limited, and integrated mobile carriers have some ability to restrict price competition in the downstream market for fixed-to-mobile calls," Professor Fels said.

"On the other hand, the retail segment of the mobile market has shown signs of increased competition, despite One.Tel going into receivership, with falling retail prices and a wide variety of products on offer.

The introduction of mobile number portability on 25 September this year should further increase retail competition between mobile carriers.

"The ACCC will be discussing with industry ways to increase competition, and reduce the need for ongoing regulation," Professor Fels added. "The ACCC will therefore monitor whether competition increases in the supply of the GSM termination service."

The ACCC will also monitor the wholesale and retail activities of mobile and fixed line carriers to ensure price reductions for consumers. The pricing approach, and the mobile services market more generally, will be reviewed by the ACCC in two years.

While the pricing principles only apply to wholesale GSM mobile termination services, the ACCC will conduct an inquiry to determine whether the regulation should extend to CDMA services.

Background

The wholesale GSM termination service is a wholesale access service that enables mobile subscribers to receive calls from other mobile subscribers and fixed line callers. The ACCC was notified of a number of access disputes in relation to pricing of wholesale GSM mobile termination services in 1999. In light of these disputes the ACCC has been considering the issue of an appropriate pricing approach for these services.

As an initial step in considering the appropriate pricing approach to apply to the wholesale GSM origination and termination services, the ACCC engaged consultant economists, Professor Stephen King and (then) Associate Professor Joshua Gans. A discussion paper based on this advice was released for industry comment in December 1999. Following receipt of submissions in response to this paper, the ACCC held a round-table discussion in March 2000 to further consider issues raised and has received submissions since that time. The ACCC released its draft pricing approach in December 2000.

Under the ACCC's pricing principles each mobile carrier's price for wholesale GSM mobile termination will:

• initially be set at the lowest price agreed between an access seeker and an access provider at the start of the retail benchmarking approach. The ACCC understands this access price to be about 24.5 cents per minute
• then be required to fall at least as much as the retail price movements for mobile services (subscription and outgoing calls)

The ACCC will use these pricing principles to finalise the access disputes in relation to the wholesale GSM termination service, although it notes that the pricing principles should be conducive to commercial resolution.