Mobile phone customers in Britain are being overcharged for calls to other networks because regulators have failed to crack down on operators clawing back the vast sums spent on acquiring 3G licences, the European Commission said on Monday.
In a case which Brussels said could be a precedent for other European markets, the Commission called on Ofcom, the UK telecommunications watchdog, to rethink its earlier backing for the charges. It warned they could delay further reductions in mobile telephone bills.
Brussels is taking aim in particular at charges imposed by O2, Orange, T-Mobile, Vodafone and Hutchison 3G in Britain. Together the companies paid a total of £22bn (€32bn) when the five British licences for spectrum needed to support multi-media applications were auctioned in 2000.
Operators have sought to recoup their investment by adding, on average, 1.6 eurocents a minute as part of their so-called call termination charges – the levy paid by callers connecting with another network. In the case of Hutchison, which operates 3G services only, the charge is 2.8 eurocents a minute.
Commission officials suggested on Monday that 3G spectrum costs should be no more than a third of the current levies.
Although the Commission’s views are at this stage not legally binding, its tough stance presents the industry with a new challenge as it battles to eke out fresh revenue growth in a rapidly maturing market. The letter, moreover, comes only months after the Commission launched a severe crackdown on what it sees as the “excessive” level of roaming charges imposed by mobile operators around Europe.
The move marks the first serious disagreement between Brussels and Ofcom, but is certain to have repercussions far beyond Britain. Regulators in many other European Union member states – including Germany and France – are due to decide on similar levies shortly.
Viviane Reding, the EU telecoms commissioner, said: “I am concerned that Ofcom’s approach to calculate 3G spectrum costs could hinder the movement towards lower mobile phone prices. The Commission believes that such costs should not be calculated on the basis of prices paid during the spectrum auctions, which are, in today’s context, inflated.”
The charges were provisionally approved by Ofcom, but the regulator is required to consult the Commission on all important national regulatory measures concerning the telecoms sector. National regulators are required by law to take “utmost account” of the Commission view, and although Brussels cannot impose its views on the regulator, it can ultimately take countries to the European Court of Justice for violating EU law.
Ofcom said on Monday: “Ofcom took a large number of cost factors into account in determining its proposed charge controls, including the forward looking opportunity cost of spectrum. Ofcom welcomes the Commission’s response and will consider it, and of course all others, ahead of publishing its final view in March 2007.”
Vodafone declined to comment on the Commission letter, but pointed out that the call termination charges affected only 11 per cent of its UK revenues. The 3G spectrum costs account for about a fifth of the call termination charges.