The cuts were ordered by Ofcom following a long-running investigation into mobile call termination charges – the set fees that operators charge each other and fixed line telecoms companies for connecting calls to their networks, fees which they pass on to the consumer.
Ofcom has concluded that direct controls should be imposed on the charges to operators for terminating calls on the 2G mobile networks of Vodafone, O2, Orange and T-Mobile. Charges for 3G networks will not be affected and the price cuts will vary according to the particular spectrum used by the individual operators.
Vodafone and O2 will be forced to reduce their average termination charges from around 8p per minute to 5.63p per minute, while T-Mobile and Orange face cuts from around 9.5p per minute to 6.31p per minute.
The cuts will come into effect between the beginning of September 2004 and March 2005. Average charges must then remain at that level until March 2006.
The investigation into termination charges first began in 1998, when Ofcom's predecessor, Oftel, referred the issue to the Monopolies and Mergers Commission. A subsequent referral, this time to its replacement body, the Competition Commission, took place in 2001, resulting in a proposal that the charges be cut by nearly 50% over three years, beginning with a 15% cut by 25th July 2003.
The operators demanded a judicial review of the ruling, but lost their case in June last year.
According to Ofcom Chief Executive Stephen Carter, "Today's decision closes a lengthy process, where we have concluded that price controls are currently a necessary market mechanism."
Diane Gaston, Head of Corporate Affairs at the National Consumer Council, welcomed the announcement but added:
"It is bad news that Ofcom has stopped short of regulating the call termination charges levied by 3G operators on calls from fixed line and other mobile networks. As the 3G market expands, people won't know if they are calling a 2G or 3G network, and this is where termination charges will hit callers – especially those who use landlines – often older people and those on low incomes."
