Commission warns mobile phone firms over high charges

Date: 16/07/1998

By Peter Chapman

THE European Commission is set to issue formal warnings to mobile phone companies for allegedly profiteering on calls to their networks from fixed-line telephones.

Competition officials launched their inquiry after it emerged that calls made from fixed to mobile networks were as much as 14 times more expensive than those made between fixed phones.

Competition Commissioner Karel van Miert's staff are now putting the finishing touches to warning letters to several EU mobile operators which, they claim, are overcharging telecommunications companies for connecting calls that terminate on their networks.

Analysts are predicting that the Commission's Directorate-General for competition (DGIV) will target the four or five member states with the highest-charging operators, although officials have refused to name the firms involved.

"We must first give some information to the operators that have been implicated by our inquiry," said one official. "We have got to send them our first assessments, but they will have time to discuss them with us. These are only preliminary assessments."

Susan Sweet, senior analyst with the telecom research group Ovum, said its latest data showed a clear split between interconnection rates in the open Nordic markets and the rest of the EU. "The Scandinavian mobile companies' rates are by far the lowest for interconnection," she said. "German firms have some of the highest rates followed by those in the Netherlands, France, Italy and Spain."

Ovum's figures showed rates in April ranged from 0.39 ecu per minute for connection to Deutsche Telekom's mobile network to 0.17 ecu per minute for TeleDanmark.

"I think the Commission will probably go in for some general guidelines, leaving it up to the regulators to apply them," said Sweet. "The problem is that no one really knows what the costs are." Unlike fixed-line operators, mobile firms are not obliged under current EU rules to publish cost-based interconnection rates.

The Commission is also looking into the cost of connecting calls made on mobile networks to fixed-line phones. Officials say mobile operators have been able to get away with overcharging because there is very little consumer pressure for them to lower their rates.

John Jensen, a telecoms analyst at US investment bank Salomon Smith Barney, said mobile customers were more interested in the cost of making calls from their mobile phones to fixed networks. In addition, fixed operators had been able to pass on the charges to their customers because of the lack of competition in their markets.

Some experts, however, are warning DGIV against forcing interconnection rates down too far, saying this could squeeze new entrants out of the market. This would leave existing operators, many of them owned by former state monopolies, with an unfair advantage in the market.

Earlier this week, the UK authorities announced that they were postponing publication of a study into mobile interconnection rates in the domestic market until December. The price of shares in mobile operators Orange and Vodaphone rose 3% on the news that the government would not be squeezing their interconnection profits for the moment.

"The fact that the Monopolies and Mergers Commission in the UK has delayed things gives you some idea just how complicated this issue is," said Jensen, who believes the stock markets are not worried at present by the Commission's threat of a clamp-down on mobiles.

"Mobile firms are stronger than ever," said Jensen. "Their shares have been moving up on the markets after the announcement from the Commission that they were looking at the situation. There seems to be very little concern."