US embassy cable - 04WELLINGTON598

UNCLAS SECTION 01 OF 02 WELLINGTON 000598 
 
SIPDIS 
 
STATE FOR EB/CIP FOR AHYDE AND EAP/ANP FOR TRAMSEY 
STATE PASS TO USTR FOR BWEISEL AND AMLEWIS 
COMMERCE FOR 4530/ITA/MAC/AP/OSAO/GPAINE 
 
E.O. 12356: N/A 
TAGS: ECPS, ECON, ETRD, NZ 
SUBJECT: NEW ZEALAND'S MOBILE TERMINATION RATES UNDER 
SCRUTINY 
 
REF: WELLINGTON 428 
 
1. (SBU) Summary: The New Zealand Commerce Commission has 
launched an investigation into whether a lack of competition 
has placed the country among nations with the highest rates 
for terminating mobile phone calls.  The commission could 
recommend regulation of termination charges.  Telecom, the 
former state-owned telecommunications provider, argues that 
its termination rates are justified by the high cost of 
maintaining infrastructure in mountainous and sparsely 
populated New Zealand.  Vodafone, the country's only other 
mobile operator, also opposes regulation of termination 
rates, contending that the marketplace is working and that 
rates have steadily dropped over the last six years. 
Meanwhile, TelstraClear -- which now resells Vodafone's 
mobile phone services but is developing its own mobile phone 
network -- welcomes the investigation and hopes it will 
result in mandatory price reductions.  End summary. 
 
Inquiry begins 
-------------- 
2. (U) New Zealand's anti-monopoly watchdog, the Commerce 
Commission, on May 13 began investigating the fees that 
mobile phone companies charge other carriers to terminate 
calls on their networks.  The commission on June 22 released 
an issues paper and invited submissions from interested 
parties, due July 19.  AT&T, which pays what it claims are 
exorbitant rates on calls it handles to New Zealand, plans 
to make a submission.  The commission is expected to publish 
its decision in mid-November.  (The issues paper can be 
viewed on the commission's web site, www.comcom.govt.nz.) 
 
3. (U) Vodafone and Telecom currently charge US 18 cents to 
20 cents (NZ 27 cents to 30 cents) per minute to terminate 
calls to each other's mobile networks.  Generally, the two 
companies set mobile termination fees at the same rate. 
However, they may charge different mobile termination rates 
to other carriers.  AT&T reported that the termination 
charge to it for calls to New Zealand is US 23.5 cents (NZ 
35 cents) per minute and that TelstraClear is seeking an 
increase to US 30 cents and Telecom, to US 25.6 cents. 
 
4. (U) The mobile termination charge can be the most 
expensive component of prices paid by callers to mobile 
phones, accounting for 30 to 60 percent of the per-minute 
cost of such calls.  The Commerce Commission's 
recommendation on whether to regulate mobile termination 
rates could have significant impact in a country where there 
are 2.8 million mobile phones, along with 1.7 million fixed 
lines.  The Communications Minister could accept the 
commission's recommendations, reject them or refer them back 
for further consideration. 
 
The industry's views 
-------------------- 
5. (U) TELECOM: The former state-owned monopoly, Telecom New 
Zealand, has a 45.4 percent share of the mobile phone market 
and roughly 75 percent of the fixed-line market.  In its 
submission to the Commerce Commission, Telecom plans to 
argue that its mobile termination rates are not excessively 
high.  Bruce Parkes, Telecom's general manager of government 
and industry relations, said the submission would make two 
principal assertions.  First, the cost of infrastructure 
needed to provide mobile telephone service to a relatively 
small population -- 4 million people -- is high in per- 
capita terms because a large number of cell tower sites are 
required to cover the nation's mountainous terrain, 
especially in comparison to countries such as Australia and 
the United Kingdom.  Second, the higher mobile termination 
rates "cross-subsidize" lower mobile phone service prices, 
making the telecommunications market more efficient. 
 
6. (SBU) VODAFONE: The company has a 54.6 percent share of 
the mobile telephone market and has been gaining new mobile 
subscribers faster than Telecom.  Vodafone New Zealand 
asserted that mobile termination rates have steadily dropped 
from US 33 cents (NZ 50 cents) in 1998 to less than US 20 
cents (NZ 30 cents) this year and that the market should see 
that trend continue without regulation.  Roger Ellis, 
Vodafone's public policy manager, also contended that it is 
unfair to compare termination rates in New Zealand -- where 
the calling party pays for making calls to mobile phones -- 
to those in the United States -- where the receiving party 
pays.  He said New Zealand's rates would not be viewed as 
particularly high if they were compared to rates in Europe, 
where the calling party also pays. 
 
7. (U) TELSTRA CLEAR:  Telecom's main land-line competitor, 
TelstraClear believes mobile termination rates in New 
Zealand are excessively high and therefore endorsed the 
Commerce Commission's investigation.  Grant Forsyth, 
TelstraClear's manager of industry and regulatory affairs, 
said the rates should be more in line with those recommended 
by the Australian Competition and Consumer Commission 
(ACCC), which decided in June that termination fees in the 
country should be lowered gradually from US 14.6 cents (AUS 
21 cents) per minute to US 8.3 cents (AUS 12 cents) on 
January 1, 2007. 
 
8. (SBU) The comments by Telecom and TelstraClear have been 
relayed to AT&T, which requested that post contact the two 
companies on the mobile termination rate issue. 
 
Comment 
------- 
9. (SBU) The Commerce Commission has been inconsistent in 
its approach to regulation, most recently reversing the 
decision in its draft report and recommending against local 
loop unbundling (reftel).  The commission, nonetheless, has 
tended to favor increased regulatory pressure in situations 
where it might increase competition in the 
telecommunications market.  This tendency suggests it may 
recommend regulating mobile termination rates.  Telecom's 
Parkes, even as he defended the current rates, implied they 
probably would face mandatory reductions.  Parkes said that 
he expected the ACCC decision to influence the Commerce 
Commission and that if the commission decides to regulate 
rates, the outcome would be similar to that in Australia. 
 
SWINDELLS