US embassy cable - 05WELLINGTON461

UNCLAS SECTION 01 OF 02 WELLINGTON 000461 
 
SIPDIS 
 
STATE FOR EB/CIP FOR AHYDE AND EAP/ANP FOR TRAMSEY 
STATE PASS TO USTR FOR BWEISEL AND DKATZ 
COMMERCE FOR 4530/ITA/MAC/AP/OSAO/ARI BENAISSA 
COMMERCE FOR 6920/ITA/OTEC/MYLES DENNY-BROWN 
 
E.O. 12356: N/A 
TAGS: ECPS, ECON, ETRD, NZ 
SUBJECT: NEW ZEALAND MOVES CLOSER TO CUTTING MOBILE 
TERMINATION RATES 
 
 
1. Summary: New Zealand's two mobile-phone service providers 
are a step closer to being ordered to lower the fees they 
charge to complete calls into the country on their networks 
-- fees that are among the highest of OECD nations.  The 
Commerce Commission on June 9 issued its final report on its 
investigation into mobile termination rates, recommending to 
the Minister of Communications that the rates be regulated 
and, as a result, lowered.  The commission found that a lack 
of competition in the market had resulted in the two mobile 
network operators setting rates significantly above the 
level required to cover costs.  The Minister of 
Communications, who must make the final decision, is likely 
to follow the commission's recommendation.  End summary. 
 
2. Ending an investigation that began in May 2004, the 
Commerce Commission -- New Zealand's anti-monopoly watchdog 
-- upheld its October 18 preliminary decision to regulate 
mobile termination rates, the fees that fixed-line network 
operators incur when calls are completed on mobile telephone 
networks. 
 
3. The decision is good news for U.S. callers to New 
Zealand, since AT&T and other U.S. companies have faced 
increasing fees when they pass calls into the country.  The 
commission estimated the cost of mobile termination to be 
about NZ 15 cents (US 10.7 cents) per minute, while the New 
Zealand mobile network operators have been charging about NZ 
27 cents (US 19 cents) per minute.  The fee they charge 
overseas carriers has been almost US 6 cents higher than 
that. 
 
4. The commission determined that regulated reduction in the 
rates would probably increase competition in the domestic 
fixed-to-mobile market, resulting in lower retail prices for 
fixed-to-mobile calls.  Although it acknowledged that 
regulation also could put "upward pressure" on the price of 
other mobile phone services, as service providers sought to 
recoup revenue in other areas, the commission predicted 
overall benefits to consumers and businesses.  It noted that 
New Zealand is one of the most expensive countries in the 
OECD for users of mobile phones. 
 
5. The recommendation for regulation excluded voice calls 
using third-generation mobile networks because of concern 
that such regulation might inhibit investment in the new 
technology. 
 
6. Vodafone serves about 55 percent of the mobile phone 
market in New Zealand, while Telecom -- the country's 
largest fixed-line phone company -- holds the balance. 
Vodafone immediately criticized the commission's 
recommendation, saying that the cost of other types of calls 
and handsets could rise to offset the revenue lost if it 
were forced to cut termination fees.  Vodafone's finance 
director, David Sullivan, said that regulation would benefit 
the fixed-line providers, Telecom and TelstraClear, which 
would stand to make some savings as they pay less to 
Vodafone for terminating calls on its network. 
 
7. Telecom did not immediately respond to the decision, but 
has previously contended that the mobile market did not need 
regulation.  While it also could lose revenue from 
regulation, Telecom potentially could offset such losses by 
passing on the savings from lower charges to customers, 
thereby inducing consumers to make more calls. 
TelstraClear, which resells Vodafone's mobile phone services 
but is developing its own mobile network, supports 
regulation.  There are 2.8 million mobile phones and 1.7 
million fixed lines in New Zealand. 
 
8. The Minister of Communications, David Cunliffe, can 
accept the commission's recommendation, reject it or ask the 
commission to reconsider its recommendation.  If he accepts 
the recommendation, the commission then would set the mobile 
termination rates, most likely based on benchmarking against 
other OECD countries. 
 
9. A copy of the commission's 177-page decision can be found 
on its website, www.comcom.govt.nz (select 
"Telecommunications" and then "Investigations"). 
 
10. Comment: Minister Cunliffe is likely to accept the 
commission's recommendation.  In general, ministers need 
extraordinary reasons to reject the regulator's 
recommendations.  For example, then Minister of 
Communications Swain in May 2004 accepted the Commerce 
Commission's recommendation against local loop unbundling, 
even though he personally opposed it.  Moreover, Cunliffe 
would be well aware of concern among telephone users over 
oligopolistic practices and pricing by Vodafone and Telecom, 
which have tended to set mobile termination fees in tandem. 
 
SWINDELLS