VHA claims Telstra absorbed $1.4bn in mobile fee cuts

Vodafone Hutchison Australia has accused Telstra of pocketing $1.4 billion over the past nine years by not passing on reductions in mobile termination fees.

Telcos are holding MTAS fee cuts to bolster margins?

The No.3 mobile carrier alleged Telstra has been the main beneficiary of regulated price reductions of the mobile termination access service (MTAS) between 2004 and now.

MTAS is the wholesale agreement that telcos offer each other to connect calls between different networks.

It is currently up for review. A consistent issue raised by respondents in the review process is mobile termination fee reductions aren't being passed through to users of mobile-to-mobile and fixed-to-mobile voice services.

VHA is the only carrier or industry body to attempt to put a price on the lack of pass-through.

Its $1.4 billion calculation relates only to the cost of terminating fixed-to-mobile voice calls. It does not take into account any lack of pass-through of cost reductions when terminating calls between mobile networks.

VHA said the figure came from its own analysis of Telstra's publicly-disclosed FTM [fixed-to-mobile] data that it reports to the Australian Competition and Consumer Commission (ACCC).

"Input costs for [fixed-to-mobile] service providers have decreased as the [mobile termination] price has decreased," VHA said in a submission (pdf).

"However, Telstra has, in real terms, failed to decrease the price of its [fixed-to-mobile] services.

"This has meant that the main beneficiaries of reductions in [mobile termination fees] have not been consumers but rather the dominant fixed network operator".

VHA argued that Telstra clearly "has the ability to pass on more benefits to its customers".

It implored the ACCC to intervene, potentially by addressing the problem "at its source by imposing a requirement on [mobile network operators], and particularly Telstra, to pass-through reductions in the [mobile termination] price to customers of fixed-line services".

A Telstra spokesperson told iTnews that VHA's claims were "incorrect".

"The ACCC's own analysis shows price reductions are being passed through and consumers have paid less for fixed-to-mobile calls each year for the past five years," the spokesperson said.

"There is strong support across the telecommunications industry for the redeclaration of the MTAS and we are confident the ACCC will be finalising this review on a factual basis."

Optus is also backing reforms, but again only for fixed-to-mobile services.

"Optus considers that the reduction in the [mobile termination fees] has continued to allow Telstra to receive a significant windfall gain," it said. (pdf)

"Instead of passing on the reduction to consumers by lowering [fixed-to-mobile] prices, there is the potential that Telstra has kept most of the benefit."

The Australian Communications Consumer Action Network (ACCAN) suggested a broader-brush approach to tackling pass-through, in the belief that it affects more people than those who call mobile numbers from their fixed phones.

ACCAN cited ACCC data that the "real average price for mobile services during 2011-12" fell by just one percent, "despite a three cents per minute or 33 percent drop in [regulated wholesale mobile termination fees] over the same period".

"As a result of such a large drop in wholesale pricing we would have expected to see increased competition on retail pricing and pass-through to consumers," ACCAN said. (pdf)

"It is possible that it will take time for wholesale price reductions to work their way through to retail pricing.

"Without pre‐empting the next phase of MTAS, in developing its pricing principles we would be encouraged to see ACCC modelling that pass-through was in fact occurring.

"Failing this, we would like to see some explanation from industry as to why the price reduction is being absorbed."

It wants to see similar action from the ACCC on pass-through for fixed-to-mobile callers.

"We would be encouraged to see greater modelling of the impact of MTAS on competitive retail pricing for fixed-to-mobile calls in future deliberations."

The Competitive Carriers Coalition added its weight to calls for action.

"The CCC would ... like to take the opportunity to contest recent suggestions from the [ACCC] that reductions in regulated termination charges have been passed through to retail prices," it said. (pdf)

That suggestion by the ACCC is contained briefly in a discussion paper (pdf) released in May that sparked the current review and industry submissions.