A Clever Spell

Cellular Phone users from less well off households could be priced out of the market if the regulator forges ahead with plans to drastically slash the price of calls, the UK’s biggest mobile telephone company O2 has warned.

The mobile networks could respond to regulatory pressure by trying to recover their losses through increasing prices elsewhere, the mobile operator said. Free handsets could also be axed and users of so-called smartphones such as Apple’s iPhone and the Telit mobile phone could see their bills go up, O2 has told Ofcom.

Earlier this year the regulator proposed lofty reductions to mobile termination rates - the charge imposed by the networks on each other and fixed-line operators such as BT to connect calls - when the live price cap regime expires in 2011.

Both the incumbent fixed line operator and mobile network 3 have lobbied for them to be trashed altogether with their “terminate the rate” campaign.

A petition started by the two companies has already attained 70,000 signatures, including 200 from MP - all wanting to see the complete trashing of these fees. The thinking behind this is that it is hoped that this would induce the introduction of unlimited call packages which are available in places like the USA for example. In addition, when calling from a landline to a mobile, this cost is likely to fall too.

But in its submission to the regulator as part of the consultation process on its plans, O2 accuses the two companies of being “driven … by self-interest” and admonishes that “sudden and dramatic changes to termination rates introduce a risk that the retail markets would be affected in a way that could harm, and not benefit, consumers”.

O2 believes that monthly contract charges, handset prices and the cost of calls could all go up. Prepay customers, who tend to receive more calls than they make, will be hard hit as the mobile telephone companies would have to slap “use by” dates on top-up credit. Another blow to their finances, along with the increase in gas rates. This would be especially painful for low-income households and younger consumers as many rely solely on pre-pay mobile phones and do not have a fixed line telephone.