The Authority submits to public consultation and notifies to the European Commission its draft decision on mobile voice call termination rates for the period running from 1 July 2009 to 31 December 2010.

Paris, 23 October 2008

• Mobile call termination regulation

Any operator providing a telephone service must allow its customers to reach any mobile phone number in France. To be able to do so, operators must purchase a call termination service from each mobile operator under terms which, in the absence of regulation, are decided unilaterally by the latter. Mobile voice call termination thus constitutes a structural bottleneck. The existence of this market power led the Authority to impose on all three mobile operators in Metropolitan France the obligation, among others, to adhere to a principle of cost-oriented pricing when setting their wholesale call termination rates, through its Decision no. 2007-0810 of 4 October 2007.

In this Decision, ARCEP set the ceiling tariffs that operators could charge for mobile voice call termination up to 30 June 2009. The Authority has today launched a public consultation on its draft decision concerning the rate control plan to which the three mobile operators will be subject during the period running from 1 July 2009 to 31 December 2010.

• Towards rates based on incremental costs in the medium term

The purpose of the Authority’s efforts is to prevent competition problems caused by call termination tariffs that are too high, by requiring that the rates being charged reflect subjacent costs. It has thus been applying a policy of progressively reducing mobile call termination rates apace with the development of mobile networks, as a result of which these rates have dropped from over 30 eurocents/minute in the late 1990s, to the current rate of between 6.5 and 8.5 eurocents/minute in Metropolitan France.

Taking account of the current state of market development – namely, the maturity of cellular phone networks, the growing convergence with fixed networks, the solid growth of high volume offers (flat rates and unmetered offers), the overriding trend of differentiating mobile calling prices according to the destination network (on-net calls travelling over a single network and off-net calls which travel over two distinct networks) – the Authority is proposing a change in the basis for calculating costs, thereby establishing a better adapted and more efficient economic signal for the markets.

In particular, the Authority holds the view that the optimal level for call termination rates in the medium term is one that reflects incremental costs. The development of healthy and fair competition, not only between mobile operators but also between mobile and fixed operators, will thereby be stimulated and the rate structure of the offers will better reflect the industry’s cost structure, which will in turn benefit consumers. This change will stimulate innovation by encouraging the development of high volume "all-net" offers – i.e. which include calls to all networks, and not only on-net calls – as well as fixed-mobile convergence offerings, which will lift disincentives to consumption. By its very structure, the principle of incremental costs also allows operators to recover the costs generated by the termination service through their call termination rates.

• Very gradual implementation

Because mobile voice call termination rates and the constraints involved in altering retail offers have a fundamental effect on the sector, a transitional period is needed to give the market time to adapt. The operators have underscored the fact that too radical adjustment of wholesale prices could undermine market stability by creating opportunities for circumvention, for instance, or by upsetting the balance of certain offers.

As a result, the Authority believes that, although incremental costs can constitute a more suitable relevant cost concept, this cost level needs to be attained over a transitional period of several years.

• European context

The Authority is pleased by the increased harmonisation of call termination regulation policies with its adoption in 2007 of a European Regulators Group common position(1), and the upcoming adoption of a European Commission recommendation on fixed and mobile call termination regulation(2).

Although France stands out for having a particularly favourable cost structure – resulting from the small number of operators in the market, lower mobile licence costs and heavy consumption – it is nevertheless important that regulatory policies be increasingly harmonised to limit the risks of distortions between national markets.

• Call termination rates planned for Metropolitan France

Under these circumstances, the Authority proposes to pursue its policy of a progressive and pragmatic decrease in call termination rates by imposing a decrease, as of 1 July 2009, in the mobile call termination rate from 6.5 to 4.5 eurocents/minute for Orange France and SFR, and from 8.5 to 6 eurocents/minute for Bouygues Telecom, and a second decrease as of 1 July 2010 from 4.5 to 3 eurocents/minute for Orange France and SFR, and from 6 to 4 eurocents/minute for Bouygues Telecom.

These rates are to be compared to the corresponding cost estimates of an efficient operator which, for 2008, range from 1 to 2.9 eurocents, depending on the calculation method employed.

• The public consultation

This draft decision will be subject to public consultation until 5 p.m. on 24 November. Responses must be sent to the following e-mail address: couts.mobiles(@)arcep.fr.

To ensure transparency, the Authority will publish all of the responses received, with the exception of those protected by business secrecy.

At the same time, ARCEP will notify this draft decision to the European Commission and to the other European regulatory authorities. After having examined the remarks and observations received, the Authority will be in a position to adopt its final decision.

ARCEP will also examine the specific case of the overseas départements and territories in a future draft decision which will set the ceiling tariffs for operators in those markets, for the period running from 1 January to 31 December 2010.

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(1) ERG's Common Position on symmetry of fixed call termination rates and symmetry of mobile call termination rates, March 2008.
(2) Draft Commission recommendation on the Regulatory Treatment of Fixed and Mobile Termination Rates in the EU, June 2008.