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Viviane Reding

Member of the European Commission responsible for Information Society and Media

Ending the Fixed-Mobile-Subsidy: the new Commission Recommendation on Termination Rates in the EU

Press conference on Termination Rates
Brussels, 7 May 2009

This morning, the European Commission has adopted a Recommendation on the regulatory treatment of fixed and mobile termination rates in the EU.

This Recommendation addresses the serious inconsistency between national approaches concerning the regulation of termination rates – the wholesale fees which phone operators charge each other for connecting calls to subscribers on their networks. And it addresses the indirect subsidy that fixed operators and small mobile operators currently have to pay to mobile operators with significant market power.

Why regulate termination rates?

Let me recall that we are not talking about market prices here, but termination rates that are set by the 27 national telecoms regulators.

The reason national regulators intervene is because call termination represents an important competition bottleneck. Each network operator controls the completion of calls to its own subscribers. It is easy to understand: You can only offer, as a network operator, a communication service to your customers if you can connect them to the customers of all other operators. This means also that you depend on the cooperation of other network owners. And those with significant market power can exert a lot of pressure on other operators via the rate they charge for the termination of a call. This is the competition reason behind the regulation of fixed and mobile termination rates.

The Recommendation adopted by the Commission today will help eliminate price distortions between big and small mobile phone operators across the EU and also distortions between fixed and mobile operators.

The Commission Recommendation will also lower consumer prices for voice calls – remember that termination rates are ultimately included in everyone's phone bill.

Finally, the Recommendation will help the creation of a level-playing field and more consistent regulation on the European Telecoms Market, thereby triggering investment and innovation in the entire telecoms sector.

Getting rid of distortions of competition between the 27 Member States

Let me first talk about mobile termination rates. Despite efforts made by some national telecoms regulators to bring down mobile termination rates so as to reflect the real costs incurred by the operators – I mean by this in particular the Swedish, Finnish, French, Italian, Austrian and Romanian regulator who have started to go into the right direction as regards mobile termination rates –, we still face a situation with rates varying considerably from Member State to Member State. In 2008 mobile termination rates ranged from 2 eurocents per minute in Cyprus to 8 eurocents in Germany, over 10 eurocents per minute in Greece and almost 16 eurocents in Bulgaria.

Such fragmented price regulation poses a serious risk to our single borderless market for telecoms services in Europe and is a real threat to Europe's competitiveness.

These wide differences in rates cannot be explained solely by differences in costs or national circumstances and they distort competition between Member States. And between fixed and mobile operators.

Getting rid of distortions of competition between mobile and fixed operators

There is also an important distortion of competition between mobile and fixed operators

Currently mobile termination rates are also typically 10 times higher than fixed termination, with fixed termination rates ranging on average less than 1 eurocent per minute and mobile termination rates ranging to 8.55 eurocents per minute.

High mobile termination rates are thus an indirect subsidy for the larger mobile operators – a subsidy that has to be paid by all fixed operators, by smaller mobile operators and by all consumers.

While there may have been a greater tolerance of high mobile termination rates when mobile networks were first being rolled out across Europe, they can no longer be justified today, at this advanced stage of mobile market development.

If you just look at this table (slide 4), you will see that Europe is the world leader in mobile penetration, so indeed mobile market development does not need to be artificially and indirectly subsidised by fixed operators.

The regulatory approach recommended by the Commission today

What are we now doing concretely in today's Recommendation?

In today's Recommendation, the Commission sets out clear consistent principles for national regulators to follow when setting a fair price for terminating calls on fixed and mobile networks. The recommended methodology is a Long Run Incremental Costing model (LRIC). This methodology ensures that termination rates will be based on the cost of an efficient operator.

The objective of this approach is to mimic a competitive market situation. It identifies the costs which an efficient operator would face in providing the wholesale service to third parties and helps to identify the price that would prevail under competitive circumstances. At the same time, it will still allow operators to recover the cost of terminating calls.

We are confident that bringing mobile termination rates closer to efficient costs in all Member States will bring about a number of beneficial effects for the competitive process, for investment and for consumers. This will:

  • Lead to greater consistency and regulatory transparency further consolidating the single telecoms market;
  • Reduce inefficient transfers from smaller mobile operators to their larger, more established mobile competitors;
  • End the fixed-mobile subsidy and create a more level playing field and enhanced competition between fixed and mobile operators;
  • Support important pro-consumer investments, such as high-speed broadband networks, or in developing converged fixed-mobile offerings;
  • Result in new, innovative services and lower prices for European consumers; and
  • Help unlock additional revenue opportunities for EU telecoms operators through increasing customer demand.

Timeline for the phasing in of the LRIC model

What is the timeline for phasing in the new regulatory approach recommended by the European Commission today?

According to the existing EU telecoms rules, national telecoms regulators are required to take "utmost account" of the Commission's Recommendation. This implies that regulators will have to bring termination rates in their countries down to the level of efficient cost, starting today and completing this task by the end of 2012.

In setting this deadline we took into careful consideration views expressed by various stakeholders, representative bodies and by the Member States during the consultation process. We believe that this transition period represents an appropriate balance between allowing regulators and operators time to adapt to the recommended costing approach, whilst ensuring that consumer benefits are delivered as soon as possible.

However, we also recognise that some smaller regulators may need an additional period to prepare the recommended cost model. Therefore, the Recommendation incorporates added flexibility for regulators with limited resources to use alternative approaches for a limited further period (normally until 1 July 2014). This does not however compromise the objectives of the Recommendation as these methods must still result in outcomes consistent with the Recommendation and with a competitive market structure.

In short, smaller regulators (like the Maltese one) may temporarily still use another model, but the economic result regarding the level of the regulated rates must be the same by the end of 2012.

According to our Impact Assessment this would lead to a level of mobile termination rates across the EU between 1.5 and 3 eurocents by 2012.

We firmly trust that the new European Telecoms Authority BEREC (that should replace today's loose European Regulators Group in the course of this year) will provide the appropriate framework within which regulators can exchange their cost modelling experience and expertise and provide the necessary assistance for smaller regulators to implement the recommended methodology.

I would like to thank the services of DG INFSO who have done a great job in preparing today's Commission Recommendation. I will pass the floor now to Neelie who has helped me tremendously and collegially to get this important new Recommendation adopted today.

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