Termination rates

Termination rates are the charges which one telecommunications operator charges to another for terminating calls on its network. Traditionally three models of charging these fees are known: calling party pays (CPP), bill and keep (BAK, peering), receiving party pays (RPP).

Explanation

For example, a customer of Operator A wishes to call a friend who has an Operator B mobile. Operator A will charge the customer a fee per minute (the retail charge) for this call. Operator B will charge Operator A a fee for terminating the call on its network. This termination rate therefore forms part of Operator A's cost of providing the call to its customer.

Termination rates may be commercially negotiated or may be regulated. A range of approaches can be used to regulate rates. International benchmarking or cost models such as a LRIC (Long Run Incremental Cost Model) or LRIC+ cost models are the most common approaches to calculate the efficient levels of termination rates. In LRIC models, the termination costs are calculated for an efficient hypothetical mobile operator. The model assumes that firms use the best technologies to provide mobile calls and services. It is a long run model as it takes into account the growth of demand, which is calculated using data on observed traffic, income and user information. It considers the time period that the service provider needs to invest in capital improvements to provide the mobile call services. Termination rates (TRs) derived from this model therefore calculate capacity costs of each element of the network, expressed in terms of per minute use. Under a pure LRIC model, costs are also calculated for an efficient hypothetical firm. The difference between both models is that while the former calculates TRs through the division of total costs by total demand, pure LRIC methodology calculates TRs by comparing a firm that provides mobile voice access and one that does not, to determine the necessary costs of providing mobile services.^[1][2]

Historically there was and in some countries still is much debate about the best level for interconnection rates. Some argue that approaches based on models do not take into account real world risks and costs and suffer, among other things, from survivorship bias (they consider that risk can be assessed by looking only at the returns of surviving companies) and therefore underestimate the true level of risk. Another concern is based on Real Options. This considers the benefit that is extinguished from the moment that an investor chooses to invest and suggests that the loss of this right to invest should be taken into account when looking at the expected returns on investments made.^[3]

The fundamental principle of any telecommunications network is to allow calls originating from a subscriber A to reach a subscriber B, whether on the same network or on another network, commonly known as “any to any connectivity”. In more technical terms, traffic, originating from Subscriber A is terminated at a point of destination, Subscriber B, and in order to allow for traffic to be routed and terminated between different operators, “interconnection” must be established. Interconnection allows for calls placed by a subscriber in one network to reach a subscriber in another network. Such a call is “terminated” in the destination network.

Data transfer rates

An alternative to traditional termination rates is to consider data transfer rates in conjunction with voice over IP (VOIP), which is, like the internet, a peering model. As data transfer is paid on both ends for the same VOIP call, this special form of termination is expected to gain importance. Such a model obviates the need for any regulation at a national level, other than a provision preventing mobile operators from restricting VOIP calls.^[4]

Situation in specific markets

Africa

Morocco wants to cut the termination rates by up to 70% and end asymmetric rates by 2013.^[5] The Nigerian Communications Commission, responsible for the largest African mobile market with 61 million subscribers, continually lowers the termination rates.^[6][7]

North America

United States

Fixed line termination rates are below 1 ¢/min.The providers are free to negotiate termination rates as long as they are symmetric.^[8]

Asia

Pakistan

Mobile and fixed line termination rates are 0.91 paisa per minute charged per second.^[9]

Bangladesh

Mobile termination rate for domestic voice call is 18 Paisa per minute charged based on actual duration. For domestic SMS service, mobile termination rate is 4.5 Paisa per SMS. For domestic MMS service, mobile termination rate is 60 Paisa per MMS.

Mobile Termination Rate (MTR) for video call is yet to be fixed by operator / regulator.

International voice termination to Bangladesh is 1.5^[10] US cents per minute.

Europe and European Union

While termination rates between fixed line telecommunication operators frequently amount to less than US$0.01, mobile termination charges can be significantly higher, especially for international calls. In Europe, the average termination charge for a call varies, ranging from less than 1ct in Austria and Cyprus to much higher charges in Bulgaria.^[11][12] This discrepancy in rates has been identified as a hindrance to competition among telecom providers in the European Union. Termination rates have also played a major role in recent regulation to cap the high cost of roaming in the European Union, where customers paid historically on average almost €1.50/minute in roaming charges. Ultimately, roaming charges have been capped at twice termination rates.^[13]

All references to prices in this section are in € Euro cents (ct) for Eurozone countries and otherwise.

Austria

Since 2009, the termination rates are symmetric, and decrease every six months by 0.5ct/min. Starting from 4.5ct/minute, they reached 2.01ct/min in mid-2011.^[12]

France

Mobile termination rate in France is 0.76 ct/min for mobile and 0.078 ct/min for fixed lines in 2016, and will be lowered to 0.74 ct/min for mobile and 0.077 ct/min for fixed lines on Jan 1, 2017. SMS delivery stays at 1 ct/SMS. All amounts are in Euro cents and are regulated by Arcep, part of the French government. ^{[14] [15]}

Germany

The Federal Network Agency has set mobile termination rates to 1.66ct/min for 2014.^[16] Landline termination rates are significantly lower.

Ireland

Effective on annual basis from 1 September 2016 to 31 December 2018, the maximum MTR in Ireland is regulated to be 0.84ct/min for 2016, 0.82ct/min for 2017, and 0.79ct/min for 2018.^[17]

Italy

Mobile termination rate in Italy was 1.5ct/min for all Mobile Operator except H3G (1.7ct/m) effective July 1, 2012, lowered to 0.98ct/min for all operators from 1 July 2013. ^[18] Termination costs for SMS have not been regulated yet.

Montenegro

Termination rates in Montenegro were changed last time in February 2011, and are symmetric in mobile telecommunication networks. Termination rates in all three mobile networks (M:tel, Telenor and T-Mobile) are as high as 8.5ct/min.^[19][20][21] Termination rate for SMS and MMS messages is given solely in T-Mobile offer, and is 2.2ct and 6.6ct per message, respectively. Termination rates in T-Com fixed telecommunication network are €2.25ct/min within the same network access point code, and 2.7ct/min nationally.^[22] Termination rates in m:tel fixed telecommunication network is 2.81ct/min.^[19]

Spain

Fixed line termination rate in Spain are currently from 0.56ct/min to 0.65ct/min depending on interconnect level, with a volume discount of maximum 20%.^[23]

Mobile termination rate in Spain were historically 4.98ct/min for Yoigo and 4.00ct/min for other operators. Proposed to be lowered on a glide path:^[24]

Sweden

References to prices in this section are in Swedish Krona

Mobile termination rates are capped to 0.0815 SEK/min (0.9 eurocent)^[25] as of July 3, 2014.

The fixed line termination rate in Sweden was 0.0253 SEK/min (€0.28ct/min) for the most commonly used termination type (enkelsegment) effective January 2012.^[26] Mobile termination rate in Sweden was 0.21 SEK/min (2.35ct/min) effective July 1, 2011. .^[27] When it was suggested to lower it to 0.14 SEK (€1,25ct/min) by July 1, 2012.^[28]

Switzerland

All references to prices in this section are in Swiss Franc

The termination rates are approximately two or three times higher than in the neighbouring countries Germany and Austria. The rates are not yet symmetric. At 1 January 2011 they were 8.75 rp/min into the Sunrise und Orange networks, and 7 rp/min into the Swisscom network.^[29]

United Kingdom

Mobile termination charges in the UK are regulated by Ofcom and set to 0.68 pence/minute for mobile voice calls in 2016,^[30] down from more than 4 pence/minute in 2011. These cuts were in response to a campaign by the public, MPs and businesses (including BT and 3). Although fees from termination charges accounted for 14% of the revenue of mobile networks, it was argued that the cuts would allow them to become more competitive and offer cheaper packages to customers.^[31]

Oceania

Australia

Termination rates in Australia are regulated by the ACCC. The Mobile Terminating Access Service (MTAS) has been steadily reduced from 21 cents per minute (AUD) in 2004^[32] to 1.7 cents per minute in 2016.^[33]

Mobile Termination Rates Monopoly

The calling party pays (CPP) principle is the most commonly used termination charging approach among MNOs around the world, especially in the European markets.^[34] Within the CPP principle the caller has to pay mobile termination rates (MTRs) and there is no contribution from the callee. However, the callee defined the cost of the MTRs once selected the MNO to register with. This is the root of the MTRs monopoly problem. Since the early days of mobile communications MTRs considered to be a monopoly.^[35] However, this is a market-defined monopoly, since there is no physical limitation such as wires for reaching a mobile user. Thus, MTRs are regulated by national telecommunications regulatory bodies across the world.

See also

• Interconnection

References