NEW ZEALAND MOVES CLOSER TO CUTTING MOBILE

UNCLAS SECTION 01 OF 02 WELLINGTON 000461

SIPDIS

STATE FOR EB/CIP FOR AHYDE AND EAP/ANP FOR TRAMSEY
STATE PASS TO USTR FOR BWEISEL AND DKATZ
COMMERCE FOR 4530/ITA/MAC/AP/OSAO/ARI BENAISSA
COMMERCE FOR 6920/ITA/OTEC/MYLES DENNY-BROWN

E.O. 12356: N/A
TAGS: ECPS ECON ETRD NZ
SUBJECT: NEW ZEALAND MOVES CLOSER TO CUTTING MOBILE
TERMINATION RATES



1. Summary: New Zealand's two mobile-phone service providers
are a step closer to being ordered to lower the fees they
charge to complete calls into the country on their networks
-- fees that are among the highest of OECD nations. The
Commerce Commission on June 9 issued its final report on its
investigation into mobile termination rates, recommending to
the Minister of Communications that the rates be regulated
and, as a result, lowered. The commission found that a lack
of competition in the market had resulted in the two mobile
network operators setting rates significantly above the
level required to cover costs. The Minister of
Communications, who must make the final decision, is likely
to follow the commission's recommendation. End summary.


2. Ending an investigation that began in May 2004, the
Commerce Commission -- New Zealand's anti-monopoly watchdog
-- upheld its October 18 preliminary decision to regulate
mobile termination rates, the fees that fixed-line network
operators incur when calls are completed on mobile telephone
networks.


3. The decision is good news for U.S. callers to New
Zealand, since AT&T and other U.S. companies have faced
increasing fees when they pass calls into the country. The
commission estimated the cost of mobile termination to be
about NZ 15 cents (US 10.7 cents) per minute, while the New
Zealand mobile network operators have been charging about NZ
27 cents (US 19 cents) per minute. The fee they charge
overseas carriers has been almost US 6 cents higher than
that.


4. The commission determined that regulated reduction in the
rates would probably increase competition in the domestic
fixed-to-mobile market, resulting in lower retail prices for
fixed-to-mobile calls. Although it acknowledged that
regulation also could put "upward pressure" on the price of
other mobile phone services, as service providers sought to
recoup revenue in other areas, the commission predicted
overall benefits to consumers and businesses. It noted that
New Zealand is one of the most expensive countries in the
OECD for users of mobile phones.


5. The recommendation for regulation excluded voice calls
using third-generation mobile networks because of concern
that such regulation might inhibit investment in the new
technology.


6. Vodafone serves about 55 percent of the mobile phone
market in New Zealand, while Telecom -- the country's
largest fixed-line phone company -- holds the balance.
Vodafone immediately criticized the commission's
recommendation, saying that the cost of other types of calls
and handsets could rise to offset the revenue lost if it
were forced to cut termination fees. Vodafone's finance
director, David Sullivan, said that regulation would benefit
the fixed-line providers, Telecom and TelstraClear, which
would stand to make some savings as they pay less to
Vodafone for terminating calls on its network.


7. Telecom did not immediately respond to the decision, but
has previously contended that the mobile market did not need
regulation. While it also could lose revenue from
regulation, Telecom potentially could offset such losses by
passing on the savings from lower charges to customers,
thereby inducing consumers to make more calls.
TelstraClear, which resells Vodafone's mobile phone services
but is developing its own mobile network, supports
regulation. There are 2.8 million mobile phones and 1.7
million fixed lines in New Zealand.


8. The Minister of Communications, David Cunliffe, can
accept the commission's recommendation, reject it or ask the
commission to reconsider its recommendation. If he accepts
the recommendation, the commission then would set the mobile
termination rates, most likely based on benchmarking against
other OECD countries.


9. A copy of the commission's 177-page decision can be found
on its website, www.comcom.govt.nz (select
"Telecommunications" and then "Investigations").


10. Comment: Minister Cunliffe is likely to accept the
commission's recommendation. In general, ministers need
extraordinary reasons to reject the regulator's
recommendations. For example, then Minister of
Communications Swain in May 2004 accepted the Commerce
Commission's recommendation against local loop unbundling,
even though he personally opposed it. Moreover, Cunliffe
would be well aware of concern among telephone users over
oligopolistic practices and pricing by Vodafone and Telecom,
which have tended to set mobile termination fees in tandem.

SWINDELLS