By Marcus Leach

Ofcom has announced a reduction in mobile termination rates — the wholesale charges that mobile operators make to other operators to connect calls to their networks — designed to benefit UK consumers.

From 1 April, Ofcom will place a cap on the rates charged by all four national mobile network operators — 3UK, O2, Everything Everywhere and Vodafone. This will lead to around an 80 per cent reduction in termination rates over the next four years.

Lower termination rates are designed to benefit landline and mobile customers in two ways:

- Cheaper landline services: Lower termination rates reduce the cost to landline companies of passing calls to mobiles. Ofcom expects these savings to be passed on to consumers in the competitive UK landline market. Some operators have already promised to lower their charges.
- More choice: Lower termination rates promote competition in the mobile market, providing customers with more choice. Operators will have more pricing flexibility and will be able to increase the range of packages available to consumers.

Over time, the way that consumers use mobile devices has changed. Data rather than voice calls today form the majority of traffic over mobile networks. This is as a result of increased use of SMS messages and most recently the growth of internet-enabled smartphones.

According to Ofcom research, the volume of data traffic over mobile networks has increased by 104 per cent over the last year.

As mobile termination rates only apply to calls rather than data, over the four year charge control period, they are likely to become a less significant element of mobile companies’ revenue.

Data revenue increased by 90% between Q4 2007 and Q4 2009 and Ofcom expects continued data revenue growth in the future.

Therefore Ofcom expects that investment in the UK mobile sector will be driven increasingly by the growing appetite for data services, smartphones and mobile broadband. Ofcom does not expect lower mobile termination rates to materially change this trend.