Termination charges drive up prices and generally a bad idea.
Deutsche Telekom is hopping mad because BnetzA dropped their take on mobile calls in half to 0.0185 euros a minute. But their arguments against the slash seem unlikely to persuade any regulator who cares about consumers. DT tells Reuters that telco profits will go down 500 million with the benefit passing to consumers. Sounds great to me, but DT and rival Vodafone tell Reuters reducing prices is bad policy. As Reuters reports
“A Deutsche Telekom spokesman said the decision would cost the German telecom operators about 500 million euros ($635.28 million) annually, adding that the cuts didn’t bode well for future investments in fast internet. “With this decision the Bundesnetzagentur follows the complete erroneous European policy of the past 10 years, which has cost the European telecom sector its global leading role,” a Deutsche Telekom spokesman said. Vodafone said the decision was a “dramatic cut”, which will drag money away from much needed investment in faster networks.”
Jochen Homann is a public servant. I don’t understand why DT thinks a complaint their profits aren’t high enough would persuade BNetzA to change the decision. The German carriers have had years’ notice these cuts were coming; Homann’s predecessor, Mathias Kurth, disclosed the plan several years ago. All the carriers should have been pricing for the new MTRs.
Terminating monopolies considered harmful. Deutsche Telekom has a “terminating monopoly” on 12M German homes, enormous market power. If Canal+ or Amazon wants to sell TV over the net in Germany, they are virtually forced to pay whatever DT asks. Broadband customers tend to stay with one provider for 5-10 years, so DT has an effective monopoly. Only a small portion of what DT collects will go to consumers in lower prices or increased investment and most will go to DT shareholders.
The reduction in European mobile termination rates has provided strong evidence of the “terminating monopoly” effect. Deutsche Telekom and others argued that basic rates would go up as much as the roaming rates go down, so the reductions wouldn’t help consumers. There’s substantial economic literature on access monopolies. With perfect competition, the two-sided market theory suggests consumers wouldn’t be aided. But with market power the opposite is true.
In reality, telco after telco has explained that MTR reductions have reduced their profits significantly. Shareholders rather than consumer cover most of the fall. Deutsche Telekom has just complained that Germany’s recent MTR cut shifted 500M from telco profits to consumers. That means Homann is doing his job.
DT has to explain why it needs “monopoly-like” prices and can’t price competitively and still make a fair profit.