Operators Feel Pain in Spain

Spain's telecom watchdog has told the country's top two mobile operators, Telefónica Móviles SA and Vodafone (Spain), to cut their fixed-to-mobile interconnection fees by 17 percent from August 1, a move that Unstrung believes will cost the operators tens of millions of dollars per month.

The Comisión del Mercado de las Telecomunicaciones (CMT) has imposed the condition on the operators with significant market power (SMP), deemed to be those with more than 25 percent market share in 2001. Móviles had 56 percent and Vodafone 26 percent (so a close call there). To rub salt into the wounds for Vodafone, it lost some market share in the first quarter of this year and dropped below the 25 percent mark.

Amena, the third operator, which had about 18 percent of the market, is not included in the ruling, and its exemption should, in theory, allow it to offer consumers a more competitive price deal than its rivals as it hangs onto its margins.

The operators are not revealing what effect the ruling will have on their revenues. "We are working out what this means for us, and what our response will be," says Vodafone Spain spokeswoman Corinne Norris. "But it will affect either our investment in our GPRS and 3G networks, or it will result in an increase in prices for customers," she tells Unstrung.

Norris didn't stop there. "This is unfair and has discriminated against the mobile operators. The CMT is penalizing those companies that are investing in the marketplace. All this is doing is increasing the margins of the fixed-line incumbents and a change to the margins of ourselves and Móviles."

Mobile operators in other European Union countries can expect similar moves from their national regulators. The Spanish decision follows last month's EC draft guidelines for national regulators, which urged them to take tougher action on various telecom charges, including mobile termination rates. It also comes in advance of the EC's new framework agreement for telecom, which must be enshrined in the national law of each member by July 24, 2003. Part of this framework relates to access and interconnection and will push the operators toward introducing cost-based interconnection fees.

Such interconnection charges "are a significant stream of revenue for the mobile operators," according to Roger Runswick, a director at consultancy Schema. "The operators have used these fees as a way of retaining their margins and have stayed high because of a lack of competition in the markets. There is a definite move to regulate these charges downwards," Runswick tells Unstrung.

The shift from current prices to cost-based prices would be a hefty blow to the carriers' bottom lines. According to figures from law firm Steptoe & Johnson, Spain's fixed-to-mobile termination rate is the equivalent of US$0.34, while the European average is $0.25. Estimates of the cost of terminating a mobile call are put at between $0.05 and $0.09.

Such regulatory rulings on voice services increase the pressure on the mobile operators to boost their revenues from data services. Latest figures from Spain mobile carriers show Móviles taking 15.3 percent of its revenues from non-voice services and Amena taking 15.8 percent. Unstrung calculates from Vodafone figures that it gleans about 9 percent of its revenues from data in Spain.

More information and analysis of the mobile data revenues of Western Europe's operators can be found in the soon-to-be-released July edition of the Wireless Oracle, "European Wireless Data."

— Ray Le Maistre, European Editor, and Gabriel Brown, Research Analyst, Unstrung

Editor's Note: Light Reading is not affiliated with Oracle Corporation.
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