Commission hangs up on mobile termination regulation as competition strengthens

The Mobile Termination Access Service (MTAS), which enables voice calls and text messages to be sent between different networks, played a key role in enabling 2degrees to grow as the country's third nationwide mobile network operator.

"Good regulation needs to know when to step in - but also when to step back," says Telecommunications Commissioner Tristan Gilbertson.

"The rules introduced in 2010 helped create a level playing field that allowed 2degrees to grow into a strong third mobile network. With competition now well established between three national providers, regulation has done its job and can step back."

Regulation was introduced to address competition concerns in a market that was at the time dominated by two large networks - Telecom and Vodafone. High termination rates at the wholesale level and strong on-net pricing incentives at the retail level created a structural disadvantage for a new entrant like 2degrees.

Larger networks could offer cheaper prices for calls and texts within their own network, encouraging customers to stay with the biggest providers. At the same time, high termination charges meant that when 2degrees customers called those networks, 2degrees had to pay more to complete the call. Regulation reduced those termination charges and helped level the playing field between networks.

Fifteen years on, 2degrees has grown into a strong nationwide competitor and New Zealand now has three established mobile networks competing vigorously for customers.

"Our view is that regulation has successfully done the job it was intended to do," Mr Gilbertson says.

The Commission's recommendation has been provided to the Minister for Media and Communications, who will decide whether to amend the Telecommunications Act to remove MTAS from the Telecommunications Act.

The Commission's final recommendation report and letter to the Minister is available.

Background

The market pre-2010

MTAS are wholesale services supplied by one mobile network operator (MNO) to another that allow customers on different networks to communicate by voice call or SMS.

Before MTAS was regulated, calls and texts were often much cheaper within the same network than between different networks. This encouraged customers to join the largest networks, so they could communicate more cheaply with friends and family, making it difficult for a new operator to attract customers.

In June 2010, the Commission recommended to the Minister of Communications that MTAS be regulated with set prices to even the playing field, resulting in the introduction of regulation later that year.

The current market

Since then, market conditions have changed significantly and competition no longer centres on voice calls and text messaging in the way it once did.

Consumers increasingly choose mobile plans based on data allowances, speeds and coverage, while voice calls and SMS are typically bundled into plans, often with unlimited allowances. Many people also use internet-based messaging and calling services, such as WhatsApp and Facebook Messenger, alongside traditional communications.

These developments mean wholesale mobile termination charges are no longer likely to influence how mobile providers compete for customers.

The Commission also found that traffic between the three mobile networks is now broadly balanced, reducing the incentive for discriminatory treatment between networks that originally raised competition concerns.

Overall, the Commission found that mobile networks have limited incentive or ability to increase termination charges in a way that would harm competition or lead to higher prices for consumers.

The Commission's review of MTAS was conducted under Schedule 3 of the Telecommunications Act, which requires periodic review of regulated services to ensure regulation remains necessary.

The last review was completed in October 2020.