Termination rates

Termination rates are the charges which one telecommunications operator charges to another for terminating calls on its network. Traditionally three models of charging these fees are known: calling party pays (CPP), bill and keep (BAK, peering), receiving party pays (RPP).

Explanation

For example, a customer of T-Mobile wishes to call a friend who has a Vodafone mobile. T-Mobile will charge the customer a fee per minute (the retail charge) for this call. Vodafone will charge T-Mobile a fee for terminating the call on its network. This termination rate therefore forms part of T-Mobile's cost of providing the call to its customer.

Termination rates may be commercially negotiated or may be regulated. A range of approaches can be used to regulate rates. International benchmarking or cost models such as a LRIC cost model are the most common approaches.

Historically there was and in some countries still is much debate about the best level for interconnection rates. Some argue that approaches based on models do not take in to account real world risks and costs and suffer, among other things, from survivorship bias (they consider that risk can be assessed by looking only at the returns of surviving companies) and therefore underestimate the true level of risk. Another concern is based on Real Options. This considers the benefit that is extinguished from the moment that an investor chooses to invest and suggests that the loss of this right to invest should be taken in to account when looking at the expected returns on investments made.

Data Transfer Rates

An alternative to traditional termination rates is to consider data transfer rates in conjunction with voice over IP (VOIP), which is, like the internet, a peering model. As data transfer is paid on both ends for the same VOIP call, this special form of termination is expected to gain importance. Such a model obivates the need for any regulation at a national level, other than a provision preventing mobile operators from restricting VOIP calls.^[1]. The lowest rates are currently offered in Austria with a minimum price of 5€/month, and ~1€ for 1 GB.^[2] Data roaming rates remain thousand times more expensive (1€/MB instead of 1€/GB).

Situation in specific markets

Africa

Marocco wants to cut the termination rates by up to 70% and end assymmetric rates by 2013 ^[3]. The Nigerian Communications Commission, responsible for the largest african mobile market with 61 mio subscribers, continually lowers the termination rates. ^[4][5]

Americas

Fixed line termination rates are below 1c/min. In the U.S. the providers are free to negotiate termination rates as long they are symmetric.^[6].

Europe, European Union

While termination rates between fixed line telecommunication operators frequently amount to less than USD 0.01, mobile termination charges can be significantly higher, especially for international calls. In Europe, the average termination charge for a call is about USD 0.11 (0.085 Euro), ranging from less than USD 0.03 in Austria, Cyprus to USD 0.17 in Bulgaria^[7][8]. This discrepancy in rates has been identified as a hindrance to competition among Telecom providers in the European Union. Termination rates have also played a major role in recent regulation to cap the high cost of roaming in the European Union, where customers paid on average almost USD 1.5 / minute (Euro 1.15) in roaming charges. Ultimately roaming charges were capped at twice termination rates^[9].

See also: Regulation on roaming charges in the European Union

Austria

Since 2009 the termination rates are symmetric, and decrease every 6 months by 0.5 ct/min. Starting from 4.5 ct/min they reach 2.01 ct/min mid 2011.^[8]

Germany

The Bundesnetzagentur set the rates to 3.4 ct/min effective with beginning of 2010, but the rates are not yet symmetric. ^[10]

Switzerland

The termination rates are approximately two or three times higher than in the neighbouring countries Germany and Austria. The rates are not yet symmetric, and since 2011-01-01 they are 8,75 rp/min into the Sunrise und Orange networks, and 7 rp/min into the Swisscom network.^[11]

See also

• interconnection
• Massive call for mobile rate cut

References

1. ^ Receiving Party Pays compared to Calling Party Pays
2. ^ iPad-Tarife: Surfen ab fünf Euro
3. ^ Telecompaper, 2010-05-10
4. ^ Nigeria sets new voice, SMS termination rates, 2009-12-31
5. ^ Nigeria posts a subscriber base of more than 61Mn, outshines South Africa’s mobile market, 2009-03-13
6. ^ Termination rates: Questions and Answers, 2008
7. ^ Europa Press Release IP/09/710
8. ^ ^{a b} Mobilterminierungsentgelte ab 1. 7. 2009
9. ^ Control
10. ^ heise online: Telekom prüft Klage gegen gesenkte Terminierungsentgelte vom 5. Dezember 2010
11. ^ Mobilfunkterminierungsgebühren sinken auf das europäische Niveau Medienmitteilung vom 9. September 2010 (PDF)