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Mobile termination rates: do they affect me?

Our expert says...

Ofcom’s decision to cut mobile termination rates (MTR) might not sound like the most exciting event of the year, but with costs set to fall by 80% over the next four years, the new rules could make a real difference to your home phone bills.

What are mobile termination rates?

Mobile termination rates are charged by each mobile network to terminate calls from rival landline or mobile customers.

Telecoms regulator Ofcom explains: “If you’re with Vodafone, for example, and you call a friend on O2, Vodafone has to pay O2 a charge for connecting the call to a customer on O2’s network.

“If your friend calls you back later on, then the opposite would happen and O2 would have to pay Vodafone.”

This means that on top of the cost of calling a mobile - either from your home phone or from a mobile - you also have to pay the MTR, pushing costs up.

And although termination rates work in both directions - with people making and receiving calls to and from different providers - the situation is a little unbalanced between mobile and landline providers.

Because landline termination rates are much lower than mobile ones, suppliers like BT must pay far more when their home phone customers call mobiles than they receive back - which is why it costs so much more to call a mobile from your landline.

How much do they cost?

At present, MTRs are just over 2.6p per minute (ppm). Before 1 April 2011 rates were 4.48ppm people calling Three, and 4.1ppm for other providers - but at one point MTRs were as high as 20p a minute.

Prices will continue to drop each year until they reach Ofcom’s target of 0.69ppm by 2014.

Home phone giant BT (www.bt.com) campaigned with mobile provider Three to have termination rates dropped, and has promised to pass the savings on to customers.

How will the cheaper rates affect me?

Ofcom says that the rate cuts will benefit consumers in two ways; by offering better choice and cheaper landline services.

The most obvious benefit is clearly cost savings that will come out of the lower MTRs. “Ofcom expects these savings to be passed on to consumers in the competitive UK landline market,” says the telecoms regulator.

The changes will also bring about more competition in the market, according to Ofcom. “Operators will have more pricing flexibility and will be able to increase the range of packages available to consumers,” it says.

Are providers passing on savings from the new, lower rates?

BT announced on 24 May that it would be cutting the cost of calling mobiles by up to 24%.

The new, cheaper rates, which will see mobile call prices drop to as little as 5.3p in the evenings, will be available to its home phone customers from 28 May.

BT says that it was the first landline provider to pass the MTR savings onto customers, and called on rivals to follow its lead.

However, TalkTalk (www.talktalk.co.uk) hit back, claiming that it was “still loads cheaper than BT” and had reduced its prices in October last year - long before Ofcom’s decision.

As a TalkTalk customer, you can add a Mobile Minutes Boost to your package, giving you 500 minutes to any mobile network for £5 a month, or 100 minutes for £3.

The Post Office (www.postoffice.co.uk) is another good alternative, as it offers inclusive weekend calls to all mobiles and 40 selected international destinations.

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If you have a general switching or provider query please email us at ourexpert@homephonechoices.co.uk