UPDATE 2-UK mobile users set for lower charges, 3 delighted

* To cut rates from 4.3p per minute to 0.5p by 2015

* Regulator says consumers will benefit from cheaper calls

(Adds details, reaction)

LONDON, April 1 (Reuters) - The price of calling a mobile phone in Britain looks set to fall further after regulator Ofcom proposed cutting the cost operators charge each other to connect calls, in a blow to the largest carriers.

The cost to networks, known as mobile termination rates, are set in Britain until 2011 and Ofcom said on Thursday it now planned to cut the rate from around 4.3 pence per minute to 0.5 pence per minute from 2011 to March 2015.

Analysts said they expected the smallest operator 3, owned by Hutchison Whampoa 0013.HK, and the fixed-line group BT BT.L to be the main beneficiaries from the plan, along with consumers. Revenues for the main operators would likely fall but the impact would be more limited for their earnings.

Stephen Lerner, director of regulatory affairs at 3, said the company was ecstatic at the news and said this would have a huge impact on 3’s ability to compete in the market as it would pass on cost cuts to customers.

“As rates fall and operators adapt, consumers will benefit from cheaper calls and competition in both the UK fixed telecoms and mobile markets,” Ofcom said.

The topic of termination rates has gained prominence in Britain after 3 and fixed-line telecom group BT BT.L led a campaign to get the rate either cut or dropped entirely.

However the proposal is likely to be challenged by the larger operators, including Telefonica's O2 TEF.MC, Vodafone VOD.L and the new merged entity from T-Mobile DTEGn.DE and Orange FTE.PA, who have argued that it will limit their ability to invest.

Vodafone said a cut of this magnitude would defer future investment and was at odds with the government’s vision of a Digital Britain. Its shares were down 0.9 percent in early morning trading against a FTSE 100 Index up 0.7 percent.

Bernstein analyst Robin Bienenstock said the overall impact on operators bottom line would be minimal, although more visible in terms of the top line.

“MTRs comprise around 12 percent of gross revenue for Vodafone in the UK, but only 2 percent on a net EBITDA basis due to the termination fees also paid to other operators,” she said. “We estimate that this is a similar impact for other UK operators.”

A smaller operator tends to pay more in mobile termination rates because its users are likely to spend more time on other networks than its own. 3 had been allowed to charge slightly higher rates to let it build out its own network but these will now fall in line with the other operators over the next few years.

BT said it welcomed Ofcom’s decision and said it would pass on the reductions to customers, but it said it regretted the fact the changes would take so long to enter the market.

“The move is consistent with our view that mobile regulation will continue to provide headwinds, while regulation for BT in particular seems to be increasingly favourable,” Collins Stewart analyst Morten Singleton said.

The European Commission had urged the British telecoms regulator to impose appropriate price control. Ofcom’s consultation will close on June 23.

Ofcom also announced plans on Thursday to enable consumers to transfer their existing mobile phone number to a new provider in just one working day rather than the current two days.

Mobile phone number portability has unleashed price wars in other markets where it has been introduced, since it makes it easier for consumers to switch operators without having to change the number.

Number portability tends to also favour the smaller players and 3 had also lobbied for such a move, especially in light of the planned merger of T-Mobile and Orange’s UK operations. (Reporting by Kate Holton; Editing by Mark Potter and Jon Loades-Carter)


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