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UPDATE 2-EU plans 70 pct cut in mobile operator fees

(Adds T-Mobile, Ofcom, European Regulators Group)

BRUSSELS, June 26 (Reuters) - Fees mobile operators charge for handling each others’ calls will drop by 70 percent under European Commission guidelines published on Thursday, but some operators warned owning a phone would become more expensive.

EU Telecoms Commissioner Viviane Reding wants to bring down so-called mobile termination fees charged by one operator for handling a call from another operator -- a common occurrence in a bloc of 27 countries and many phone companies.

Reding plans to end big differences in mobile termination rates between EU states and cross-subsidies between mobile and fixed-line termination rates at some operators.

Mobile termination fees make up about 20 percent of a mobile operator’s revenues.

“The consumer pays the price for these gaps between national regulatory policies,” Reding said in a statement.

EU Competition Commissioner Neelie Kroes said the measure would eliminate distortions in competition between fixed and mobile operators.

“Truly cost-oriented termination rates will increase competition to the benefit of consumers. Consumers should expect to pay lower retail prices as a result,” Kroes said.

The guidelines contain no numerical cap for mobile termination rates (MTRs) and their equivalent for fixed-line calls but set out which charges can and cannot be included.

The new methodology will be phased in by 2011.

If the guidelines are applied properly, mobile and fixed-line termination rates will converge to around 1.5 to 2.5 euro cents (2.4 to 3.9 U.S. cents) per minute, the Commission said.

The European Regulators Group of national EU telecoms watchdogs said mobile rates had fallen by 40 percent in the past four years and sticking to current calculation systems was part of the solution to ensure legal certainty.

“Sudden changes in these principles may also present significant legal risks to those regulators currently involved in litigation on these matters,” the ERG said in a letter to Reding and Kroes last month and obtained by Reuters.

British telecoms watchdog Ofcom said it was open to a debate on whether a better way existed on how to set MTRs after 2011 in the interests of consumers.

“Regulation should be evidence based and Ofcom will be looking with interest at the Commission’s consultation,” Ofcom said.

BIG VS SMALL

The GSM Association industry lobby, which represents operators, said national regulators were best placed to set termination rates as costs varied dramatically across Europe.

“It’s not very good trying to set them at pan-European level in the way being suggested,” an association spokesman said.

Industry leader Vodafone VOD.L said termination rates represented 15 to 20 billion euros a year for the telecoms sector and that operators could not absorb all the cut.

High-usage mobile phone owners will probably make savings but those with low usage will see increases as Europe adopts a U.S.-style business model for allocation of costs, Richard Feasey, Vodafone’s director of public policy, told Reuters.

“I am sure there will be revenue impact on the company as well. The costs have to be recovered. It’s very likely that the cost of owning a mobile phone would have to go up,” he added.

U.S. consumers pay about 15 euros a month to own a mobile phone, higher than in the EU.

The proportion of adults with a mobile in the United States was about 65 percent, some 20 percent lower than in the EU because of the higher ownership costs, Feasey said.

Deutsche Telekom's DTEGn.DE T-Mobile unit said the plans were too drastic but 3, part of Hong Kong's Hutchison group 0013.HK, said high mobile termination rates benefitted large operators and were a barrier to competitors.

“Lowering MTRs will make the industry as a whole more competitive, which of course will give new entrants, like the 3 Group, a more level competitive playing field,” said John Blakemore, director of European regulatory affairs at 3.

“Where they are low or don’t exist, average retail prices are much lower and consumers use their mobile phones more. So we would expect average retail prices to fall and for consumers to benefit from lower MTRs,” Blakemore said.

Fixed-line termination rates are around 0.5 euro cent per minute with their mobile equivalent much higher at 5.2 to 11.6 euro cents or more, depending on the EU state.

The European Commission, the EU’s executive arm, will formally adopt the guidelines in the autumn and EU states are obliged to apply them or explain whey they are not doing so. (Additional reporting by David Lawsky in Brussels and Nicola Leske in Frankfurt; Editing by Dale Hudson and Sophie Walker)

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