Making up a cost
Ofcom, the UK's communications regulator, has decided that mobile phone companies must cut the termination fees they charge each other from 4.3p/minute to 0.5p/minute. This is the cost paid by, say, Vodafone to T-Mobile when I call a T-Mobile customer using my Vodafone handset. According to Robert Peston , these fees represent 16% of revenues for British mobile phone companies. Therefore, he says, they will try to make it up by increasing charges in other areas. There are a couple of problems with this view, however. The first is that for every Vodafone customer calling T-Mobile, there's likely to be a T-Mobile customer calling Vodafone in return. The numbers won't be exactly the same - perhaps T-Mobile customers are more stingy - but a large part of that 16% of revenues is cancelled out by costs that the telcos incur. These costs will disappear at the same time as the revenue. So instead of charging 15p/minute and paying 4p to another company, then receiving 4p l...