An interim ruling by the UK Competition Commission this week that could cap interconnect fees – a 20% to 28% revenue generator for UK mobile operators – has the potential to delay a recovery in global mobile stock prices.

This is according to SCMB telecommunications and media analyst Stephen Carrott.

In a report released this week, Carrott said it was not clear that the current valuations of European mobile companies fully reflected the potential downside associated with the issue. Interconnect fees, otherwise known as mobile termination accounts, are the fees that the operators charge each other to connect calls from one network to another.

Some light
However negative the news of this issue, Carrott said there had been some more positive developments on the global telecoms front that were starting to balance out the dire news flow.

The bankruptcies of some alternative carriers was good news for the long run, as was this week's news that Telefýnica of Spain and Sonera of Finland had written off some of their €8.4bn 3G (third generation network) license costs; in four countries. This pointed to reduced losses in the future and their share prices responded accordingly.

Analysts quoted by the Financial Times today said other telecoms companies were likely to follow suit.

Back to the bad news - UK competition ruling
Oftel, the UK telecoms regulator, previously said that interconnect fees were uncompetitive and far exceed the actual costs involved. The latest development is that the UK Competition Commission has now agreed in principle with Oftel. Although its final ruling will only be made in January next year, the interim paper pretty much charts the course for the final ruling unless the operators deliver convincing enough arguments against it.

Oftel recommended a price cap of 12% below the consumer inflation rate (CPI). The Commission has reached a similar conclusion - that price caps are probably the best way to regulate the market, which it also feels will not correct itself.

Carrott warns that Oftel's recommendations are onerous and could "stoke the fire" of the EU Commission investigation that is also under way. But the ruling may change before next year. And, the costs of 3G networks could also be included into the pricing mechanism, which means the current interconnect costs could be more in line with the fees being charged.

The beneficiaries of a cap on UK interconnect fees would be the fixed-line operators with little mobile exposure, says Carrott.