Wellington, Feb 22 NZPA - New Zealanders will still be paying too much for their mobile phones following a decision by the country's competition watchdog, say newcomer 2degrees and the Telecommunications Users Association of New Zealand (Tuanz).

The Commerce Commission, in a split decision released today, has rejected regulation as a means to reduce the cost of mobile phone calls through mobile termination rates, the wholesale charges mobile phone companies charge for terminating calls or texts from other land line or mobile networks. They have been criticised as being too expensive.

Instead the commission has opted to recommend to the Government proposals put forward by the two main players, Telecom and Vodafone.

They have offered to later this year slash their charges for routing calls to customers from 15 cents a minute to 0.1 cents a second by the beginning of 2014 and do away with most charges for routing texts.

Two of the three telecommunications commissioners preferred that option but the third, Anita Mazzoleni, argued for regulation, saying that in the long run the rates would remain significantly higher than under regulation.

"The barrier arising from the prices in the final undertakings continues to ensure an uneven playing field, and this will impede the benefits competition will otherwise deliver to New Zealand consumers," she said.

However, she was outweighed by telecommunications commissioner Ross Patterson and associate commissioner Gowan Pickering, who both recommended that the Government avoid regulation.

Dr Patterson said the offers by Telecom and Vodafone's were significantly lower than they had offered before. While the rates remained above the range of the commission's cost-based benchmarks, they addressed competition concerns.

The long-term interest of consumers will best be served by applying the least intrusive means to address competition concerns, Dr Patterson said.

Vodafone welcomed the decision, saying it was a pragmatic one given the uncertainty around a long regulatory process and Telecom was also happy, saying an industry solution was best for consumers.

Telecom has about 2.3 million mobile phone customers while Vodafone has about 2.5m.

But new mobile company 2degrees, which this month announced it had signed up 206,000 customers in its first six months, slammed the decision.

Its regulatory and commercial manager, Bill McCabe, said the commission appeared to have squandered a "golden opportunity to finally bring New Zealand mobile prices into line with the rest of the developed world".

The full benefits of rigorous competition bringing lower prices would be stifled, he said.

"New Zealand consumers suffer with some of the highest mobile prices in the world. The commission's recommendation to leave the decision on access pricing up to the incumbents, Vodafone and Telecom, will mean this burden on New Zealanders continues for the foreseeable future."

Tuanz, which represents some 450 members, mostly large business users, was also disappointed with the decision, saying it would entrench the dominance of the two large networks to the detriment of smaller players and new entrants.

"The process leading to the voluntary undertakings demonstrated the breathtaking gap between the actual cost of terminating calls from competing networks, and the amount the two major operators have been charging," said Tuanz chief executive Ernie Newman.

"While the reduction of about 80 percent appears generous on the surface it is still insufficient to address the huge barrier to competition posed by these excessive charges."

Mr Newman said it was hard to see how a dominant mobile operator that sells SMS text messages on the retail market for about half a cent each could be allowed to charge its competitor several times that amount to receive one.

Minister for Communications and Information Technology Steven Joyce, who can accept or reject the commission's findings, invited submissions on the final report. They close on March 8.