Termination rates for calls will drop to less than 4c by next April, with further reductions until 2014. Termination rates for text messages drop to 0.06c from today.
"The commission has taken arbitrary benchmark rates which are far below cost. The 4c per minute voice rate in New Zealand looks extreme in comparison to current termination rates in Australia at 10c and 11c in Europe."
It was half the rate indicated by the only available estimate of cost in New Zealand which was provided to the commission during the Standard Terms Determination (STD) process.
Text messaging was unregulated in most countries but the commission had chosen to regulate and had set a cost which was around a third of Vodafone's "best estimate", Mr Chignall said.
Vodafone's views are unlikely to receive much sympathy from New Zealand mobile phone users, who have long complained that this country's termination costs are among the most expensive in the world.
Cheaper calls and text messages will be the result of the commission's determination.
Federated Farmers telecommunications spokesman Donald Aubrey said lobbying by the organisation looked like it could deliver much cheaper mobile phone calls and texts for more than 250,000 rural customers.
"As we move into a wireless future with mobile phones an essential farm tool, the federation has successfully been part of a lobby to cut the cost of using them.
"The commission has looked into this and found the termination rates were not just high, but a real barrier to competition," he said.
The commission's decision deals with the issue of the cost of carrying a text or call on a different network from that of a mobile customer.
Telecommunications Commissioner Ross Patterson said the changes were intended to address significant competition problems in the wholesale mobile market.
Those problems had resulted in high retail prices, particularly for prepay customers, as well as a low number of mobile calls, and high rates of people switching networks, compared with other countries.
The commission was concerned about the extent to which the price of calls and text messages between people on different networks were significantly higher than calls and text messages between people on the same network, Dr Patterson said.
"These price differences create significant barriers for the new entry and growth of small mobile operators in the mobile market."
While the commission expected reduction in wholesale termination rates for calls and text messages to resolve the problem, it would be monitoring this situation closely, and was prepared to move quickly to limit those price differences if needed.
The graduated reduction in termination rates for calls would allow mobile providers time to adjust retail rates. In providing the graduated reduction, the commission had sought to balance the benefits for consumers in terms of lower prices, while allowing providers time to adjust retail prices, Dr Patterson said.
Telecom retail chief executive Alan Gourdie took a philosophical approach to the commission's decision.
"What is clear right now is that the mobile market in New Zealand today is more exciting and competitive than it's ever been and customers have greater choice of prices, products and services."
For Telecom mobile customers, the average price paid per minute compared favourably with any offer in the market, he said.
Communications and Information Technology Minister Steven Joyce welcomed the decision.
"The process has been a long time in the making. I am pleased to see it come to a conclusion. I am confident the commission has reached a balanced and reasonable decision."
Labour Party broadcasting, communications and IT spokeswoman Clare Curran called for mobile carriers to immediately drop their retail prices on rates for calls and texts to help New Zealanders struggling to make ends meet.
