Vodafone today warned that up to 40 million people could be forced to ditch their mobile phones if controversial EU reforms to call charges are passed.

The UK mobile giant argues that it will be forced to increase its call charges if Viviane Reding, the EU commissioner for telecoms, succeeds in cutting mobile termination fees by as 70 per cent by 2012.

A mobile termination fee is the amount operators charge each other to connect calls to their networks and Europe is due to announce proposals on the matter next month.

Ms Reding said mobile operators make "excessive" profits from the wholesale fees and that the current system is weighted against smaller mobile companies.

Today, Vodafone escalated its battle with the commissioner, submitting an attack on the plans, which claims it would be forced to increase call charges if such “radical” changes were passed as it would no longer be able to cover its costs.

Vodafone’s submission includes an independent survey of 9,000 people across Europe. The research concludes that up to 40 million mobile customers would be worse off and might have to abandon their phones.

T-Mobile and O2 have already raised the minimum call charges on pay-as-you-go and the price of calling for Vodafone's 11 million pre-pay customers rises by a third from 15p to 20p today.

Analysts estimate Vodafone, the world’s largest mobile phone company by revenue, could lose as much as £1 billion of earnings.

Europe’s other big players, including Orange, owned by France Telecom, Deutsche Telekom’s T-Mobile and O2, owned by Telefonica, also stand to lose out if termination fees are heavily reduced or scrapped.

Last week, Ofcom, the UK’s telecoms watchdog, also questioned whether termination rates are still appropriate and said it would consider scrapping them altogether in the UK after 2012.

Jonathan Groocock, telecoms analyst at Investec, said today: “With up to around £1 billion of EBITDA at risk, Vodafone is right to fight tooth and nail but previous outcomes on regulatory cuts are not positive."

One of the proposals Ms Reding has said she will consider is a US-style system of billing, known as “bill and keep”, which could see customers pay to receive as well as make calls and texts.

Vodafone claims a change to the US system could also mean an end to free mobile phones as they would no longer be able to afford to subsidise them.

In Europe, 60 per cent of customers are on pay-as-you-go plans compared with just 15 per cent in the US.

A Vodafone spokesman said: “We are not saying 40 million people would stop using their phones overnight. But if we were to move to a US-style pricing model potentially up to 40 million people – mainly pre-paid customers – may be affected and would be unable to afford the cost of a mobile.

“It costs money to connect people to the network and if termination rates are drastically reduced we will have to recoup the costs elsewhere.”

He added the group is not opposed to termination rates falling and supports the European Regulators Group that fees should fall by 40 per cent over three years but objects to Ms Reding’s proposed 70 per cent cut.

Speaking in June Ms Reding said: "Call termination markets in the EU need a regulatory plumber. Truly cost-oriented termination rates will increase competition to the benefit of consumers."

Meanwhile, 3, the UK's smallest mobile phone company, which is pushing for termination rates to be scrapped altogether, argues that Vodafone is being alarmist and that the EU proposals will lead to cheaper calls.

Kevin Russell, chief executive of 3, said: "This type of scaremongering is unsurprising and familiar to any industry watcher. In 2002, Vodafone and the other incumbents claimed that UK customers would give up their mobiles in droves in the face of price rises they anticipated if the Competition Commission reduced mobile termination rates."

Thankfully the Competition Commission ignored them and the exact opposite happened with more mobile users than ever using more minutes at lower prices.

"As they stand, the European Commission's proposals will allow operators to recover the costs they incur in terminating calls from other operators' networks. There's no need to charge consumers for receiving calls and we believe effective competition could lead to a halving of consumer prices."

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