Mobile Roaming: Operators fumble for reaction to threat of intervention on data roaming
Posted by Mark Newman
February 1st, 2008
We’ve been following with great interest the debate on data roaming charges in Europe. The latest person to dive into the debate is Ed Richards who heads up UK telecoms regulator Ofcom. He notes that it can cost four times more to send an SMS in a European country other than your home market. Data roaming, meanwhile, is prohibitively expensive and a serious obstacle to business, according to Richards. European mobile operators are aware of the high data roaming charges and the inevitability of mandated price cuts if they can’t put their own house in order by the end of the year. But getting every operator in the region to agree to price cuts is a different matter altogether. Wholesale prices are agreed on a bilateral basis which would mean each operator in each of the EU’s 25 countries having to reach a pricing agreement with each operator in each of the other 24 countries. In a bid to short-circuit price cuts on a bilateral basis, a group of leading European operators approached the competition authorities in Brussels last year with a proposal to set a price ceiling. But as this piece below shows, Brussels does not always talk with one voice.
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Key Points
- A group of large European operators have been snubbed by the European Commission’s Directorate General for Competition (DG Comp) over a plan to set a price cap for wholesale data roaming rates.
- If rates don’t come down, the European Commission’s Information Society may step in to regulate international data roaming rates within the European Union, with action possible Summer 2008.
Initial indications are that data roaming rates would be reduced by the same amount as voice roaming calls - around 60%.
- Operators may argue that they are caught in a classic ‘catch-22′ situation - if they act together to bring down rates for date roaming they would be accused of acting in collusion. And if they don’t act, then the European Commission looks likely to intervene.
- But Informa Telecoms & Media argues that the threat of intervention should spur operators to act unilaterally to lower data roaming prices.
- We believe that operators should seize this opportunity and aggressively target mass-market uptake of data roaming services within the EU by lowering prices.
Market Status
The European Commission said in June that it was going to regulate voice roaming and gave notice to mobile operators that it would also pay close attention to mobile data roaming rates, including SMS and advanced data roaming.
Sticking to its word, the EC subsequently launched studies into prices charged by operators for SMS and data roaming. The European Regulators Group (ERG) started its own detailed data-gathering exercise in October and a full report on prices for data roaming is expected to be delivered in December.
The possibility that the EC will regulate data roaming is important to operators because a reduction of potentially 60% in data roaming prices would clearly impact revenues.
To thwart the possibility of intervention, a group of major European operators including Vodafone and T-Mobile approached the European Commission’s Directorate General for Competition (DG Comp) during 3Q07 with a plan to agree on a maximum wholesale price for data roaming rates. DG Comp is the division of the Commission that looks at cartels, monopolies and anticompetitive behaviour by companies in the European Union.
The operators tabled an informal proposal to reduce the cost of data roaming in Europe to the Commission, but DG Comp told the operators that if they agreed a cap among themselves they would be investigated for anticompetitive practice.
Apart from Vodafone and T-Mobile, the precise identity of operators involved in the proposal is unclear, but a source close to T-Mobile says that all the big mobile groups have got together to try and resolve data roaming problems.
The involvement of the GSM Association (GSMA) in the proposal is unclear, although it is understood that the larger operating groups would not have approached the Commission without raising the matter with the trade body first.
Background
Operators, in particular the large pan-European ones, will want to avoid the EC doing what it did with voice roaming, and imposing regulation to bring down the price of making and receiving calls while abroad in the European Union.
However, the EC perceives that its intervention to regulate the mobile industry has been vindicated with voice roaming, which it sees as a resounding success. The EC says that consumers are now paying on average 57% less when making a call abroad and are paying average 60% less for receiving a call.
Indeed, touting the success of the Eurotariff, the EC has said that by end-August, about 200 million EU mobile users had already switched to the Eurotariff. The findings are part of a study by the ERG into the effects of the roaming-rate cap.
According to the ERG study, all operators confirmed that their customers had been contacted by the required July 30 deadline regarding the availability of the Eurotariff, even though a few national regulators are still following up on customer complaints about a lack of transparency of some of the offers made.
Clearly, European operators want to try and prevent the European Commission from intervening again.
The EC has long said that it has been monitoring data-roaming prices, and the latest move is an indication that preliminary investigations have led it to believe that prices might need to come down.
Brussels bullish
At Informa Telecoms & Media’s mobile roaming event in Vienna in October, Stephen Banable, of the Commission’s Information Society and Media directorate-general, was aggressive in his language on data roaming.
Banable said that the EC was “keeping an eye on this area,” and underlined that Viviane Reding has called on the industry to act to bring down prices. He said that the EC wouldn’t “just regulate”, but would come forward with specific proposals, as well an impact assessment and consultation. Banable said that he expected there to be lots of debate in the European Parliament over the issue of data roaming prices, and that the question of data will come to the agenda by year-end, early next.
The Commission is due to report in December 2008 on whether regulation should be applied to data roaming, after recently pushing through the Eurotariff roaming cap for voice charges.
In addition, the EC is preparing a report to the European Parliament - due at the end of 2008 - on the effects of the introduction of the Eurotariff on competition, on the question of whether national prices have changed as a result, and on the development of prices for SMS and data roaming.
Attempts by major operators to reduce data roaming charges would no doubt please EU telecoms commissioner Viviane Reding, who has campaigned hard to lower roaming rates within the framework of competition law.
The Commission has not yet set the criteria for regulating data roaming. Some observers in the industry expect Brussels to apply a cap solely to wholesale roaming rates, in order to bring down retail rates. The Commission is also expected to initiate a per-megabyte cap.
Bu it is more complex to work out retail pricing for roaming because of bundles. The EC examines operators’ websites, and the ERG is inspecting bundled services. But the EC concedes that it doesn’t have any clear answers on how it will assess those packages from a regulatory point of view.
Potential impact
But the blow from the impact on operators of the EC’s moves to cap the price of mobile roaming calls within the EU, although widely feared, was successfully cushioned by the reduction operators made to their existing roaming tariffs before regulation came into effect.
Certainly, there will be a shortfall in revenues as a result of the cuts, but not the severe revenue hit many expected. Still, with full implementation of the Eurotraiff not required until end-September, the full impact of the regulation will not be expected until at least year-end, or possibly even next year.
In Europe, HSDPA is beginning to drive the mobile broadband market, but data roaming rates do not reflect domestic charges. To secure the growth of this market, which is under intense competition from Wi-Fi and other technologies, operators need to act to lower data roaming rates.
Timeline for acting
Operators appear to have a small window in which to address wholesale data charges. They are due to bilaterally negotiate their charges for 2008 by year-end on the basis of the inter-operator tariff (IOT).
The IOT is a wholesale tariff for roaming services introduced in October 1997. It replaced a complex system of charges based on calculations that included the retail price of a foreign network’s national tariff. Under the IOT there is a benchmark charge for data roaming of €10 (US$14.70) per megabyte, but operators can negotiate the price.
It seems unlikely that operators will want to continue to meet repeatedly to tinker with IOTs when it is more convenient to hammer them out for the next year at a single point in time.
Settling the tariffs can be complex and time-consuming. One obstacle is that larger operating groups such as Vodafone can offer HSDPA roaming across their own networks at a reasonable price.
But it seems unlikely that operators would want to meet repeatedly to tinker with IOTs, when it is much more convenient to set them out for a year at a single meeting.
The complex and time-consuming nature of agreeing on IOTs makes it unlikely that operators will be able to thrash out lower rates before the EC opts to regulate.
Informa Viewpoint
The EC has portrayed itself as the guardian of consumer interests, and won a major PR coup with the Eurotariff. It would dearly like to repeat this success, and will certainly seize on the opportunity to do so.
As such, Informa Telecoms & Media believes that operators must brace themselves for regulation of mobile data roaming prices in the European Union. This is because we believe that operators are attempting to lower data roaming rates in the wrong way.
Operators should know that any attempt to collectively lower data roaming rates will lead to charges of collusion from the EC’s DG Comp.
Operators cannot possibly be unaware of the likely consequences when even the EC’s voice roaming regulation was carefully formulated to avoid the charge that it allowed or gave rise to collusive behaviour.
Informa Telecoms & Media believes that operators have only one choice to head-off regulation of roaming rates by the EC. And that is to unilaterally lower the prices they charge end-users.
It is incredible that operators haven’t learnt from the process that led up to the EC’s voice roaming regulation. For some reason, operators look set on repeating history by allowing the chain of events that led to EC intervention on voice roaming rates to repeat themselves.
As it did with voice roaming the EC has given operators ample warning that if they don’t act to bring down the prices charged to end-users for data services when roaming it will intervene and regulate them.
And as with voice roaming, operators seem unable to hear what the EC says and to act on it. Put very simply, operators need to lower data roaming prices or face EC intervention to set the prices they can charge.
How can ops avoid collusion charges?
Informa Telecoms & Media believes that, as with voice roaming rates in the run up to the June deadline for the introduction of the Eurotariff, when one operator reduces rates, the rest will follow.
Each of the large European operators, Vodafone, T-Mobile, France Telecom and Telefonica O2 fell over each other to match the reduced roaming rates they each introduced before June 6.
Informa Telecoms & Media believes that this process would repeat itself if one major European operator acted to reduce data roaming rates.
If one were to reduce prices, the others would follow, which would likely be enough to stop the EC from setting a formal ceiling on operators’ data roaming prices.
Impact assessment
It is difficult to assess the impact any reduction in data roaming tariffs would have on operators. There is evidence to suggest that the introduction of the Eurotariff didn’t lead to an increase in usage, which would have gone some way to offset the lower prices operators could charge.
But Informa Telecoms & Media believes that data roaming may be different, and that a reduction in prices would be much more likely to lead to an increase in usage. This is because data roaming rates are currently prohibitively high, unlike voice roaming rates, which were merely very expensive.
As such, we believe that a reduction in data roaming rates to a reasonable and affordable level would probably lead to an increase in use, which could unleash mass-market adoption of data use while abroad.
Business users in particular would definitely use mobile broadband services more often when roaming is the rates came down in price, while holiday users would also be more likely to use data services.
Indeed, some services such as sending an MMS, for instance, or carrying out a video call would be more appealing to roamers than they are to in-country users.
