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Straight Talk Telecoms

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Another summer, another announcement from the European Commission flagging a new assault on roaming charges. In these troubled times, the Commission’s success in forcing down the price of making calls, sending texts, and accessing the Internet is a rare, tangible, and timely example of how Europe can improve the lives of its citizens.

The announcement from Brussels this week presages an end to roaming charges in June 2017. This was first mooted in April 2014 when the European parliament voted to abolish roaming charges. It has taken until now for member states to agree to the proposal. As part of a compromise agreement, a phased approach will be adopted.

But behind the headlines there remains huge uncertainty as to how the no-roaming-fees system will work in practice and how it will impact national mobile markets and pricing. There is also a growing sense of frustration from an operator community which accepts that it is now paying the price for massively overcharging European roamers but is now finding itself having to make significant investment in networks to enable (potential) new competitive frameworks.

According to the “spirit” of the new approach, a national mobile price plan becomes a Europe-wide price plan. The same price per minute, text, or megabyte will apply in a European citizen’s home market as in other EU member states. But the announcement does not go into detail about what happens to the “unlimited” element of price plans – be it voice, texts, or data.

Most countries today have an imbalance in roaming traffic. There is more inbound roaming traffic in southern Europe – specifically in tourist areas – than in northern Europe. And there is more outbound roaming from wealthier, northern European countries where more people travel either for leisure or on business than from southern Europe. The extent to which an operator benefits from high roaming prices depends on the relative wholesale and retail price levels. High wholesale prices are good for southern European operators, while high retail prices benefit northern European operators.

An end to roaming prices will inevitably give rise to a surge in roaming traffic. There is no reason why someone working or holidaying in another European country should not use their mobile as much as when they are at home. Indeed, there is every chance that roaming use will exceed home use. People are less likely to have Wi-Fi abroad than at home. On average, two-thirds of people’s smartphone data usage at the moment is on Wi-Fi rather than cellular. People also tend to have more leisure time when they are away than at home. This means more time to upload photos and videos or even to stream content such as movies or live sports (because roaming traffic routes back into the home, network local broadcast rights cannot be enforced).

Until now it has been in the interests of an operator managing large volumes of inbound traffic to build out the capacity to manage that traffic because wholesale roaming is highly profitable. Tourist areas are often some of the first in a country to roll out a new network technology. But when roaming charges disappear, how does the inbound roaming operator get paid? As things stand, there would be little or no incentive to build out additional capacity (or to maintain existing capacity) for inbound roamers because the wholesale charging mechanism for roaming – the so-called mobile inter-operator tariff – would have to be either reduced dramatically or eliminated altogether.

An end to roaming could have even bigger repercussions for the European mobile sector as a whole. In the future, there would be nothing to stop an EU citizen in one member state buying a mobile subscription from an operator in another member state and using it in their home market (although there is provision in the rules to prevent “permanent roaming”). There are big price variations across Europe and an operator in a low-cost European market could, for example, start selling their SIM cards to EU citizens in other countries.

Both these consequences of an end to roaming within Europe are so far-reaching that it is difficult to see how larger European operator groups would ever allow them to come to pass without pursuing every legal avenue that is available to them.

In addition to the slow erosion in roaming revenues from annual price cuts mandated by Brussels, operators already have to deal with previous initiatives to restructure the roaming market. Brussels first attempted to break open the roaming market two years ago. Its vision then was to allow new players – both operators and roaming MVNOs – to introduce new competition. It came up with the concept of “local breakout” which would allow a customer to buy their roaming from the visited network. Ovum estimates that European operators have spent several hundred million euros to enable local breakout in their networks and support systems. This is despite the fact that there are no service providers today in Europe making use of the capability. With an end to roaming in 2017, there must be a doubt as to whether local breakout will ever be used.

As the European Commission notes in its announcement, prices for roaming services have fallen by 80% since 2007. Roaming traffic, particularly for data services has increased massively. New price plans, such as a daily premium that allows people to take their home mobile phone plan abroad or daily roaming add-ons, have removed the fear of bill shock. But European regulators – in their zeal for achieving the goal of a single European market – risk pushing European operators too far and pursuing an agenda that is neither in the interests of European citizens or the European telecoms sector.

Straight Talk is a weekly briefing from the desk of the Chief Research Officer. To receive this newsletter by email, please contact us.

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