Brussels plan to end roaming charges – is this a plan to demolish Europe’s mobile industry?

Brussels plan to end roaming charges – is this a plan to demolish Europe’s mobile industry?

EU Commissioner Neelie Kroes has told European lawmakers in a speech in Brussels on 30th May that they should end all mobile roaming costs to consumers. Is this just another incremental shaving of mobile operators profits or is it demolishing a critical brick in the mobile industry structure that brings the entire European mobile industry crashing down?

Reducing roaming charges has been one of the few genuinely popular measures coming out of the European Commission. The very high charges that existed a decade ago were not only hugely unpopular with all consumers across the EU but also hard to justify in a world where competition regulators like to see all tariffs strictly related to costs. So it is easy to see why the Commission would like to come back for another bite from this politically sweet cherry.

But to eliminate all charges for EU roaming? This could have quite unforeseen consequences.

One unintended consequence is that mobile operators simple stop accepting roamers from other EU countries. Instead visitors are forced to buy a pay as you go SIM card from their hotel destination…with prices suitably marked up. That would almost be full circle from the days before GSM roaming when hotels were making the big profits from visitors making telephone calls.

If mobile operators were forced to accept roamers from other EU countries at no charge how does the competition model work? If I am a UK consumer and all the UK mobile operators offer me tariffs around 20 Euro’s a month and a Luxembourg mobile operator offers me a tariff of 2 Euros a month – and UK mobile operators are forced to accept my calls without any roaming charges…why would I not immediately sign with that Luxembourg mobile operator? If the proposal is taken at its face value that Luxembourg operator will suddenly find that they have 300m customers – not bad for a country with a population of only half a million! It then leaves all the other mobile operators in Europe expected to find billions of pounds of new investment to beef-up the capacity of Europe’s mobile Internet but starved of any customers. It is surely a recipe to demolish Europe’s mobile industry?

This negative arbitrage impact does not just begin at zero roaming charges but at any level low enough to bring “national charges plus roaming charges” in one member state to less than the national charges in another member state. These differentials in the level of mobile charges between member states can arise for very good reasons, for example the impositions by national governments of coverage obligations (not something of concern to a tiny country like Luxembourg), higher back-haul charges by state monopoly fixed telecoms operators, different energy costs etc.

One overwhelming conclusion emerges from this simple example – to entirely eliminate roaming charges requires Europe to recast its mobile competition model. Two such viable competition models come to mind:

The first model is to drive the European mobile industry to consolidate across boarders to say three huge mobile enterprises – each must have coverage across the entirely of the EU. This could be via take-overs, mergers or legally binding alliances. Each large EU wide mobile enterprise is then legally required offer non-geographically discriminatory tariffs across the EU. This model eliminates all roaming charges as it eliminates the need for any customer to attach to a competitor network in another Member State. Any new radio spectrum has to be auctioned by the EU Commission across the entire EU (and not each separate member state doing its own thing). National regulators are out of the mobile business…saving significant costs. Competition between these three huge EU wide mobile enterprises drives better services and lower prices for consumers and drives innovation. It takes Europe’s mobile industry to roughly where the US mobile industry is currently heading. In this way Europe’s mobile industry is better able to match the innovation and competitiveness of the US mobile industry (look at how much better US has done with 4G).

The second model travels more in a de-centralising direction. It requires the EU to mandate that roaming charges (national and EU) to be implemented only at the wholesale level between the mobile operators and not between mobile operators and consumers. These wholesale roaming charges are then simply netted out amongst the mobile operators and the balance goes to the mobile operator attracting the most traffic. It is a pro-investment model. Consumers enjoy zero roaming charges across the entirely of the EU.  Implementing national and EU roaming delivers a considerably superior mobile infrastructure – giving a boost to the European digital economy and digital social space.

I have identified two viable new competition models that would each be a considerable advance for Europe over the status quo

Now it is often the case that to build something better first requires the demolition of the status quo. But if the demolition bit is all that happens then Europe finishes with a mobile waste land. So concurrent with the phasing out of all roaming charges across the EU has to be the birth of a new competition model. In this regard Nellie Kroes speech could be a very positive watershed. A review of Europe’s mobile competition model is long overdue.

So my challenge to Commissioner Kroes…what is the new competition model? It is a vital question as only doing half the job looks like a really bad idea.


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