EU Roaming Regulation: Be careful what you wish for

In February, European telecommunications commissioner Viviane Reding spoke out on high international roaming charges within the EU and started a public consultation on what regulations might be needed to bring down these costs.

Be careful!  As I've commented before, the EU's current high costs for roaming are a direct result of anti-monopoly regulatory efforts beginning with the Vodafone-Mannesman merger in 2000. 

Scott Marcus discusses this in his paper on Europe's "New regulatory framework."

"In 2000, Vodafone Airtouch merged with Mannesman.  <EU> Commission competition authorities were concerned that the merged firm would be the only entity able to offer pan-European mobile telecommunication services...  The merging parties resolved competition concerns by agreeing to provide roaming tariffs to affiliated and unaffiliated mobile operators on a nondiscriminatory basis.  As a practical matter, this eliminated the merged entity's incentives to offer pan-European service packages..." 

Scott compares this with the US where AT&T Wireless's introduction of Digital One Rate service lead to a wave of mergers, alliances and joint ventures as competitors were forced to respond.  Today, most US mobile subscribers have large buckets of minutes for which there are no per-minute, no long distance and no roaming charges.  As a result, today's US average minutes-per-subscriber is four times that of Europe. European attempts to foster competition had the opposite effect.  Be careful what you ask for.

Another questionable European regulatory decision was the early choice to require "caller pays."  Caller pays works very well in emerging markets with few fixed lines.  But in Europe, caller-pays transfers the cost of fixed-to-mobile calls from the competitive mobile sector to the non-competitive fixed-line sector. The US did not adopt caller pays. The result: today, US fixed line subscribers see no difference when calling mobile subscribers and mobile subscribers pay with their previously mentioned large buckets of minutes at low fixed cost  Meanwhile, fixed-line callers pay 10-20 cents or more per minute to call European mobile subscribers.

 

Comments

[Tomi T Ahonen]

Hi Brough and readers of the Communications blogsite

A very interesting posting. But I feel quite strongly the urge to argue a few of the points with you. I have made a very public point of supporting the EU activities to curb European cellular operator roaming charges on my own blogsite and several mobile telecoms discussion boards etc, so I won't touch that here. But it should be mentioned that I obviously have a bias in favor of regulator intervention on behalf of fair pricing/competition in Europe.

With that being said, I'd want to address the issue of "caller pays" versus "receiving party (also) pays". Caller pays is the world's predominant payment model for mobile telecoms. There have been several countries where a receiving party pays model has been altered into a caller pay model - and in every case the same issues have happened. Phone users have dramatically increased their spending and the total amount of minutes spent on the phone - and the carriers have dramatically improved their revenues and profits, when compared with the situation prior to the switch.

When I've spoken to senior management at North American wireless carriers, they have said they would also prefer to switch to a caller pays model, but the numbering in the USA is such a hodge-podge that it will necessarily take years before it could be implemented. Hence the USA and Canada lag behind almost every indication of penetration rate, profitability, and advanced service use.

They key is a concept first identified in Finland in the mid 1990s, called "tavoitettavuus" or "reachability" as I clearly explained in my second book, m-Profits: Making Money from 3G Services, in 2002. If you have a receiving party pays model, then cellphone users are tempted to keep their phones switched off, for fear of receiving unwanted - but charged-for - calls. In a caller pays model, the phone user is never motivated to keep the phone switched off. Only if you keep your phone turned on at all times, can you discover reachability. Reachability is the principle that makes the Blackberry an addictive device (to be reachable for your incoming e-mails).

Now consider how much more important voice calls are to e-mails, and you start to grasp how significant reachability is to cellphone voice calls. When we add the network effect, then 190 million USA cellphone voice calls users is a massively bigger benefit than the 4 million Blackberry users.

But in America, because of receiving party pays, American cellphone users have not (on the whole) discovered reachability. This is the single biggest reason why American phone users are not nearly as addicted to the cellphone and its various services - like SMS text messaaging - as are European, Asian and Australian cellphone users.

All cellphone experts admit that the USA (and Canada) lie behind Europe and industrialized Asia in mobile telecoms. The experts only disagree on how much is the delay, ranging from 2 years to 6 years of how much North America lags the rest of the industrialized world. As the cellphone was invented in the USA, and several of the world's largest cellular telecoms suppliers and carriers are based in North America, it is a shame that Americans have fallen so far behind all other industrialized countries.

Now granted, receiving party pays vs caller pays is by no means the only reason USA fell behind. Certainly attempting to run networks on the technologies that have diminishing markets (TDMA, CDMA) vs GSM/WCMDA which has over 70% of the world's cellphones and most of the networks - has meant that America is on the losing end of the battle that will be very similar to Betamax vs VHS.

Also that there are so many different networks has not served American customers nor the various support industries and content providers etc. But even here we see Israel as an example where five incompatible network technologies can co-exist and still produce a vibrant cellphone market (with caller pays obviously) that currently has almost twice the penetration rate of American cellphones (Israel's penetration rate is over 120% per capita; USA is at about 70%)

That there have been so many different carriers has resulted in a lot of competition and arguably that has hurt the health and growth of the industry when compared with many European and Asian markets with 3 or 4 carriers. But here if we look at Hong Kong with 6 separate network carriers and 15 national brands operating on those networks - and again another country with 120% cellphone penetration per capita - just because there are many competitors does not mean that the industry cannot grow and be healthy.

I'd also like to briefly touch on the concept of shifting costs because of caller pays. You may have misunderstood how telecoms pricing works in Europe (and most of Asia). It is the SAME price to call a random cellphone or whether calling from a cellphone or a fixed telecoms landline. There is no surcharge because of caller pays. But, in most markets the wireless carrier will offer discounted prices to call other cellphones on their own network. So if you use an Italian Vodafone cellphone to call another Italian Vodafone customer, your per-minute charge is less than to call a cellphone on TIM etc. This may have given you the impression that costs of calling from landlines are somehow at a premium over calls from cellphones.

Some carriers offer bundles and packages that do cause further differences. But I don't see any real reason or support to prove that caller pays causes fixed landline charges to be more expensive to cellphones than from cellphones.

I do see that in America with receiving party pays, the situation becomes very perverse. If you are placing the call from a fixed landline, and pay a local charge, but you call someone on a cellphone, that person has to pay for the extra costs of receiving the call on the cellphone. If that call is a sales call (insurance, etc) or worse yet, is an automated call (please hold for an important call..) - then this results in considerable - and totally uncontrolled costs - to the recepient. This is unfair. In a caller pays model, whoever intiates the call, bears the full cost of it. That is fair. If I want to call you, it is my responsibility to bear the cost of the call.

Well, those are some of my quick - and not very well organized - thoughts on this topic.

Tomi T Ahonen
four-time bestselling author and consultant on 3G telecoms and IT
Founding member Forum Oxford, Carnival of the Mobilists, Wireless Watch and Engagement Alliance
Lecturing at Oxford University's advanced mobile telecoms courses
blogsite www.communities-dominate.blogs.com
website www.tomiahonen.com

[brough]

Thank you for the extended comment, but "calling party pays" is not the wonder you think. I comment further in this post:
http://blogs.nmss.com/communications/2006/04/more_on_caller_.html

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[Victor]

Staying in touch in Europe is cheaper than you think

Europe is a dream destination for travellers worldwide, we have always said that one day I will take that dream vacation to Europe. If you're like most travellers, you probably do a lot of things automatically without thinking much about it, you may look for the biggest or the cheapest hotel chain, or you may bring your own cell phone or use payphones to stay in touch and keep those ties back home warm.

Over the last few years payphone use in Europe has been steadily declining and operating at loss, as a traveller this means that first, functional payphones are hard to find and second, rates are increasing. It would certainly be more convenient to connect from your hotel, if the hotel has good phones, and reasonable charges for International calls. But that's rarely the case, especially the reasonable charges part. Many hotels charge 4 to 5 times the normal rate for phone calls.

By this time you might be wondering if carrying a cell phone is the only option you are left with, the option you feared the most because of the high International roaming cost and the limitation of your cell phone being non-compatible to work in Europe. Even though few carriers in North America share same GSM system as used in Europe, their cell phones run on different frequency. There a 4 frequencies used by cell phones, the frequencies are 850, 900, 1800 and 1900 Mhz. Depending on the country only some of the frequencies are used, for example in the Europe only 900 and 1800 are used, while in the United States 850 and 1900 are used.

Using Your Own Phone

Most cell phones manufactured today are either Tri-band or Quad-band, which means they can receive all 3 or 4 frequencies required to work across the Continent. If you have such a phone u may want to consider roaming with your current service provider only if you know you will use it seldom, as this can really have a big dent on your pocket. Call rates can run anywhere from $1 - $3 per minute for all Incoming & Outgoing calls, depending on which Country you travel.

Ironically, what was until recently, one of the most expensive ways to stay in touch in the Europe has now become one of the least expensive, if you're willing to switch gears and break some of these long-time travel habits, you may come out money ahead.

Use a local solution

As they say “when in Rome, do as the Romans do”.

The most economic way to use your own cell phone, if it has the correct bands (most phones today are), is to swap out the SIM card (the chip in the phone giving you service) and insert a local Europe SIM Card. Chances are you already have a cell phone with required bands but do not realize that you can use them with this SIM by simply asking your carrier for the unlock code.
These cards are not available everywhere in the Europe as they are designed for tourist but you can get them through RebelFone at www.RebelFone.com
Though there are several other SIM cards you can get online or at your arrival in Europe, this solution is offered keeping in mind that visitors to Europe often travel to more than one Country and need low fixed & flat call rates everywhere.
This service is available to any traveller worldwide and can be ordered online with a convenience of getting the SIM before you leave, which means you will have the number to give out to your contacts before your trip.

Don’t have an un-locked cell phone with required bands?
No problem, you can still enjoy the benefits of a Europe SIM card and stay connected at low rates. Gone are those days when un-locked multi band cell phones used to cost a fortune, in fact RebelFone offers low cost SIM & Cell Bundle for Europe. You will own the cell phone that comes with this bundle and since it is un-locked you can use it next time you travel in 200 other Countries worldwide and save even more by just ordering a SIM card then.

Now that you know how to stay in touch & still stay money ahead while in Europe, we say “auf seine Kosten kommen” (“to get one’s money worth” – German).