A few days ago I posted some thoughts on telecom regulation, EU Roaming Regulation: Be careful what you wish for, prompted by recent calls for regulation of international mobile roaming rates within the EU. I wasn't advocating a specific policy, merely suggesting caution and pointing out earlier mobile telephone regulatory actions that have had unexpected consequences. After discussing my main idea, I briefly mentioned, in the last paragraph, that I considered Europe's adoption of "caller pays" "questionable."
Tomi has written a number of books on mobile services and mobile marketing, and has obviously thought about this issue at length. I very much appreciate him taking time to comment and I own everyone an apology for not elaborating in the original post. Let me do so here.
Typically, telecommunications regulators define how operators exchange traffic and thus determine the billing model for mobile phone services. What's at issue is who pays for incoming traffic to the mobile phone. In the US, the cost of the radio link in either direction (incoming & outgoing) is born by the mobile subscriber. Most of the rest of the world has adopted "caller pays." In this case a mobile subscriber only pays for the cost of placing calls - incoming calls are free. Because there is extra cost for mobile airtime, in "caller pays" countries, mobile phones typically have distinct dialing codes and callers, whether fixed or mobile, local or international, know (or should know) that the rates to call a mobile phone are different, typically higher.
Tomi and I agree the caller pays model facilitates rapid adoption of mobile phone service, and I'm sure we both agree caller pays is the best possible policy for developing countries. However, in markets like the US and the EU with highly developed, monopoly fixed-line telephone networks, I see both advantages and disadvantages. Tomi lists advantages in his comment.
I broached the subject of disadvantages in my original post:
... 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.
Let me illustrate the cost of calling a mobile subscriber in various places by referring to current SkypeOut rates. The cost of calling any subscriber - fixed or mobile - in the US is € 0.017 ($ 0.021) per minute. Similarly the cost of calling any fixed-line subscriber in western Europe is € 0.017. However, the cost of calling a mobile subscriber is much higher:
|France - mobile||€ 0.164|
|Germany - mobile||€ 0.200|
|United Kingdom - mobile||€ 0.205|
Calling a mobile subscriber in the EU is roughly 10x the cost of calling a fixed-line subscriber. There are exceptions. If you are a mobile subscriber on the same operator's network, there can be dramatic savings. But for the general case, calling a mobile subscriber is ludicrously expensive.
This expense has other implications. In the US, and in individual countries in the EU, there are 3 or more mobile operators per market and mobile service is highly competitive. This has driven down mobile calling costs everywhere, and in the US, it has driven down prices for mobile termination. As a result, US mobile subscribers use their mobile phones more often and for longer calls. The comparison is "minutes of use." In the US, the average subscriber uses their mobile phone nearly 600 minutes per month versus EU mobile subscribers who average 142 minutes per month.
I don't want to argue whether caller pays is better or worse. Certainly, adoption of mobile phones in the EU has run 3-4 years ahead of adoption in the US, and caller pays is at least one factor contributing to that difference. On the other hand, US mobile phone utilization is way ahead of the EU and the costs to call US mobile subscribers are very low. Correlation doesn't prove causation, but the facts do suggest there are unanticipated consequences to any regulatory approach.