Telecom firms unite against EU mobile price caps

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In a rare show of unity, telecom firms large and small have rejected European Parliament plans to further lower price caps on mobile phone calls passed abroad – the so-called roaming regulation – saying it will squeeze out new competitors from the market.

The European telecoms industry has probably never been so united.

Incumbent operators and new entrants alike all agree to condemn proposed changes to the draft roaming regulation being pushed through by the European Parliament.

They have different reasons but, in what appears to be a rare coincidence, they also share similar objectives, it emerged from a European Parliament hearing held in Brussels yesterday (8 February).

Neelie Kroes, the European Commissioner in charge of the digital agenda, tabled a reform of the roaming regulation last summer, which aims to level prices of mobile phone calls passed abroad with national tariffs – the so-called roaming regulation.

In her proposal, Kroes had suggested bringing the price cap on outgoing calls to €24 cents by July 2014, down from the current ceiling of €35 cents.

Wholesale prices – which are those paid by companies to obtain access to the networks owned by others – should be capped to €6 cents by July 2014. According to Kroes’ plan, this should create a sufficient gap between retail and wholesale prices (1-to-4 ratio) to enable more competition.

“The highest the price differential, the highest the competition you may expect. The lowest the price differential, the smallest the competition you will have,” argues Innocenzo Genna, representing Postemobile, a postal service which also sells mobile telephone services through other operators’ networks.

Like retailers Carrefour or Tesco, Poste Italiane is a typical example of a virtual operator (MVNO). These companies do not own physical telecom networks but thanks to lower wholesale prices, they can now enter the market of roaming services, and challenge incumbent operators. With increased competition on the market, prices will go down naturally and price caps will eventually no longer be necessary, according to Kroes' thinking.

Parliament counter-proposal goes even further

But the revolution pushed by Kroes is meeting staunch opposition, it emerged at the Parliament hearing.

In a bid to attract consumer praise – and possibly votes – the European assembly is proposing to further lower the price caps on roaming mobile services.

Instead of the €24 cents cap on outgoing calls suggested by Kroes, MEPs led by Germany's Angelika Niebler (European People's Party) are proposing to bring the ceiling down to €15 cents by July 2014. Wholesale prices, for their part, would be capped at €5 cents.

Under Niebler's plans, the difference between retail and wholesale prices would therefore drop to €10 cents instead of the €18 cents suggested by Kroes.

The operators' profit margins would be squeezed even further for data roaming or mobile internet under the Parliament's plans. Kroes proposed capping those at €50 cents per megabyte by July 2014 (wholesale prices would be capped at €10 cents). The Parliament left the wholesale price cap unchanged but lowered to €20 cents the ceiling on retail prices.

An unusual common front

Telecoms operators have balked at these plans, saying the Parliament's proposed price caps are so low that they would cause a "squeezing effect" on new entrants’ margins and deter them from entering the market altogether.

The industry has never appeared as united as in this case, with incumbents and smaller operators setting aside their usual rivalries to support Kroes’ original plan.

Even though they loathe price caps in principle, incumbent operators are ready to accept virtual operators as long as they remain small enough, which is still currently the case. New entrants, for their part, need a bigger difference between retail and wholesale prices to make the operation worthwhile – like it was proposed in Kroes' original plan.

“If the price differential is too small, MVNOs will not enter the market or, even if they enter, they will not be able to make price competition,” said Genna.

Positions: 

“It is high time that we stop ripping off consumers. The roaming of data across borders and networks is technically no longer a costly exercise. All users have a right to fair pricing”, said Angelika Niebler MEP (European People's Party, Germany), the Parliament's Rapporteur on the Roaming III Regulation.

Roland Doll, vice president for International Governmental Affairs at Deutsche Telekom, argues that “consumers did not use roaming more because of lower roaming prices. The result (of the roaming regulation) has been to take revenues away from operators.”

“The legislator should leave the caps as proposed by the Commission,” he said, adding that “price regulation should only be a safety car.”

“I urge parliamentarians to recognise the challenges they face: retail caps should not be some arbitrary multiple of wholesale caps but must instead recover costs of marketing and serving customers,” said Richard Feasey of Vodafone.

John Blakemore, of Hutchinson Europe, said: “If you want low retail prices, you need low wholesale prices. If wholesale are too high, MVNOs will not be able to offer good retail prices. They will not come to the market.”

Monika Štajnarová, from the European consumer organisation BEUC, thinks in a different way: “Huge improvement has been achieved thanks to price regulation. There are no technical justification for keeping the concept of roaming. We should abolish roaming charges at all,” she said.

“We believe proposed caps are still very high. When should we remove the caps? Only when there is a competitive market and when roaming prices are at the same level as national prices.”

Timeline: 
  • April 2012: Parliament to adopt final amendments to Kroes’ plan on roaming.
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