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Telecoms sector shaken by planned EU mobile fee cuts

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Published 27 June 2008
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mobile telecoms
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Consumers welcomed Commission proposals, launched yesterday (26 June), to slash mobile termination rates, which they consider to be pushing up their phone bills. But large mobile operators reacted angrily, saying recent EU regulatory measures are at the root of a drop in investment. A study highlighting this is due to be published next week, EurActiv has learned.

Information Society Commissioner Viviane Reding explicitly asked for a 70% cut in connection charges over the next three years. The initiative was also endorsed by Competition Commissioner Neelie Kroes, who put her weight behind the move in a bid to help smaller mobile operators hindered by the charge (which is deemed to give a competitive advantage to bigger companies) (EurActiv 25/06/08).

The proposals take the form of a draft recommendation, a non-legally binding instrument in the Commission's toolbox, which is nevertheless expected to have an impact on decisions taken by national telecoms regulators. The document issued yesterday will be subject to public debate until 3 September 2008. The definitive text will be published in October.

Brussels asks for the way the charges are calculated to be revised by scrapping a series of costs that mobile operators currently add to the bill for terminations. The target is to harmonise prices across Europe and to make mobile tariffs converge towards the much lower rates charged for calling fixed phones.

The Commission's initiative won the immediate backing of consumers eager to see telephone bills decrease further. Small operators also welcomed the move.

But large operators are very concerned by the proposed cuts as the impact on their revenues could be significant and they are likely to be forced to recover the costs elsewhere. They will fight back next week by publishing a study commissioned by the GSM Association, which represents the main mobile operators, and carried out by the consulting firm AT Kearney. 

The study, as EurActiv has discovered, will show that the EU mobile industry's investments slipped from 13% of their revenues in 2005 to 11% in 2007. At the same time, the report underlines that domestic mobile call prices decreased in the EU 25 by 13% a year from 2004 to 2006.

The operators will blame the European Commission and its regulatory interventions for the unsatisfactory results. The caps imposed on voice and data roaming prices and this suggested cut in termination rates, which operators view as being much more harmful, are the most opposed measures.

Positions: 

EU Telecoms Commissioner Viviane Reding said: "Call termination markets in the EU need a regulatory plumber. Over the next three years, I expect greater consistency and coordination to bring the costs for mobile phone calls down by around 70 per cent from the current level."

EU Competition Commissioner Neelie Kroes added: "Truly cost-oriented termination rates will increase competition to the benefit of consumers. Consumers should expect to pay lower retail prices as a result. This recommendation will also benefit large parts of the telecoms industry as it is likely to eliminate distortions of competition between fixed and mobile operators."

A spokesman for the GSM Association told EurActiv that "the one-size-fits-all approach does not work" and that decisions on mobile termination rates "should be taken by national regulators rather than the Commission".

ETNO, the association of incumbent telecoms operators, echoed the GSMA position, warning that if the Commission went ahead with its plans, consumers would likely see costs rise elsewhere: "ETNO does not see a justification for such a radical proposal. Radical changes to the cost methodology of termination rates may in the long term lead to either consumers having to pay for receiving calls and to the situation that some low-tariffs or pre-paid packages may not be available anymore, affecting mostly those user groups that do not use their mobile phone intensively or depend on cheap packages," it stressed in a statement published yesterday.

But ECTA, the association of new entrant operators, welcomed the initiative. Its chairman, Innocenzo Genna, said: "Customers have for years faced excessive prices because of the very high termination rates being charged when they make calls to mobile numbers. Our estimate is that over the last ten years, across the 27 EU countries, this amounts to a total in excess of €100bn of consumers' money."

BEUC, the consumer organisation, supported the move as well: "Consumers have embraced mobile phone technology, increasing demand and contributing to the success of this industry. Harmonising mobile termination rates across Europe could significantly decrease prices for consumers," commented Monique Goyens, BEUC Director General.

Next steps: 
  • 3 Sep. 2008: Closure of the public consultation on mobile termination rates.
  • Oct. 2008: Commission expected to issue a definitive recommendation on mobile termination rates.
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Background: 

Mobile termination rates are a kind of connection charge that operators have to pay to transmit a phone call towards one of their competitor's networks. 

In the EU, every call made to a client of a different operator (i.e. from Base to Proximus in Belgium, or from T-Mobile to E-Plus in Germany) costs the caller's company an average of 0.9 eurocents. Similar fees also apply for calls from fixed to mobile lines.

On the other hand, charges for calls to fixed telephones are on average much lower. While consumers do not pay for mobile termination rates directly, the charge clearly has an impact on the final bills.

In other developed countries, such as the US, termination rates do not exist but operators directly charge consumers for receiving calls.

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