EU eyes mobile revenues to fund fibre investment

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This article is part of our special report Broadband: driving recovery?.

The European Commission is set to ask national telecoms authorities to slash the wholesale fees operators charge one another for mobile calls or text messages (SMS) as a means of supporting investment in optical fibre networks, which underpin the high-speed Internet.

"Today, a company that invests in the mobile sector can expect returns ten times higher than those investing in fixed telecoms. This is one of the reasons preventing the deployment of optical fibre networks," a Commission official close to the dossier told EURACTIV.

To address this perceived imbalance, Brussels is set to push forward, in April or May, a plan to reform the current system of cross-subsidisation of mobile phone services, the official said.

Indeed, mobile operators impose heavy charges for managing calls received from their competitors. According to Commission estimates, operators charge each other an average fee, known as a 'mobile termination rate', of around €9 cents per call. This indirectly affects prices for consumers, who pay much more to call a mobile phone than a fixed telephone line. For landlines, the average fixed termination rate currently stands at around €1 cent. This is why calling a fixed telephone is now very cheap or sometimes even free of charge.

"This system was put in place to allow the development of mobile phones, but now with a penetration of 120% across Europe, it makes no sense anymore," the source said, exclusively revealing to EURACTIV the latest figures on EU mobile penetration, to be officially presented by the Commission in March.

Brussels will call for the methodology used to calculate mobile termination fees to be reviewed. The move is expected to bring rates down from the current €9 cents to between €1.5 and €3 cents. National regulators will be requested to adopt the new system by 2012. For authorities with less budgetary autonomy, in particular those of some Eastern member states, the deadline will be 2014. The recommendation is not binding, but it is of huge political significance.

Mobile termination rates are an extremely sensitive issue for telecoms operators, who predict that revenues will fall as a consequence of the measure. A study commissioned by leading EU operators show that cutting wholesale prices will not necessarily lead to lower retail prices. Tariffs for consumers might instead grow with the possible consequence of falling mobile penetration. 

This explains why the Commission decided to modify its draft recommendation and opted to postpone the deadline for national implementation to 2012. It had originally been set for the end of 2011. In a concession to mobile operators, the proposal also raises the ceiling for acceptable fees from €2.5 cents to €3 cents. Further concessions should not be ruled out.

'Fibre matters'

But now Brussels is adding another string to its bow in the fight against mobile termination rates. Cutting them, it argues, would help raise money for the heavy investment needed to provide Europe with Next Generation Networks (NGNs). NGNs are based on optical fibre, enabling high-speed Internet and various new services, ranging from sophisticated tele-working applications to high-definition television.

McKinsey, the business consultancy, estimates that Europe needs to invest €300 billion to replace the old copper lines of its fibre networks.

However, the appropriate regulatory and business model for such investments is yet to be clearly defined. The EU institutions are currently debating compensation levels for the private companies making the investments (EURACTIV 28/11/08). The latest proposal suggests taking money away from the mobile sector.

Nevertheless, questions remain as to the necessity of imposing such measures on mobile operators, because they often only affect companies that have developed both fixed and mobile services.

Moreover, the main question remains unanswered. "Is there really a demand for super-fast Internet?," one EU official asked. Japan, he said, has enjoyed almost full NGN coverage for ten years now. But the network there is still underused, with subscription rates of under 50%. Meanwhile in Europe too, sceptics point out that some of the fibre networks already in place are under-exploited.

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