European Parliament Committee Backs Further Hack Of Roaming Charges

from the the-answer-is-always-more-regulation dept

The European Union has been interfering in the market for international mobile-phone roaming rates for some, taking the populist position that the charges were too high, and forcing caps on the wholesale rates operators charge each other, hoping to drag down retail prices. But the effect was, as we predicted, baloon squeezing: while intra-Europe roaming rates fell, operators looked to boost rates paid by people from outside Europe and their domestic rates. What makes this situation particularly ridiculous is that it was one manufactured by the EU itself. When Vodafone expanded across the continent by buying German operator Mannesmann in 2000, it was essentially prevented by EU regulators from introducing any roaming products that utilized its competitive advantage. The regulators said that if Vodafone cut any of its international roaming prices, it would have to offer the same price to its rivals -- removing any motivation for the operator to cut prices and introduce new services.

The EU continues to try to regulate itself out of this self-created mess, the latest move being that a European Parliament committee has voted to further cap roaming charges on text messages and mobile data. The plan moves forward to the whole Parliament, and will be considered on the cusp of peak travel season, so the politicans can brag to their constituents that in this time of economic misery, they're moving to cut their vacation costs. But what they're really doing is further impeding the market by removing any incentive for operators to compete with one another -- just as the EU regulators did back in 2000. This was a situation created by overzealous regulation: had the EU allowed the likes of Vodafone to create products based on its competitive advantage, it's likely the market would have brought prices down on its own, and without the balloon-squeezing effect. But once the EU began interfering, that became impossible, since it in essence outlawed competition. Interfering in the market even more may be politically useful, but won't create lasting competition that will benefit consumers in the long run.


Reader Comments (rss)

(Flattened / Threaded)

  1.  
    identicon
    Dr.A, Mar 11th, 2009 @ 8:18pm

    smart

    telecoms is a highly regulated market.
    Competition will only work by itself when the market will be fully deregulated. And that's like.... NEVER!

     

    reply to this | link to this | view in thread ]

  2.  
    identicon
    Ernestas, Mar 12th, 2009 @ 12:48am

    Roaming regulation

    Competition works fine between several operators inside country because customers CAN choose operator, perator which charges too much will loose customers - so charging too much is risky.

    While in roaming mode is like "fishing": customers are automatically connected to your services, while customer can choose not to answer phone call, data services (WAP, ActiveSync, GoogleMaps) can connect in automatic mode (if user has not dissabled GPRS/3G).
    Mobile Phone User interface do not show list of operators WITH prices to choose from.
    So roaming operators do not compete on price, all thay need is to have coverage as much as possible and set price as High as possible.

     

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  3.  
    identicon
    S Lyall, Mar 12th, 2009 @ 12:53am

    re EU mobile phone regulation piece

    'it's likely the market would have brought prices down on its own'
    What planet are you guys on?

     

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  4.  
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    Jan Hopmans (profile), Mar 12th, 2009 @ 6:37am

    'it's likely the market would have brought prices down on its own' What planet are you guys on? I must say I fully agree with that. The market wouldn't ever pressured the operators to bring the price down. There for instance is already one problem: there is only a certain amount of room for operators to operate on. I thought the range for operators to use is only big enough for 5company's at a time. The frequencies are sold through an auction, highest bidder gets the frequency: and it has to be paid. Second, Europe isn't like the US: we are a set of different countries. It's very, very easy to roam on a neighbours country's network without even knowing. I had times when I was on the network of Belgium even though I live 20-30km away from the border. Remember the Netherlands is only ~270km wide!

     

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  5.  
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    Jan Hopmans (profile), Mar 12th, 2009 @ 6:41am

    Repost of the above with decent formatting:

    'it's likely the market would have brought prices down on its own' What planet are you guys on?

    I must say I fully agree with that. The market wouldn't ever pressured the operators to bring the price down.

    For instance already one problem: there is only a certain amount of room for operators to operate on. I thought the range for operators to use is only big enough for 5operators at a time. The frequencies are sold through an auction, highest bidder gets the frequency: and it has to be paid.



    Second, Europe isn't like the US: we are a set of different countries. It's very, very easy to roam on a neighbours country's network without even knowing. I had times when I was on the network of Belgium even though I live 20-30km away from the border. Remember the Netherlands is only ~270km wide!



    While I am here will add another one: Look at the competition in the US, Europe and compare...

     

    reply to this | link to this | view in thread ]

  6.  
    identicon
    moo, Mar 13th, 2009 @ 9:01am

    "it's likely the market would have brought prices down on its own"... wow, just wow. Somebody doesn't understand basic economics and 'captive markets' at all.

     

    reply to this | link to this | view in thread ]

  7.  
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    Snidely, Mar 17th, 2009 @ 7:31am

    Didn't happen

    What Carl fails to note is that balloon squeezing did not occur. I know because I work in that segment of the industry. Prior to regulation, roaming rates were slowly falling due to some competition. The problem with roaming is that there is little actual competition between operators. Network operators compete aggressively in the domestic market, but have rarely extended that competition to the international market. This is probably because roaming brings in huge margins and companies were reluctant to cut into their cash cow if none of their competitors were doing so.

    The operators bluffed that they would raise domestic rates or charge non-EU customers more, but neither event happened. Competition is too fierce in the domestic market for prices to go up and raising rates for non-EU customers would have little effect as they contribute only a tiny amount to overall roaming revenue. The networks bent over as expected and suffered the financial hit. Many saw 40% declines in roaming revenue while only a minor rise in usage. The EC failed to anticipate the impact on the financial health of the networks, assuming that the massive rate reduction would see a corresponding growth in traffic.

    The network operators have a legitimate case that they are being singled out for regulation when many products, from cars to food are sold at different prices in different countries. If the EC wants to regulate mobile services, they should cut the prices of all of these other products too.

     

    reply to this | link to this | view in thread ]


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