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.