Editor’s Note:
In July 12th, 2006 the EC made public a Proposal for mobile roaming regulation. The full name of the document is “Proposal for a Regulation of The European Parliament and of the Council on Roaming on Public Mobile Networks Within the Community and amending Directive 2002/21/EC on a common regulatory framework for electronic communications networks and services.” The full text of the Proposal is available at:
http://ec.europa.eu/information_society/activities/roaming/docs/regulation_en.pdf
Accompanying its proposal, the EC also issued an Impact Assessment analysis of the proposed regulation. The full text of the Impact Assessment is available at: http://ec.europa.eu/information_society/activities/roaming/docs/assessment_en.pdf
Background
The EC, the European Regulators Group (ERG) and other organizations such as INTUG have been arguing over the years that prices for international mobile roaming are high, as compared to their underlying costs, despite a set of initiatives to increase transparency of tariffs, including the launch of a consumer website by the EC since 2005.
The EC estimates that the average retail roaming price for a residential user in the Community was € 1.15 per minute as of 2005, which was more than five times higher that the actual cost of providing the wholesale service (and sometimes up to 10 times) and four times higher than domestic tariff(and sometimes up to 14 times). On received roaming calls, operators make retail margins of 300 to 400 percent.
According to the EC the retail and wholesale roaming markets exhibit unique characteristics which justify exceptional measures going beyond the mechanisms otherwise available under the 2002 regulatory framework.
The EC argues that national regulatory bodies are not fully equipped to deal with the mobile roaming charges at national level Even when there have been some national efforts to overcome the high roaming prices, these have not been enough to reduce the problem significantly. Therefore, the regulatory framework needs to be amended to ensure a harmonized approach by the EC (“subsidiarity test”).
In early 2006 the Commission launched a two-phased consultation with stakeholders: the first consultation ran from 20 February to 22 March 2006 and the second from 3 April to 12 May 2006. On 12 July 2006 the EC issued its Proposal on mobile roaming regulation. On the same date, the EC also issued its Impact Assessment document, in which explains the basis on its regulation, the proposed mechanism and the estimated impact on social welfare that could come out of its policy implementation.
The Proposal to Regulate Mobile Roaming
The objective of the Proposal is to amend the existing regulatory framework to bring about substantial reductions in the level of mobile roaming charges across the Community in a harmonized manner.
The mechanism selected to achieve this objective in a proportionate manner is the application to terrestrial mobile operators within the Community of safeguard maximum price limits (“price caps”) for the provision of roaming services for voice calls between Member States at retail and wholesale level. The regulation also states that the mark-up used to determine retail prices that are actually charged to consumers for making and receiving a call while roaming may not exceed 30%.
The price-caps for roaming services are set by reference to a benchmark based on multiples mobile termination rates among EU countries. The Commission deems that termination rates in the EU reflect underlying cost structures of mobile operators since most of regulator have regulated these charges based on cost models. Thus, for the case of roamed calls back to the home country, to another EU country or within the visited country, industry costs may be approximated by using a multiple of an EU average mobile termination rate. The two principle legs of a mobile call are origination and termination, and furthermore it can be assumed that termination cost acts as good proxy for origination.
The specific proposed price cap scheme is as follow:
- The pivot reference price would be the average of mobile termination rates for significant market providers (SMP) in the EU. Assume by simplicity that the average mobile termination rate in the EU is € 10 cents per minute. [1]
- The Commission distinguishes two different price caps depending of the type of roaming call: (a) For calls made within the visited country, and (b) For calls made back home or to another EU country. For calls type (a), the wholesale roaming price is capped to be twice the average mobile termination rate. In this case there are two legs used in for these calls. For calls type (b) the wholesale roaming price is capped to be three times the average termination rate, since it involves three providers (or three legs) to deliver the call. In our illustrative numerical example, the wholesale roaming prices would be capped at € 20 cent per minute and € 30 cents per minute for calls type (a) and (b) respectively.
- Retail charges for calls originated by roaming customers would be capped at 130% of the maximum wholesale roaming price for a call, i.e. the EC sets up a retail margin cap of 30% over wholesale mobile roaming service. In our example, retail price would be capped at € 26 cents per minute and € 39 cents per minute for both type of calls.
- Retail charges for calls received by roaming customers would be capped at 130% of the wholesale mobile termination rate. In our example, international roaming retail price for received calls would be capped at € 13 cents per minute.
Operators are of course free to compete beneath the wholesale cap plus retail mark-up ceiling, by charging each other less for carrying calls, reducing their retail mark-up or differentiating the packages of services that they offer according to consumer demand.
One key concept behind the EC Proposal is the “European home market approach”, which would ensure that mobile roaming charges are not unjustifiably higher than the mobile charges at home. One big advantage of the European home market approach over other regulatory approaches is that it is relatively easy to monitor and implement, as it relies on information already being provided by the operators to the regulators.
The new EU regulation would require national regulators to closely monitor developments in retail and wholesale charges for the provision of voice short message services (SMS) and Multimedia message services (MMS) in the future. This should allow national regulators and/or the EU to address any problematic developments in the future in case operators should prove unable or unwilling to solve them with determined self-regulatory initiatives.
The proposed regulation would also enhance price transparency, which has been a considerable problem with roaming. It obliges mobile service providers to give personalized information on retail roaming charges to their roaming customers – on request and free of charge. Each customer may choose whether to receive the information by means of an SMS (short message service) or orally, over their mobile telephone. Moreover, a customer subscribing to an operator will be able to receive detailed information on roaming and operators will have to keep the subscriber informed periodically on roaming charges.
In general, a European regulation applies equally in all 25 Member States. The proposed regulation on mobile roaming would come into effect as soon as it is adopted by the European Parliament and the Council of Ministers and published in the Official Journal of the European Union; it requires no further transposition into national law. The Commission hopes that the new EU regulation will be approved by the European Parliament and the Council of Ministers by summer 2007.
Effects of the proposed regulation
According to the EC, the proposed regulation is likely to provide a significant economic boost to businesses, particularly small and medium sized enterprises, to those persons living close to national borders who are frequently roaming to other networks and more affluent leisure customers who also roam frequently.
Roaming prices have a direct positive effect on at least 147 million EU citizens (37 million tourists and 110 million business customers) or one third of Europe’s population. There can still exists for further enhancing roaming penetration (roughly half of all customers travel abroad but only a third uses roaming services), so there is potential for a substantial increase in the use of roaming services, once prices fall – and thus scope for new revenues for those mobile operators who move first and offer attractive roaming services which are even better than will be required by the new EU regulation.
If the EU regulation entered into force today and became fully effective, the results of this method for the consumer would be as follows:
- The cost of using mobile phones abroad would be cut up to 70 percent,
- the price of calling home from abroad in the EU or calling a third country while abroad in the EU would be at most 49 cents per minute,
- the retail price of local calls made whilst on holiday or business in another EU country would be at most 33 cents per minute, and
- the retail price for receiving a mobile phone call whilst traveling abroad in another EU country would be capped at 16.5 cents per minute.
The European mobile roaming market is estimated to be € 8.5 billion. The aggregate economic impact of imposing regulation at retail and wholesale level of roaming prices would bring about an increase in consumer surplus between € 5.3 and 6.0 billion, a reduction of producer surplus would between € 4.2 and 3.8 billion, so that the total social welfare would increase between € 1.1 and 2.2 billion.
[1] As of October 2005, the mobile termination average rate for operators with significant market power (SMP) was € 12. 18 cents per minute for the 25 countries of the EU. See the “11th Report on the Implementation of the Telecommunications Regulatory Package 2005” of the EC. The report is available at: http://europa.eu.int/information_society/policy/ecomm/implementation_enforcement/annualreports/11threport/index_en.htm