Mobile Roaming Charges

Written by Graham Watson MEP, Leader of the European Liberals and Democrats group, European Parliament on Sat 21st Oct 2006

On the now infamous date, 11th September 2001, former European commissioner Mario Monti was in Barcelona for a speech on competition in high-tech sectors in which he outlined some of the EU executive's concerns over market failings in the telecoms sector, highlighting amongst other things, the excessive mark-up by mobile phone operators between the real cost of calls and what they charge customers when roaming abroad. This conclusion followed a sector inquiry the previous year which had identified that there were insufficient incentives on companies to reduce prices under the current system. Unsurprisingly, his speech failed to hit the news headlines.

Five years on, the market in mobile phones has mushroomed, almost to saturation point, and the consumer has an almost bewildering choice of phone operators and tariff levels. But the costs for 'roaming' remain excessively high. Regular investigations by the Commission over the period found that companies across Europe were abusing their position as a dominant player in the market and over-charging by up to four times the real cost of a call when a customer was calling from another European company.

The European Commission finally lost its patience with operators this summer and announced proposals to oblige them to cut their rates both wholesale (between themselves when customers 'roam' on another network) and retail. In the latter case the Commission is suggesting an immediate cap of 30% above the domestic rate on 'received calls' abroad and a period of six months grace before a similar cap is imposed on out-going calls made from abroad e.g. to family or friends back home from a holiday destination. The proposals are not yet law and must be approved both by the European Parliament and national government representatives in the Council of Ministers.

In the meantime the Commission is still hoping that mobile phone companies will see the writing on the wall and that the threat of legislation will encourage them to lower their tariffs voluntarily. The end result would be the same. It is no coincidence therefore that we are starting to see a number of initiatives from phone companies offering rate reductions of one sort or another. Many are still hoping that they can fend off the legislation by showing some belated goodwill to their long-suffering customers. O2 announced last week for instance that roaming customers would not be charged for incoming calls abroad - as long as they paid an upfront fee of £5.00. This may be attractive if you expect to receive more than 50 calls from friends whilst lying on the beach in Spain for a week or two in the summer. If not, it could work out rather expensive. So should the EU step in or let customers find their own way through the maze of offers and tariff packages ?

Price cutting by the operators, however belated, is a positive signal. Yet it begs the question whether the EU legislator should go as far as to set maximum retail tariffs, or just regulate the wholesale charges and leave the market to fix the end-user rates. It is often dangerous for government, in this case the European Union, to intervene directly in the market place - however tempting that may be. In this case the temptation is huge, first because few trust phone operators to keep prices down and second because it is quick and easy for a legislator to impose a single maximum tariff across the entire territory of the European Union. However, on the down-side, a legislator is unable to keep pace with rapid market developments, price trends and consumer demands. Fixing retail prices from Brussels may bring a short-term benefit to consumers but in the longer-term may be to their disadvantage if real competition can be encouraged. Since almost every household has a mobile phone now, the pressure is on the operators to get owners to use the services on offer, which they will do only if the rates are attractive. Where the EU can make a difference is to establish a genuine internal market for telecoms in which a Europe-wide regulator, in conjunction with national regulators, supervises the activities and commercial practices of phone companies which now have operations and subsidiaries in several different Member States.

There is one further aspect of the proposed law which the Commission has sent to the Parliament. It currently only addresses itself to the area of voice-telephony. It excludes text messaging or other emerging forms of mobile data exchange, such as music or video files. No-one will wish to pay £10.00 to receive a sound track or film clip on their phone if they happen to be abroad. So there is a danger that if the European Parliament does not extend it to cover other services, phone operators will simply be able to over-charge elsewhere to compensate for slimmer profit margins on traditional voice calls. The European Parliament will be looking at ways, over the next few months, to get the best deal for consumers without limiting the ability of the market to offer their own best deals. Lobbying is likely to be intense with the GSM Association already vocally opposing the draft legislation. Nor is the UK government on the side of the angels, showing signs at the moment of bowing to the views of the industry.

We might be looking at a rare case where the public sides with the EU against Westminster when they see who really has their best interests at heart !