Examination of Witnesses (Questions 147-159)
Mrs Viviane Reding, Mr Ken Ducatel and Mr Peter Rodford
27 FEBRUARY 2007
Q147Chairman: Good morning.
Mrs Reding: I do not think that I have to go
into the matter in depth, because I am sure that you know what
we are speaking about. I will just tell you how it came to be
on the table, because, in a political sense, that may be very
interesting. You know that Commissioners go through a hearing
at the European Parliament. At my hearing, the Parliament was
very explicit that, "You have to do something about roaming".
I did not know what I had to do, and so I promised the Parliament
at that hearing that I would have a look at it. You may know that
the national regulators who work together in the European Regulators
Group are advisers to the Commission, and so I asked the guys
who would best know what was going on in their national territory
what this was. They were very explicit in their written statements
to me. They said, "The prices are extremely high. Prices
no longer have any relation to the cost. Secondly, we cannot do
anything. Why? Because we are responsible for our national markets.
We are in a cross-border logic here, and so we cannot move. Thirdly,
we have also seen wholesale prices go down over the course of
the years, but these reductions have not been passed on to the
consumers. It is not enough therefore to work only on the wholesale;
you also have to work on the retail in order to have a result".
We also have had dozens of meetings with the operators—big
and small and from all countries—and I have asked them several
times to have transparency, to explain to the consumers what the
prices are. Normally, consumers go away, come back, have a bill
and have a shock. When they go away, they are not conscious of
what is happening to them. Although, as the GSM Association, the
operators pledged in 2001 to have transparency, we still do not
have it, as they have not put that into practice. I therefore
made a website in October 2005. We put the prices of the different
operators in the different countries on the website, so that people
could see the factual situation. The website became a real hit,
because it was the first time that consumers could be informed.
At that time I said to the operators, "These shamefully high
prices of many operators in many countries have to come down to
normal. You have six months in order to bring them down and, in
six months, I will reactivate the website to see what the movement
has been". After six months, in 11 countries the prices had
increased. That led me to have a serious impact assessment. You
will know that the Commission can no longer make any proposals
without having an impact assessment. The impact assessment—elaborated
with the help of the operators, big and small and all countries,
and with some research carried out—was accepted by both
the Council of Ministers and Parliament as the sound basis for
the regulation. On that basis, I made a proposal for a regulation
in the summer of 2006 and it is now in the hands of the Parliament
and the Council. In a nutshell, what do I want in this regulation?
A consumer protection tariff for all, so that all consumers—big
travellers, small travellers, informed, less informed—get
the advantage of the normal consumer protection tariffs. I have
been listening widely to the operators and to politicians who
say, "You cannot prevent people who want to have a package
having a package". We say, "Why not?". If there
are consumers who would like to go outside the consumer protection
tariff in order to accept another tariff, an alternative tariff—fine.
They must have the right to opt out of the consumer protection
tariff. Whatever solution is selected, I would like the solution
to be simple, non-bureaucratic and easy to apply. In order to
solve one problem, I do not want to have five supplementary problems
on my back and to have to set up its own administration in order
to control things—if things are happening as they should.
It should be simple for the consumers to understand what is going
on and for the operators to have legal certainty. Why do I insist
on that? Because there are some ideas floating around, which at
first sight are very good but which would have very bad consequences.
I will give you one. The idea of the average ceiling at wholesale
level. What would that mean? It would mean that, in the case of
a dispute, you would complain to the national regulator in the
visited country. Then you rely on the timely provision of accurate
volume and revenue information. Is this timely? Is this accurate?
Who will control that? Imagine in this context UK regulators trying
to get satisfaction from regulators in some European countries—which
I will not name. That would be quite an experience! Bear in mind
also that there are around 80 mobile network operators in the
EU. That means 6,400 theoretical bilateral relationships for the
provision of wholesale roaming services; and the number of bilateral
relationships between national regulator authorities is more than
700. Imagine the scope for disputes and difficulties for regulators
sorting them out. That is exactly the kind of thing I do not want
to happen. It would mean legal uncertainty, fights, hundreds of
issues, looking at figures and, in the end, it would create jobs
for lawyers. That is exactly what we do not want and that is why
I am pleading for a very simple-to-apply, foolproof regulation.
It is very rare to see citizens agreeing with what we are doing.
We carried out a Eurobarometer survey in November 2006, asking
people in different Member States what they think about this whole
roaming affair. The figures were astonishing. We saw that many
more citizens travel abroad with their mobile than we thought.
For instance, in the UK 46 per cent of the citizens travel with
their mobile—private people. Eight per cent are business
travellers. Of those travellers, 56 per cent say that they use
their mobile less often when they go abroad, because they are
afraid of the high prices. This figure is even higher in my country,
Luxembourg, because people are travelling all the time and they
even close their mobile when they are travelling abroad. Imagine
the growth of traffic there could be if people were not afraid
to use their mobile while they were abroad. In the UK, 64 per
cent of people say that they would indeed utilise their mobile
more, or frequently, if the prices went down to normal. Something
which might be astonishing in terms of the mentality of the British
citizen is that 72 per cent of them say that the EU should make
sure that prices are not a great deal higher when they travel
than when they are at home. It may be the first time in the history
of Great Britain that its citizens want "Brussels" to
act! That is therefore the basis of what we are doing and why
we are doing it. I would add one sentence to that. In the spring
of last year the European Council of our Heads of State asked
the Commission to act, on the grounds of distortion of competition
for small and medium businesses which do business abroad, where
the expenses they incur in comparison to their business income
is simply a distortion of competition. We all know that big firms
can agree special prices, whereas smaller companies cannot. So
the Heads of State and of Government specifically asked us to
take it in hand, in order to get rid of this distortion of competition.
Q148 Lord Lee of Trafford: Just going
back in terms of the history, when you were charged by Parliament
with investigating roaming, what was the basis for that? Had there
been some report or was it just a series of individual hunches
that mobile roaming charges were too excessive? What was the basis
of the original charge from Parliament?
Mrs Reding: It was on the basis of two elements.
First, parliamentarians, as you know, are continuously in their
constituencies and people were complaining to their parliamentarian.
Secondly, a hearing was organised in the Committee for Industrial
Relations and it came to the conclusion that things were very
wrong indeed, and that we needed European action on this because
national actions were not possible. In that hearing, the national
regulators confirmed what they had written to me. Because of cross-border
action, national regulators who are responsible for their national
market cannot solve the problem.
Q149 Chairman: Thank you very much, Commissioner,
for that very clear introduction. Could I ask you about the methodology
of fixing the wholesale cap? I can understand the argument not
to go down the averaging route but to have an absolute cap, because
that avoids the problem of disputes, argument, calculations. Leaving
that on one side, on what cost basis or what industrial basis
have you based your calculations? Indeed, what is the formula
for fixing the wholesale cap?
Mrs Reding: The Commission always avoids having
calculations for their own sake, because that can be questioned
everywhere. So we took the calculations of the national regulators.
They analyse the evolution of the prices on their national market
regularly. We took all these MTRs—mobile termination rates—together,
made an average, and multiplied it by two or by three. So we had
these objective figures of the national markets, analysed by the
national regulators, as our basis cost. Why multiply this by two
or by three? My basic idea at the beginning was that, because
I thought it was so shocking, I said "Let's get rid of the
whole thing. A call you make at home or a call you make abroad
will be exactly the same". In the meantime, after many discussions,
I found out that it was not exactly the same, because the operators
have to rent the infrastructure of the operator in the next country.
We did not want to close down the businesses; we wanted to have
a clear margin for business models to operate, under a ceiling.
So we fixed a rather generous ceiling, under which it is possible
for the market to have its own business models and pricing. We
did not fix a price; we fixed a ceiling and, under this ceiling,
all kinds of business models are possible. That is the way we
went for it.
Q150 Chairman: We understand the Presidency's
latest papers indicate their belief that a wholesale cap of the
order of 30¢ per minute may be appropriate. If you use your
formula—this is for international roaming—of three
times the domestic mobile termination rates, what will we be talking
about in terms of a maximum at the wholesale level, in terms of
cents per minute? You have come up with a formula, but when that
is translated into a specific figure?
Mrs Reding: The figures differ. I have so many
models on the table now. I have models of the Parliament; I have
models of the French; of the Brits and of the Germans. At the
beginning I had two ceilings. I am thinking about going in the
direction where we can accept one single cap. It will make things
easier. The discussion now is about what should be the level of
this cap. Our level is roughly 33 per cent. Some parliamentarians
are trying to go under this; some members of the Council are trying
to go higher than this. In the end, I believe that this is a question
of negotiation between the European Parliament and the Council
of Ministers, because in the end it will come to that. For me,
the numbers are not so essential. What is essential is the system
and the clarity of the system, so that our normal consumers—who
have not studied mathematics at university—clearly understand
what is going on. I would not have problems with any figure proposed,
if this figure is clearly in the interest of the consumers and
if this figure allows operators to have the margin of manoeuvre
in order to offer their business models.
Q151 Chairman: To be clear, would this
be 33¢ per minute?
Mrs Reding: Thirty-three is what we have on
the table. Parliamentarian Muscat, who has made a proposal, has
25, and the Council has 30.
Q152 Lord Geddes: For the record,
Commissioner, are we talking now wholesale or retail, or are we
confusing the two?
Mrs Reding: No, that is wholesale.
Q153 Lord Geddes: That is all wholesale?
Mrs Reding: That is all wholesale, yes.
Chairman: Could we come on to retail in just a
minute, and could I now turn to Lady Eccles?
Q154 Baroness Eccles of Moulton:
It is very interesting to understand the position that the Commission
is in, Commissioner. There are a couple of questions regarding
the absolute fixed price cap. An average cap does mean that the
pricing over a period of time can fluctuate above what an absolute
price cap would be, so long as, at the end of whatever the period
is, it is not above the average that has been established. Does
that not allow for more flexibility within the industry, which
in the end would benefit the consumer? Because, if there is a
clamp that affects everybody the same, then at the end of the
day the industry could suffer. What is your view on that?
Mrs Reding: My first view is that the average
cap, which we call the consumer protection cap, is generous enough
in order to allow the industry to have its benefits and to allow
the industry, under this cap, to offer different business models.
If that works well, in full transparency, then it is fine. If
you give to those informed parts of your constituents the possibility
of opting out of this general tariff and have a special tariff—like,
for instance, the Vodafone Passport—then it is fine and
you have a clear system. However, if you add to this a wholesale
averaging, that is very complex, confused and has to be calculated
anew all the time. It might lead, according to the expertise we
have, to price squeezes on smaller players. One of the problems
which we have in Europe is that the big players with market power
can impose high prices on smaller players. If you look at the
whole picture, you have to protect the smaller players. That is
very important. We have those smaller players not only in small
countries, but we also have them in bigger countries. We think
it is not necessary and it will create confusion and add an administrative
burden. I would therefore argue for the simple solution which
will be understood by everybody and—what is very important
for all operators—it will give legal certainty for all operators.
Q155 Baroness Eccles of Moulton:
If you set the single cap high enough, I can completely understand
that that would allow a lot of flexibility, provided there was
also a consumer protection tariff, or limit. But surely if the
single cap is set high enough to allow that, it would still allow
the big companies to make, probably, excessive profits. How do
you then, within that generous cap, apply pressure on the big
companies so that there is room for the little ones to thrive
but the big ones are no longer making excessive profits? I do
not quite see how you could have both of those benefits without
one of the parts of the sector running away with it.
Mrs Reding: That is why the European parliamentarians
in the consumer protection field have proposed 25 per cent as
a consumer protection cap, so that all the business offers have
to be under this 25 per cent.
Q156 Chairman: Twenty-five cents per
minute?
Mrs Reding: Yes, I am very sorry—25¢.
That would be very simple and easy to do, and it will then go
to everybody and it will allow for business models. When I speak
about business models, I mean that in a competitive market—and
the national markets are competitive—somebody will offer
a very interesting price to travellers. I have read in the papers
that National Geographic has recently come out with an
offer of a special phone, with interesting roaming prices all
over the world. That is a specific business model. We want to
have a ceiling which will allow for all kinds of business models
to compete on the national market.
Q157 Baroness Eccles of Moulton:
So what is the relationship between the 25¢ per minute and
the 33¢ per minute?
Mrs Reding: One is higher than the other!
Q158 Baroness Eccles of Moulton:
Yes, but one applies to one type of consumer and the other applies
to another?
Mrs Reding: No. It is a proposal of the Parliament
to have the ceiling at 25¢. My proposal was to have the ceiling
at 33¢. The proposal of the German Government is to have
the ceiling at 30¢. This is what I am saying will be the
negotiation between the two lawmakers: the Parliament and the
Council of Ministers. They will have to find an agreement on what
is their proposal in the end.
Q159 Chairman: Before we turn to Lord
Geddes who has a question on retail, could I ask one specific
point about opting in or opting out? The operators and the Minister
of State for Trade and Industry, Mrs Margaret Hodge, from whom
we heard evidence yesterday, are not in favour of . . . Let me
get this right! The operators and she did not want all consumers
to have the right to be automatically in the tariff and opt out,
on the grounds, I suspect, of cost. Could you help us on whether
the Commission favours, and the reasons for favouring, opting
in?
Mrs Reding: Yes, that is very clear. It is as
I said in my introductory statement. We want a simple, easy-to-understand
consumer protection tariff for all, so that the benefits go to
all citizens; and then those citizens who wish to opt out of this
consumer system—because, for instance, they prefer to have
the Vodafone Passport—can do so. If you have this, you do
not need to have other measures of protection, because you already
have the consumer protection system. If you do it the other way
round—that only those who want the protection get the protection—then
you need supplementary measures of protection, because most consumers
will not know. It will be so complicated for them to opt for the
consumer protection. Do you know how much time a new system offered
by an operator needs in order to be accepted by the market? A
very long time. You know perfectly well, with regard to your electors,
how difficult these kinds of things are. That is why, in a very
consumer protection-oriented way, let us have it for all and let
us give the opt-out, the freedom not to have it, for those who
do not want to have it. I can imagine that frequent business travellers
would prefer another option. Let them do it. However, the normal
holidaymaker, the British citizen who is going to spend a week
in the south of France or wherever, will not be informed about
all this. It will be extraordinarily complicated. It is also why
those governments who go for the second solution propose a third
solution, with the average protection prices, because they feel
that it is not enough. It makes things complicated. In the end,
it will not be available for everybody. People will complain,
"We thought that prices had gone down". Why have prices
not gone down? Because they have forgotten to get the new system.
So let us make it simple; let us make it politically sound. You
cannot imagine the sort of lobbying that has been going on for
a year or more, and how many millions have been invested in lobbying.
Every month that the operators do not have the new system in place,
it is that much of a gain for them. If they had a system in place
that did not work, all the better for them. But who will explain
to the normal citizen that the regulation did not bite and, because
it did not bite, we have to have a second element? For instance,
the British Government is proposing a penalty cap as a safety
net, because the British Government has understood that its system
will not work and so it needs a penalty cap as a safety net. I
say that we do not need that, if we put a system in place which
works for all citizens. Let us make it simple, foolproof, understandable.
Let us make it bite for the average citizen in our society, and
not only the well-informed citizens who can take measures in order
to go into the generally applied system.
Chairman: That is a very clear explanation
and I am grateful for that. You have explained why you favour
an opt-out. Perhaps I could ask the Clerk to check the record
with the Minister. She may have been as confused as I was in expressing
myself. I think that we need to double-check whether Her Majesty's
Government is in favour of the opt-in or opt-out. We know that
you are in favour of the opt-out, for the reasons you have just
said.
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