Memorandum by T-Mobile
1. Do you consider
charges for making and receiving calls on mobile phones when in
a different EU Member State to be appropriate or excessive as
some have argued? Do you think there is currently sufficient competition
in the market?
In any commercial market, strong competition
is a major benefit for the consumer and it is widely accepted
by regulatory authorities across the EU that the characteristics
of the mobile telecommunication sector in the EU, and especially
in the UK, is strong and highly competitive. This has also been
demonstrated in the roaming market with innovative roaming offers.
T-Mobile believes that the market for mobile
phone roaming services—which includes the ability to make
and receive call while abroad—is highly competitive. The
market for cross EU roaming services continues to evolve and so
prices to the consumer have fallen over the last few years. This
pattern will continue as the user demographics and the nature
of services demanded by consumers, increases the competitive position
in the market. For example, with the increasing demands of corporate
and small business users to remain in communication and to maximise
business efficient when travelling internationally, T-Mobile UK
has announced a cost reduction on data roaming in all T-Mobile
footprint countries from £7.50/MB to just £3/MB for
all registered business customers. A similar initiative is expected
for the consumer market by the summer 2007. This initiative is
a good example of competition in the market where what may have
been perceived as high prices initially are being reduced as the
market develops. Last summer T-Mobile UK announced flat tariffs
of 55p for making and receiving calls within Europe and also the
UK and Canada for all customers, including pre-pay customers.
One of the key drivers for competition in the roaming services
is the tendency for traffic imbalance between operators. Some
operators (usually in the north of Europe) send more traffic to
their roaming partners than they receive in return. This traffic
imbalance in the bilateral roaming relationship creates an economic
incentive for the "net out bounder" to agree on reduced
wholesale roaming rates. T-Mobile is such a net out bounder and
has been at the forefront of negotiating discounts with its roaming
partners.
In analysing the competitiveness of the international
roaming market, the approach taken by the European Regulators
Group has delivered a suitable analysis. If there are bottlenecks
that demand regulatory action to improve effective competition,
then they must be developed to truly benefit all mobile users
in the long term (including non roaming customers) without significantly
distorting the business operations and models of the many network
operators that provide these services within the EU footprint.
In other words, any regulatory intervention must not revert to
being simplistic, unclear or unduly burdensome actions. While
such a concept of "excessive pricing" is known in European
legal systems it is rarely applied in cases of market failures.
It should be noted that the US legal system does not even know
such a concept and rejects the pursuit of excessive pricing cases
as creating inefficiencies.
2. Is it appropriate for the Commission to
introduce legislation to cap the cost of roaming?
We believe that the legislative conditions for
a regulation under Art. 95 EC-Treaty are not met. This provision
is the legal basis for the approximation of national laws. It
follows both from the wording and proper construction of that
article that this does not empower the Community to legislate
whenever it deems uniform rules desirable. On the contrary, Article
95 clearly limits the power of the Community to legislate to areas
of the law where Member States have taken, or are about to take,
divergent legislative measures with respect to a product or service
which bring about different levels of protection and thereby prevent
the product or service from moving freely within the Community.
Differences between national laws are a necessary precondition
for any legislative action at Community level. However, there
are no such differences between the Member States regarding the
law that applies to international roaming charges. The regulation
of international roaming charges falls in the ambit of the harmonised
Community framework for electronic communication. Decisions which
Member States' regulatory authorities may take in accordance with
the pertinent EU directives are individual measures, not legislative
action in the sense of Article 95.
Leaving aside the legislative basis of the Commission's
proposal we do not believe that a Regulation is necessary. Prices
are coming down already and there are clear commitments for this
to continue. Many major operators, including T-Mobile and Orange,
are parties to a code of conduct which reduced wholesale roaming
tariffs in October 2006 and will reduce them further in October
2007. The Commission's proposal, particularly at the retail level
is likely to perversely lead to consumers having less choice.
3. Do you think that the mobile telecoms
industry has done enough in the last two years to address, through
self-regulation, concerns expressed by the Commission? Are National
Regulatory Authorities in a co-regulated environment able to address
these concerns on their own?
In order to accelerate the downward trend of
roaming wholesale prices, a majority of operators in Europe (including
T-Mobile) signed a Code of Conduct referred to above which resulted
in the wholesale price among the parties being capped at 45 euro
cents (c31p) in October 2006 and 36 euro cents (c25p) in October
2007. These price levels have been chosen to allow competition
below the cap. T-Mobile therefore believes that—non-withstanding
our position regarding the applicability of Art 95 EC-Treaty—legislation
should be limited to a cap at wholesale level to be set at 36
euro cents (c25p). This would result in a significant reduction
of wholesale prices compared to 2006 levels while maintaining
the competitive structure of the market.
It is disappointing that this commercially negotiated
initiative, aimed at genuine reductions in roaming prices, has
been ignored by the Commission in their attempt to mandate a set
of centrally-determined rules.
T-Mobile also believes that a cap on retail
prices would constitute a disproportionate market intervention.
There is sufficient evidence to expect mobile operators to pass
on wholesale savings to their customers. The UK is a good example
of this with all operators bringing into force new roaming initiatives
over the last year. Our position is publicly shared by the European
Regulators Group who stated that the Commission's retail regulation
proposal was impractical and that cost-savings would be passed
onto the customer through wholesale price regulation. The above
initiative is witness to the views of the European Regulators
Group. Independent studies show that T-Mobile is currently offering
the most attractive prices in Europe for a two minute call.
4. Does the proposed Regulation risk narrowing
down the space for competition and thereby harming innovation
and investment in the sector?
T-Mobile is concerned that the key thrust of
the Commission's proposals, namely harmonising the maximum price
cap on the retail charges levied to consumers, would apply a rigid
and inflexible centralised solution affecting the international
competitiveness and investment strategies of the sector. This
would impact on operator's flexibility to create a range of pricing
structures that adapt to changes in the demand for roaming services.
T-Mobile argues that it is vital that we continue to offer a range
of bespoke packages for large corporate customers and, as we have
already indicated, develop more tailored offerings for small business
and consumer users through a framework that allows the freedom
to set general retail pricing levels. This approach rewards the
operators who are innovative and competitive in their approach
to encouraging and providing roaming packages. The Commission's
proposal may have the unintended consequence for some operators
across Europe who will not be able to recover costs. Both on the
wholesale side as well as on the retail side operators incur costs
which are not reflected in the proposal of the Commission.
Regulation is associated with a serious risk
of error and large costs, in particular the cost of developing
cost models, which will not be outweighed by any benefits, given
that the wholesale markets for international roaming are competitive.
These models will carry a significant potential for error because
of the many factors that have an impact on mobile costs. It will
be extremely difficult to agree on adequate returns to the considerable
commercial and technological risks that mobile operators have
incurred. Cost models, which estimate artificially low costs based
on hypothetical efficient networks disregard the actual cost level
and will deter investment. Another negative consequence of regulating
wholesale roaming services below cost may be that operators will
cease to supply wholesale roaming services altogether or to limit
the availability of such services. There could also be limits
on the customers to whom roaming is made available leading to
consumer detriment. Cost-based regulation typically requires operators
to recoup fixed and common costs to the same extent across all
services. This will make it impossible for operators to choose
different mark-ups that reflect customer demand and respective
differences in demand elasticises for different services. As a
result operators will not have sufficient incentives to invest
in new, innovative technology.
5. Do you think that the pressure for lower
roaming charges could potentially spill-over into higher prices
for other mobile telephony services? Would you anticipate any
other unintended consequences that may affect consumers?
T-Mobile believes that to lose the flexibility
for creating a range of pricing structures, there could be a possible
knock-on effect for general mobile users including for consumers
who are not active roamers. Roaming services are not offered individually
but along with other mobile services. Operators that are only
marginally profitable will, in particular, have no other choice
but to recover their fixed and common costs for international
roaming services from other services. Even profitable operators
will see a need to raise prices for other services because their
current prices are set at a level that is low enough to attract
additional customers as long as the extra revenue from these customers
exceeds the costs. Operators will have to raise their prices because
otherwise they could incur losses on customers that are only marginally
profitable. This so-called "waterbed effect" is demonstrated
from the consequence of the regulation of cross-border banking
payments that tied charges for this service to the charges of
domestic bank transfers. The level of domestic bank transfer charges
rose in a number of cases in the wake of the regulation.
The UK mobile market, despite being highly competitive,
will be subject to a disproportionate degree of regulation. Mobile
call termination rates have been capped for a number of years
and Ofcom is satisfied that they are, or will be in April, when
the new cap comes into force, at near to cost. The retail market
is highly competitive and operators have to find new ways of cutting
costs.
6. Do you think that the proposed regulation
will allow non-EU operators to take advantage of lower wholesale
roaming prices in the EU through international trade agreements
and arbitrage opportunities?
Article XVII GATS and Article 5(a) of the Annex
on Telecommunications provide non-discrimination obligations.
This forces EU mobile network operators to offer operators outside
the EU wholesale international roaming services for regulated
prices without any obligation of reciprocity. European customers
roaming in other countries of the world already pay significantly
higher roaming charges than vice versa. Operators around the world
often charge between € 2 and € 3, eg Megafon (Russia)
charges € 2.50, and Indosat (Indonesia) charges € 2.85.
Even Cingular (USA) charges € 1.37, as compared to €
0.80 charged by T-Mobile USA. This is not a selection of especially
expensive networks, but a summary of big operators across the
continents. Given these substantial differences in international
roaming prices, EU mobile network operators would be put at a
disadvantage if they were forced to offer regulated roaming prices
to operators outside the EU.
7. Is the Commission's estimate that 147
million EU citizens are affected by excessively high international
mobile roaming charges accurate? Do you have any other figures
to offer?
We do not have any figure that show how many
customers use roaming services across the EU. Assuming they have
made a higher contribution to the overall revenues of mobile operators
it has allowed these operators to compete more vigorously on their
national market to the benefit of all their customers.
A recent study conducted by the consumer organization
BEUC shows that MEP's are paying € 1.15 per minute. This
indicates that MEP's are particular "inelastic" as far
as the price for international roaming services are concerned
since T-Mobile customers pay significantly less on average. A
website launched by the GSME-Association shows that the best prices
available on the market are as low as € 0.33 Cents/min and
easily available for the consumer. We believe that it should not
be the goal of regulation to make a decision for them.
8. Do you think that the UK and French proposal
for a sunrise clause during the initial period after the Regulation
comes into force can better achieve the desired effect? Should
legislation apply solely to wholesale fees rather than retail
tariffs?
As outlined in our answer to question 3 T-Mobile
believe that regulation should apply solely to wholesale rates
rather than wishing to implement a "catch-all" scheme
that will dramatically alter the current market and investment
conditions of operators by regulating retail charges. If there
are doubts as to the willingness of all operators to pass on wholesale
savings to their customers a provision could be introduced obliging
operators to report data illustrating the decline in retail prices
to their national regulators. We understand that the option of
a sunrise clause is no longer being discussed.
9. Do you believe that separate sub caps
for making and receiving calls should be applied or a single average
cap? Should the linkage between Mobile Termination Rates and wholesale
prices, and percentage mark-ups for determining retail prices,
be retained or should target prices simply be included in the
regulation?
T-Mobile does not support retail regulation.
If retail regulation is unavoidable it should be set at a level
which prohibits abusively high prices. Separate sub caps or percentage
mark-ups would not achieve this goal since they would most likely
set a de-facto price level and eliminate competition among operators.
February 2007
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