Memorandum by the Communications Management
Association ("CMA")
INTRODUCTION
CMA is an association of ICT Professionals from
the enterprise community in both private and public sectors. It
is a registered Charity almost 50 years old, totally independent
and without supplier bias. It is run by the members, for the members
and aims to influence regulation and legislation, provide education
and training and disseminate knowledge and information for the
public good.
CMA's contribution to public consultations is
generated by a process described at the end of this document.
CMA's communications with the European Commission are normally
pursued through the International Telecommunications User Group
(INTUG), which has made many submissions on roaming since the
late 1990s.
SUMMARY
CMA agrees with the European Commission statement
launching the DG Information Society Consultation on Roaming Charges
of March 2006. That statement said: "consumers continue
to pay unreasonably high prices for using their mobile phone abroad,
that this is reducing cross-border use of mobile phones and presents
an obstacle to the European market for electronic communications".
CMA therefore supports Commissioner Viviane
Reding's proposals for wholesale and retail caps on international
roaming prices, based on a proportional mark up over national
Fixed to Mobile termination rates (FMTRs). CMA also believes charges
for receiving calls whilst roaming internationally should be abolished.
CMA believes this is a unique situation which will not set a precedent
for regulation of other submarkets.
COMMENT
A Sunday Times interview of Arun Sarin,
Chief Executive of Vodafone, on 20 November 2005, reported: "Sarin
said Vodafone was `a highly consumer-centric business'—hence
its sponsorship of Manchester United, Ferrari, and the England
cricket team. He acknowledged that about 60 per cent of group
profits (and 40 per cent of revenues) come from businesses, which
are less price-sensitive and less likely to complain about the
cost of international roaming calls".
Sustained overpricing of mobile roaming at retail
level has been demonstrated by more than seven years of industry
research, user surveys and tariff analyses. Despite this, the
debt burden of 3G licences seems to have deterred the regulator
from effective action to address the issue, although other issues,
such as billing limitations, on/offnet calling rates and GSM gateway
policy have been actioned.
CMA is concerned that the minority interests
of mobile operators have had undue influence on the UK response
to the European Commission's consultation, whilst the impact on
the remainder of the business community in the UK has been overlooked.
CMA expects Her Majesty's Government to present a balanced view
to the European Commission, taking into account overall economic
net gain of the proposals.
The remaining pages of this response provide
specific responses to the call for evidence by the Internal Market
Sub-Committee (Sub-Committee B) of the House of Lords Select Committee
as input to their Inquiry into the European Commission's proposed
caps on mobile telephone roaming charges.
SPECIFIC RESPONSES
(i-a) 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? Yes
Fixed line charges for carrying voice traffic
have fallen significantly over recent years, but mobile tariffs
including roaming costs have remained almost static. Commission
analysis has calculated that international roaming charges are
four to six TIMES cost, in contravention of the cost-orientation
levels required by law. Businesses do achieve volume discounts,
but despite this one major multinational reports that their package
deal, which on benchmarking a statistically large sample was shown
to be extremely competitive, only cut their mobile roaming tariff
to THREE times cost. Others have reported that operators sometimes
charge their customers off-net rates when the call remained on
the same network with zero roaming cost incurred by the operator.
(i-b) Do you think there is currently sufficient
competition in the market? No
The sustained overpricing of mobile telephony
charges, especially for roaming, proves that no effective competition
exists. Joint dominance operates at international level, even
if not in national markets. Mobile operators and service providers
continue to act in a way that has a similar pricing profile to
a complex multi-country cartel.
(ii) Is it appropriate for the Commission
to introduce legislation to cap the cost of roaming? Yes
European Commission initiatives on wholesale
tariffs have had limited impact on retail price levels, in a market
which remains heavily vertically integrated, with few Mobile Virtual
Network Operators (MVNOs) or truly independent providers. New
technologies such as IP Multimedia Subsystem (IMS) could reinforce
the grip of mobile operators on their wholly-owned retail activities
and increase customer lock-in. CMA therefore strongly supports
the Commission's proposals to introduce without delay new EU regulation
aimed at a radical reduction in retail international roaming charges.
(iii) 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? No
Continued overpricing of international roaming,
despite nearly a decade of evidence-based complaints by CMA through
INTUG, and by other representative bodies and observers, proves
that self-regulation has failed.
Are National Regulatory Authorities in a co-regulated
environment able to address these concerns on their own? No
The "dawn raids" provided the EU with
evidence of overpricing and some suspicion of collusion. They
revealed the significance of roaming charges to the revenues and
profits of mobile operators, but little was done to reduce prices
in a self-regulated environment. The numerous operators in the
roaming market do not make this market competitive, since there
is no transparency on how roaming and origination charges are
derived and applied. Operators should be required to provide this
data to National Regulatory Authorities (NRAs) and to the Commission,
to enable an open assessment of the relationship between roaming
charges and mobile operator costs, including the charges made
by call originating or call terminating operators.
(iv) Does the proposed Regulation risk narrowing
down the space for competition and thereby harming innovation
and investment in the sector? No
On the contrary, the proposed regulation will
increase innovation and investment, by making new applications
(which are currently inhibited by unrealistically high roaming
charges), viable. This will drive up usage volume in scale and
scope, generating revenue to fund innovation and encourage investment,
including by the incumbent mobile operators themselves.
Pressure from MNOs to eliminate Market 15 (mobile
access and origination) must not succeed, as it would make it
impossible for NRAs to take effective action against market abuse,
such as that now associated with international roaming charges,
and inhibit development of the MVNO sector. This would result
in less competition in the entire business service market, as
customers migrate to converged IP platforms.
(v-a) Do you think that the pressure for
lower roaming charges could potentially spill-over into higher
prices for other mobile telephony services? Not necessarily
If excessive roaming tariffs were abolished,
price-demand elasticity would result in a significant increase
in volumes that might entirely compensate for, or even exceed,
the loss of supernormal profit levels. The US market operates
without excessive charges, suggesting that the European market
would settle down after a few months.
(v-b) Would you anticipate any other unintended
consequences that may affect consumers? Only positive ones
New technologies like location-based applications,
IMS, mobile TV, and near-field payment systems, will result in
what a Sunday newspaper described as a "gateway to life"
handset. Vertically integrated operators will focus on customer
retention through bundled offerings which will obscure the real
cost of individual elements. Excessive roaming charges must be
eliminated well before MNOs hide them in the integrated environment
permanently.
Supernormal profit margins on SMS are even greater
than those for voice roaming, since text messages are carried
virtually for free in the signalling channel. Damage to business
customers from high roaming charges for data is even worse than
for voice, since such charges inhibit ICT investment in innovative
data-enabled pan-European business processes.
(vi) 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? Yes
Open and thriving international competition
will deter the temptation to raise prices outside the roaming
sector.
(vii-a) Is the Commission's estimate that
147 million EU citizens are affected by excessively high international
mobile roaming charges accurate? Probably
The impact analysis and research undertaken
by the Commission suggests that such a figure is not unreasonable
and will be increasing daily. If the debate over roaming charges
continues without action, the number can only rise above this
estimate.
(vii-b) Do you have any other figures to
offer? No
(viii-a) 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? No
The Sunrise clause simply gives mobile operators
a six-month regulatory holiday in which to enjoy excessive margins.
MNOs have claimed the industry is exceptionally fast moving, and
that, to survive, they must be able to react quickly to changes.
This seems inconsistent with the claim that they need six months
to adjust to the proposed Commission regulations, despite many
months advanced warning.
(viii-b) Should legislation apply solely
to wholesale fees rather than retail tariffs? No
Excessive retail pricing of mobile roaming has
been demonstrated for nearly a decade by industry research, user
surveys and tariff analysis. Indeed, national mobile termination
rates have also remained unjustifiably high, as demonstrated by
the success of GSM gateways. The Commission has proved that international
roaming prices are at least four to six times cost, with return
on investment at levels normally associated with cartels. The
collective behaviour of mobile operators to date and political
lobbying by associations acting on their behalf, prove that no
action will be taken without regulation and that wholesale regulation
alone will not result in price reductions for the citizen consumer.
This deters use of a valuable service, and inhibits improvements
in business productivity. Radical price reductions will increase
usage, to the direct benefit of the UK and European economy, as
shown by the Commission impact analysis. Regulation must address
wholesale and retail prices.
(ix-a) Do you believe that separate sub caps
for making and receiving calls should be applied or a single average
cap? Separate sub-caps (zero for receiving)
To promote a pan-EU market in telecoms, roaming
prices within the EU should be pegged to the same price as those
charged for calls from mobiles to fixed numbers within the operator's
home state, and thus charging users for receiving a call on their
mobile within the EU should also be abolished and prohibited.
This action would result in a level playing field for both businesses
and consumers compared with the US, where flat rate price packages
when roaming across states have been available for some years.
This pricing strategy should apply to both voice and data; roaming
data charges should be pegged to national supplier rates for the
same services. Linking international roaming charges to national
mobile charges has many virtues, not least simplicity and clarity—badly
needed in mobile pricing. Crucially, it has the compelling logic
of being based on a generally more competitive market. Premiums
for international roaming over national calls must be based on
additional costs incurred carrying a call between Member States
on terrestrial networks. Volume prices for such calls are already
offered to business customers for less than 5 Eurocents a minute:
clearly wholesale costs are somewhat lower than this. The marginal
cost of roaming over the cost of providing national services is
therefore very small.
(ix-b) 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? Linkage to MTRs with
mark-up
Regulation should not list specific target prices,
since overall voice and data tariff levels are likely to continue
to fall over time, and any specific price caps would need to be
reviewed at annual intervals. Absolute price caps would be very
complex to manage and would be based on the Highest Common Factor,
given different cost basis in each Member State. A mark-up on
MTRs provides a better solution.
FOOTNOTE—CMA'S
INTERNAL CONSULTATION
PROCESS ON
REGULATORY ISSUES
CMA seeks to represent fairly the views of business
consumers to external bodies. Any consultation document (condoc)
received by, or notified to, CMA is analysed initially by the
appropriate Forum Leader for its relevance to business users based
in the UK. (The majority of CMA's members are based in this country,
with a third of them having responsibility for their employers'
international networks and systems). If the document is considered
relevant to CMA, it is passed, with initial comments, to members
of both the appropriate Forum and the 20 or so members of CMA's
"Regulatory College"—ie: those user members who
have experience in regulatory issues, either with their current
employer, or previously with a supplier.
The CMA Chairman and CEO are also members of
the College.
The detailed comments from the College are collated
by the Forum Leader in the form of a draft response to the condoc.
Note:
If the condoc has significant international
import, the views of the international user community could be
sought. This is done through the International Telecoms User Group
(INTUG).
If time permits, the draft response is sent
to all user members of the Association, with a request for comment.
Comments received are used to modify the draft. The final version
is cleared with members of the appropriate Forum and Regulatory
College (and, if the subject of the consultation is sufficiently
weighty, with the CMA Board).
The cleared response is sent by the CMA Secretariat
to the originating authority.
It might be signed off by the Leader of CMA's
Regulatory Forum, and/or by the CMA Chief Executive and Chairman.
19 February 2007
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