Memorandum by the Finnish Communications
Regulatory Authority
GENERAL VIEW
ON THE
REGULATION OF
INTERNATIONAL ROAMING
CHARGES
1. Finnish Communications Regulatory Authority
(FICORA) was the first European regulator to analyse the market
for international roaming services on public mobile networks.
In its decision on significant market power, FICORA stated that
none of the Finnish mobile network operators has significant market
power (SMP) in the wholesale market for international roaming
services in Finland. FICORA also noticed in its decision that
competition between mobile network operators has not yet resulted
in price competition.
2. In the spring of 2005, FICORA commissioned
a consumer survey on mobile phone usage abroad. The survey complemented
the market analysis related to the SMP decision on international
roaming. The survey revealed that Finnish consumers were particularly
satisfied with the functionality of their mobile phone abroad.
Instead, consumers were rather dissatisfied with the costs incurred
from using a mobile phone abroad. The poor availability of transparent
price information was seen as a major flaw and a considerable
number of consumers (42 per cent) had no idea of the costs incurred
from using a mobile phone abroad. Although consumers hold an image
of high prices, only about 3 per cent of consumers had manually
selected from their handset the network they use abroad.
3. FICORA's survey also showed that international
roaming service prices have little or no impact on the choice
of mobile subscription. 90 per cent of the respondents in the
survey reported that international roaming prices had no impact
on their choice of subscription. Thus, the demand for international
roaming services seems rather inelastic and FICORA estimates that
only the major international undertakings, whose staff travels
frequently, are in a position to gain volume discounts on international
roaming services.
4. In order to give consumers more information
on roaming, FICORA publishes on its website regular price comparisons
on retail roaming prices. In addition, FICORA has published a
guideline for consumers on how to use a mobile phone abroad in
the most economical way. The last update of roaming price comparison,
which has been published in November 2006, shows that retail roaming
charges are still manifold in the EU compared to domestic calls.
For example, a one-minute from Sweden to Finland costs, on the
average, from 0.65 euros to 0.79 euros depending on the operator.
A similar call from the UK costs, on the average, from 0.98 to
1.38 euros. In Finland, the typical price for a mobile call is
ca. 7 eurocents per minute.
5. FICORA sees that due to the special characteristics
of international roaming services and its trans-national nature,
national regulatory authorities have not been able to solve the
problem of high international roaming charges within the current
regulatory framework. Therefore, a new regulatory instrument to
deal with the high retail prices is needed.
FICORA'S VIEWS
ON THE
ISSUES ADDRESSED
IN THE
SUB-COMMITTEE
B'S INQUIRY
(i) 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?
6. FICORA considers that charges are excessive
for international roaming calls. Wholesale charges, and thereafter
retail prices do not reflect the costs related to international
roaming (IR) service. According to FICORA's analysis on the significant
market power, there are competition problems in the market. However,
significant market power can not be found with national market
definition. In its analysis, FICORA observed that operators were
increasingly using traffic direction mechanisms and discount schemes
in the wholesale level which was the main reason for not finding
neither single nor joint dominance on the national basis. The
wholesale discounts are not, however, sufficiently channelled
to retail charges.
(ii) Is it appropriate for the Commission
to introduce legislation to cap the cost of roaming?
7. FICORA considers that it is appropriate
that the Commission introduces a legislation to cap the cost (or
charges) of roaming. Prices are in most of the cases excessive
and do not reflect the costs of providing the service. Roaming
is a part of a service bundle and the retail competition does
not take place in roaming charges. Consumers do not choose their
subscription with regard to roaming; this was found in a consumer
survey conducted by FICORA in 2005.
(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? Are National
Regulatory Authorities in a co-regulated environment able to address
these concerns on their own?
8. Operators have done little to self-regulate
the charges as they are still substantially above the Commission's
target even with the threat of regulation. FICORA wants to emphasize
that the market of international roaming is trans-national by
nature. Therefore, asymmetric regulation in terms of rules and
price caps applied and the timing of the regulation would endanger
the functionality of the market mechanisms especially if methods
applied in the wholesale regulation would vary in member states.
9. Due to the reasons stated above FICORA
considers that the regulation should be clear and uniform in all
member states and that it should leave no room for national implementations.
Therefore, in order to ensure equal grounds for all market players
within European market, it is appropriate that the regulation
is assessed by EU regulation.
10. Because in this market the wholesale
prices are agreed bilaterally by operators in different countries
it is very difficult for national regulators to make the decisions
for single or joint dominance and tackle the problem by standard
SMP regulatory framework.
(iv) Does the proposed Regulation risk narrowing
down the space for competition and thereby harming innovation
and investment in the sector?
11. The revenue sources of different operators
depend on varying travelling patterns of different countries.
For some operators wholesale price cuts would mean significant
reductions in revenues although the volumes would presumably increase.
Super-normal profits and excessive prices can not be justified
by investments. Moreover, investments and innovations are in normal
market conditions driven by competition. Monopolistic profits
do not guarantee incentives for investments and innovations.
(v) 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?
12. FICORA does not expect spill-over to
take place due to the regulation of wholesale charges. This is
because the demand of domestic retail usage is independent with
the wholesale usage where the demand is generated by foreign customers.
13. In the Commission's impact assessment
it is stated that "The reason for this, suggested by economic
theory, is that a firm does not necessarily have an incentive
to use monopoly profits made at wholesale level to compete for
the acquisition and retention of domestic retail customers. After
all, no matter what the firm does at domestic retail level, profits
from the provision of wholesale roaming services are likely to
remain unchanged. This is so because the volume of incoming roaming
traffic depends on the demand for roaming calls of another firm's
customers. Lower roaming prices at retail level for one's own
customers therefore will not result in greater wholesale roaming
gains, giving the firm an incentive simply to hold onto its monopoly
profits." (European Commission (2006c), p 48)
14. In retail level roaming is a part of
bundle of mobile services. Thereby operators can gain higher roaming
revenue by attracting customers with other services. If the retail
margins have been high traditionally, lower regulated roaming
prices mean lower roaming revenue which can, in theory, lead to
lower incentives to attract customers in the retail market. The
magnitude of spill-over depends on the competitive situation in
each country. The operators will set their national call prices
to a profit maximizing level also when the regulation has come
into force. Therefore the spill-over effect can be higher in countries
where the operators have more market power. However, for example
the declining price development in many of the Member States indicates
that the mobile markets are rather competitive in prices of national
calls.
15. In Finland tariff spill-over would not
probably be the case due to the fact that the regulation is not
going to have as substantial impact on Finnish operators as on
operators in some other countries. The inter-operator-tariffs
(IOT) charged by Finnish operators have been relatively low compared
to European operators in average. Also the retail mark up applied
by the Finnish operators has been relatively low. Therefore we
do not expect to see any spill-over effect to national charges.
(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?
16. The remaining imbalance between the
EU Member States and other countries is evidently a problem for
European consumers who are travelling outside EU. FICORA does
not find any substantial arbitrage opportunities because suggested
retail roaming caps are still notably above the prices of national
calls.
(vii) 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?
17. FICORA has no reason to question the
Commission's estimate.
(viii) 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?
18. There is little evidence that operators
would have incentives to lower their retail charges by the amount
desired by the European Commission if only wholesale charges were
regulated. The demand operators are facing is rather inelastic
as consumers do not value roaming services high when subscribing
to a particular network as roaming is part of bundle with other,
more important features such as national calls. European Commission
has analysed the economic effects of wholesale-only scenario in
its Regulatory Impact Assessment.
19. It should be noted that that due to
traffic direction mechanisms and wholesale discounts operators
have been able to charge lower retail charges during the recent
years. However, this cost-pass-through has not occurred to a notable
extent.
20. For the reasons stated above, FICORA
considers that a sunrise clause would not lead to sustainable
price cuts beyond the monitoring period. It should be noted that
latest sunrise clause proposals state that the average prices
would be monitored in any case also after the test period. Thereby,
there would be no de facto difference to a situation where
the charges were actually regulated.
(ix) 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?
21. Single average price cap would provide
operators with more flexibility in price setting. However, the
relevant question is the level of average cap applied. The proposed
methods for calculating the average cap have been based on wholesale
costs (plus retail mark-up) that reflect the cost of originating
a call in a visited network. This type of cap applied to both
originated and received calls would therefore be too high in case
of received calls which have different cost structure. Therefore,
FICORA proposes two separate caps for the originated and received
calls. With regard to methodology applied in the determination
of retail price cap, FICORA considers that setting the maximum
retail price simply as eurocents could be feasible as long as
the retail mark-up applied reflects costs properly.
CONCLUSIONS
22. In FICORA's view, it is important to
ensure that users of public mobile networks travelling within
the EU do not have to pay unjustifiable charges for international
roaming services as they make calls and receive calls. For this
reason, FICORA hopes that the proposed regulation will enter into
force as soon as possible.
23. It is essential that the new regulation
can be implemented in all Member Sates within a reasonable timeframe.
Consequently, regulation should be as simple as possible and leave
no room for national interpretation. For this reason, FICORA supports
a price cap mechanism which is defined as unambiguously as possible.
However, retail regulation should guarantee enough flexibility
for competition and innovation.
24. FICORA regards that the regulation should
be applied uniformly within the Community and in EEA countries
without national enforcement powers. National enforcement would
probably cause that the regulation will enter into force at different
times in different countries, which would distort the mobile operators'
prerequisites for competition. In order to ensure equal treatment
of consumers and operators in different countries, it is important
to apply the regulation in such a manner that the price determination
methodology is the same in all EEA countries.
22 February 2007
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