Memorandum by the GSM Association (GSMA)
1. EXECUTIVE
SUMMARY
1.1 Since 1991 and the introduction of GSM
mobile services in the EU, the total cost of ownership and use
of mobile has fallen each year, without exception.
1.2 In 2006, the average retail price of
an EU roaming call fell by 25 per cent. Further price cuts have
since been announced by operators. The GSM Association (GSMA)
believes regulation is unnecessary, as the market is competitive
and delivering on-going declines in roaming tariffs.
1.3 The GSMA believes that the EU's proposal
is driven by a flawed premise that regulation should be used to
create single, harmonised pricing for roaming services, EU wide.
This fails to recognise that the costs of providing mobile services
vary considerably between markets.
1.4 The European Commission's proposal on
roaming regulation is unwarranted and undermines its own better
regulation policy. The GSMA filed a complaint of maladministration
with the European Ombudsman regarding the process adopted by the
Commission (including inter alia the absence of any proper industry
consultation and an improper impact assessment which was of limited
scope and included incorrect figures). The Ombudsman has already
confirmed that the complaint has been taken up for further investigation.
The GSMA also believes that Article 95 is an illegal basis for
the Commission to take action on the issue of roaming prices.
1.5 The Commission, and National Regulators,
have undertaken analysis of the competitiveness of the European
roaming market. These studies have shown no evidence of a failure
in the market.
1.6 In its current form, the Commission's
proposals could lead to significant, unintended consequences,
which could adversely affect both consumers and operators, damaging
the competitiveness of the European Union and could lead to investment
levels falling by up to €500 million per year across Europe[4].
1.7 In the unfortunate event of imposed
regulation (either at the retail or wholesale level), the GSMA
believes that various potential amendments should be considered
to minimise the unintended consequences for consumers and operators
alike, in particular:
— the use of a single, average cap
which would provide operators with greater flexibility to compete;
— the modification of the retail mark-up
to ensure operators can cover their costs and provide an adequate
contribution to profits; and
— the elimination of the permanent
linkage between Mobile Termination Rates and any wholesale price
cap.
2. STATE OF
THE INTERNATIONAL
ROAMING MARKET
& PROPOSED REGULATION
(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?
(ii) Is it appropriate
for the Commission to introduce legislation to cap the cost of
roaming?
(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?
(iv) 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?
2.1 The EU mobile industry is highly competitive
and has consistently delivered increasing value to consumers
2.1.1 There is strong competition amongst
operators in the EU mobile industry, which continues to drive
down the price of the package of services offered to consumers.
Since 1999, the number of mobile operators and service providers
competing in EU markets on price, quality and service innovation
has more than trebled to 301, [5]an
average of more than 12 per Member State. Driven by intense competition,
operators' voice revenues per minute for all calls (international
roaming & domestic) have declined at an average rate of 5
per cent per annum over the last five years.
2.2 International roaming is a highly competitive
and functioning market with market forces delivering declining
prices for consumers
2.2.1 International roaming represented
€8.5 billion in aggregate industry revenues in the EU25 in
2005, with the retail market estimated at €5 billion. Around
one in three mobile phone users in Europe roam, and this is dominated
by business usage. However, roaming traffic is highly concentrated
with the five largest countries accounting for two-thirds of the
traffic with clear imbalances at a national level mirroring trade/tourist
flows.
2.2.2 Operators have already delivered significant
roaming price reductions over the last year. The average price
for making and receiving a mobile phone call when roaming within
Europe fell by 25 per cent during 2006, according to a retail
price index compiled by leading consultancy AT Kearney. [6]A
group of leading European Operators also established an EU-wide
agreement (Code of Conduct) to lower wholesale prices on a reciprocal
basis.
2.2.3 In some of the most popular business
and tourist destinations in Europe, operators already offer a
range of innovative tariff plans below the Commission's proposed
price caps, that allow roamers to make a two-minute mobile phone
call home for as little as 33 Euro cents per minute[7].
For visitors making calls of four minutes or longer, even better
tariffs are available, reducing the per minute charge to as little
as 19 Euro cents.
2.2.4 Europe's mobile operators have also
made it easier for consumers to exercise their own choices by
launching a web site that will allow users to quickly compare
roaming tariffs across the European Union. [8]
2.3 Analysis indicates that the Commission's
proposed regulation is at best marginal and may even harm consumer
welfare relative to no regulation[9]
2.3.1 The Commission's justification for
regulation is based on a partial and misleading impact assessment
and creates the risk of regulation being imposed on a basis not
supported by established economic theory or market evidence.
2.3.2 A number of potential unintended consequences
of the proposed regulation (discussed further in section Error!
Reference source not found.) are ignored. By omitting these
broader costs, the Commission has overstated the net welfare benefit
of the proposed regulation.
2.3.3 The Commission also underestimates
the potential benefits for the alternative options of no regulation
and wholesale-only regulation. In comparison with the Commission's
proposal, the "No policy change" and "Wholesale
regulation only" options are assumed to deliver only 10-18
per cent and 18-25 per cent reduction in retail prices respectively.
This level of reduction has already been reached by the market.
2.3.4 The GSMA has filed a complaint with
the European Ombudsman setting out its concerns regarding the
Commission's proposed regulation, highlighting issues with the
Commission's consultation process and impact assessment.
3. UNINTENDED
CONSEQUENCES OF
THE PROPOSED
REGULATION
(v) Does the proposed Regulation risk narrowing
down the space for competition and thereby harming innovation
and investment in the sector?
(vi) 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?
(vii) 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?
3.1 The Commission's
proposals would adversely affect consumers, reduce competition
and innovation among European mobile operators and damage the
competitiveness of the European Union
3.1.1 Since retail roaming services are
offered by operators as part of a bundle, together with other
mobile services bought by individual subscribers, the pricing
of retail roaming services is interdependent with the pricing
of the other retail services. In particular, operators aim to
ensure that over the lifetime of subscribers, the revenues earned
on services sold to subscribers are sufficient to cover the costs
of serving those subscribers including the initial acquisition
cost.
3.1.2 The Commission's proposed price caps
do not allow for sufficient mark-up, taking into account additional
retail costs and common costs that operators incur. As a result,
operators would be forced to offer the service below cost or make
less than proportionate contribution to profits. If operators
are forced to recover costs by rebalancing prices, consumers will
pay more for their other mobile services than they would in the
absence of the proposed regulation. In addition, losses arising
from wholesale regulation are likely to impact profitability and
investment.
3.2 The Commission's proposal will reduce
choice for consumers by rendering illegal some of the most innovative
and attractive roaming tariff plans available today
3.2.1 With the proposed flat, per minute
retail price cap, various innovative pricing propositions based
on non-linear pricing models would be eliminated. Any pricing
plan with upfront fees and lower per-minute charges or inclusive
("free") bundles of minutes for a flat rate fee would
be outlawed.
3.2.2 Many of Europe's leading mobile operators
have launched such tariff packages with discounted roaming rates
aimed at regular travellers. These tariff plans have been instrumental
in delivering significant price reductions for all types of customers.
By not allowing operators to differentiate and compete on innovative
pricing propositions, customers would lose the benefit of price
plans targeted to meet their specific needs.
3.3 Reduction in contribution from roaming
may negatively impact operators' current and future investments,
particularly in new roaming products and services
3.3.1 The Commission's proposed regulation
could lead to investment levels falling by up to €500 million
per year across Europe[10].
The impact could vary significantly across Europe. In particular,
operators in relatively poorer Member States, that receive significant
tourist numbers, may be particularly adversely affected, with
a consequence for investment in their networks, particularly in
extending 2G and/or 3G coverage.
3.3.2 Maintaining or extending service to
more remote locations may no longer be financially viable. For
example, detailed analysis of the Austrian mobile market showed
that almost 4 per cent of mobile antenna sites in the western
mountainous regions of Austria (where it is costly for operators
to deploy and run mobile networks) would no longer be economically
covering their costs. Thus, coverage in skiing and other tourist
regions may be at risk under the Commission's revised proposals.
3.3.3 Reduced investment in network coverage
could lead to consumers no longer being able to make or receive
roaming calls successfully in some locations.
3.3.4 The unprecedented nature of this regulatory
intervention, which is outside the established European framework
for telecoms regulation, raises regulatory risk and may also deter
investment in the EU more generally.
3.4 The proposed regulation will reduce the
bargaining power of European mobile operators resulting in a disadvantaged
position relative to non-EU operators
3.4.1 Regulation of the wholesale roaming
rates for EU operators will reduce the bargaining power of EU
operators vis-a"-vis non-EU mobile operators when negotiating
wholesale roaming agreements.
3.4.2 As an example, if regulation leads
to non-EU mobile operators having access to lower wholesale prices
on a non-reciprocal basis (either under international trade agreements
or arbitrage opportunities), there could be a significant loss
in wholesale roaming revenues based on the net traffic flow with
non-EU operators and consumers. The GSM Association has estimated
that regulation could result in EU operators losing over €540
million in net balance of payments per year. This net loss in
revenue for EU operators resulting in a reduction in overall welfare
will have no corresponding increase in benefits for EU consumers.
4. POTENTIAL
AMENDMENTS TO
MINIMISE THE
NEGATIVE IMPACT
OF REGULATION
(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?
(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?
4.1 The GSMA maintains that regulation, in
particular retail, is unnecessary and damaging. However, in the
event of imposed regulation (either at the retail or wholesale
level), the GSMA believes that various potential amendments should
be considered to minimise the unintended consequences for consumers
and operators.
4.1.1 It is critical that operators retain
flexibility to compete if retail regulation is to be applied.
The Commission's proposed "Absolute/Flat cap" on a per-call/per-minute
basis limits the flexibility that operators have in retail pricing
as well significantly restricts choice of tariff plans for consumers.
An "Average Cap" on the other hand, would provide operators
with more flexibility to compete on price and offer innovative
tariff plans tailored to the needs of different customer segments.
4.1.2 Similarly, the proposed separate sub-caps
for making and receiving calls will be extremely restrictive treating
each call type as if it is a distinct market. A single cap would
be more appropriate since customers buy international roaming
services as a whole, including the ability to make and receive
calls.
4.1.3 The proposed retail mark-up should
be modified to allow for roaming to make a proportionate contribution
to cover retail costs and overall profits. This would avoid spill-over
effects on domestic markets (eg restricting the option to roam
and/or tariff rebalancing) due to retail costs not being covered
and/or reduced contribution to profits.
4.1.4 In establishing an appropriate retail
mark-up, the representative retail cost estimate that the Commission
should use to cover industry average retail costs is the 75th
percentile retail cost per minute, which is estimated at €13.43
c/min according to a study by AT Kearney for a representative
sample of operators in Europe. For the avoidance of doubt, this
figure does not include any profit contribution.
4.1.5 Retail prices levels should be set
using target prices calculated based on absolute competitive mark-up
level (eg 30 per cent on total costs) instead of the currently
proposed percentage mark-up on wholesale costs—since retail
costs are not dependant on the underlying wholesale costs for
roaming.
4.1.6 In addition, the target price levels
should allow for sufficient headroom to compete by going below
the cap level in certain tariffs or for promotional periods when
seeking to build market advantage as is normal in competitive
markets.
4.1.7 Lastly, the proposed permanent linkage
with domestic MTRs at the wholesale should be eliminated since
this does not take into account additional network costs (in particular
in terms of network dimensioning arising from the distribution
of traffic across the day) that roaming incurs relative to domestic
call termination services. MTRs should be used only to calculate
the initial level for the wholesale price cap.
23 February 2007
4 Section 3.2.3, p 16, GSMA's response to the Commission's
2nd phase consultation. Back
5
Source: EC's Reports on the Implementation of Telecommunication
Regulatory Package. Back
6
http://www.gsmworld.com/news/press_2007/press07_10.shtml Back
7
http://www.gsmworld.com/news/press_2006/press06_66.shtml Back
8
http://www.gsmworld.com/news/press_2006/press06_35.shtml Back
9
http://www.gsmworld.com/documents/roaming/review_commission_impact.pdf Back
10
Section 3.2.3, p 16, GSMA's response to the Commission's 2nd phase
consultation. Back
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