Memorandum by Mr Ewan Sutherland
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?
Yes, the charges are excessive. No, there is
little, if any, competition on roaming markets.
There is no measurable competition on the retail
market, with roaming being sold as a residual and largely ignored
element in a complex package or "bundle" also including
the handset, access, call origination, call termination, text
messages and Internet access. Few customers consider the price
of roaming in selecting an operator or in switching to another
operator.
Roaming was previously a bilateral exchange
between operators. A British operator sending its customers to
the Spanish operators and receiving in return visiting Spanish
customers. This explains the enthusiasm of British operators to
sign multiple roaming contracts in foreign countries, to increase
the traffic generated by visitors to the UK, rather than to make
incremental improvements in the service provided for its own customers
when abroad.
With the introduction of traffic direction technology,
the only competition is to be part of a large group in order to
secure its business for incoming traffic. The operators in any
given pair of countries know on which networks their customers
will roam, minimising any prospect of wholesale competition. Today
everything is kept within the "family".
2. Is it appropriate for the Commission to
introduce legislation to cap the cost of roaming?
Yes.
The European Commission (EC) aggravated the
problem. In the late 1990s the EC approved the industry agreements
for roaming, despite their violation of Article 81 (1) of the
EC Treaty, which deals with collusion. A considerable number of
mergers were approved under terms that discouraged the abolition
of roaming charges by trans-national operators, in order to protect
smaller national players.
The regulatory method set out in the Framework
Directive of 2002 has clearly failed.
The structure of a retail market in one country
and the bilateral exchange on the wholesale market between two
countries makes it almost impossible for any one regulator to
resolve the problem.
The EC has important duties in the completion
of the Internal Market. It has also adopted a policy for a single
European information space, which cannot exist while roaming charges
remain as barriers between member states.
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?
No.
No.
The operators have responded to the political
pressure created by Madam Reding with rather complex reductions
to some prices. The overall effect of these is very difficult
to evaluate, given the wide range of roaming tariffs.
There has been no "self-regulation"
other than some transparent attempts dating from 2000 and again
in 2006 to stave off regulation by improving the transparency
of price information.
National Regulatory Authorities (NRAs) have
demonstrated no ability to regulate roaming. Despite a legal obligation
to complete market analyses as soon as possible after 23 July
2003 they have been dilatory to the point where their willingness
to act is questionable. The market analyses in Norway, Finland,
Italy and Sweden found nothing other than high prices. The NRAs
complain but have failed to identify either the underlying problem
or to suggest any actions that might be taken.
The French abandoned their inquiry blaming "Brussels"
and making a wholly irresponsible suggestion of using the mechanism
for the regulation of trans-national markets.
The Spanish have argued that the proposed regulation
is not required, apparently since "their" operators
are net beneficiaries of roaming, pointing towards regulatory
capture. Other southern regulators seem to share this opinion,
but are less brazen in expressing it.
4. Does the proposed Regulation risk narrowing
down the space for competition and thereby harming innovation
and investment in the sector?
No.
Quite the reverse, all it does is to remove
the excess profits. Competition will come from trans-national
offers. In a properly functioning market there would be "happy
hours" to call home from Ibiza and special deals for Manchester
and Malaga for those with holiday homes.
Some commercial solutions already exist outside
the European Union. For example, in Hong Kong there are "one
phone, two numbers" solutions for the SAR and China. In the
former British East Africa, there are no roaming charges for pre-paid
customers in Kenya, Tanzania and Uganda. Once Celtel launched
this service, other operators grouped together to do likewise.
Investment in 3G network infrastructure appears
to be modest because the financial markets doubt the operators
will produce an adequate return. Instead, they are focusing on
increasing their profit margin from reselling pop videos and sports
clips. Some are looking for simpler growth in developing countries.
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?
No. Yes.
If the prices in other markets, such as the
cost of handsets or making calls, were to rise it would imply
that those markets were uncompetitive. This is a greater risk
in countries where the mobile call market is more highly concentrated
than in the UK, such as France, Luxembourg, Slovakia and Slovenia.
Unintended consequences are almost inevitable.
Probably, the absorption of smaller national operators in some
EU member states into the larger groupings. This should not cause
any disadvantages for consumers.
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?
No.
At the recent Global Symposium for Regulators
(GSR) organised by the International Telecommunication Union (ITU),
there was considerable interest from other continents for action
to reduce excessive roaming rates.
The Arab Regulators Group has studied roaming
prices. It presented proposals to the Arab ICT ministers in June
2006 for action to limit wholesale prices. They also propose to
cap the retail margin at 15 per cent, the informal figure used
by mobile operators until the introduction of the Inter Operator
Tariff (IOT) system in 1997.
Other countries would follow a European lead
in pushing down prices.
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?
It is very difficult to arrive at a figure for
this. It would be necessary to analyse the statistics for private
and business travel. As a ballpark figure, it appears to be plausible.
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?
No. No.
A sunrise clause would serve no useful purpose,
it merely postpones the inevitable.
Failure to regulate retail prices would render
the whole exercise a waste of time. It would merely result in
changes in the net flows of wholesale revenues with no reason
to pass on savings. Once the political pressure was removed the
mobile operators would return to their established approach to
roaming as a meanings to increase revenues.
The price cap regime should be imposed as quickly
as possible to contain a problem that is already a decade old.
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?
Including specific prices in the Regulation
would be complicated, since any future changes would require amendment
of the legal instrument. The MTRs are known to be falling so that
the roaming caps will also fall.
The use of the Mobile Termination Rates (MTRs)
is a crude instrument. It is mere benchmarking, but of a sort
that worked well in the 1990s in other telecommunications markets.
Some people seem to think it is rocket science and have proposed
a variation or a complex formula, but this is misguided. All these
number represent are limits above which prices cannot go, the
operators are free to go lower.
The EC proposal is too generous on calls to
the fixed networks. These could be distinguished from calls with
high MTRs and set at a level of a couple of pence per minute.
The three times multiplier for calls to another
member state appears to be overly generous and could be reduced.
The gravest omissions from the proposals are
the exemptions for SMS and for Internet access. The former is
of considerable importance to younger customers. The latter is
of great importance to business which is very slow in adopting
mobile Internet access because of the problems of budgeting and
the certainty of unsupportable total invoices. To delay acting
to reduce these charges until 2009 or 2010 is to fail to create
a single mobile Internet market.
23 February 2007
| 
