Memorandum by TeliaSonera
TeliaSonera is honoured to provide you with
its views on the above mentioned topic and to respond to your
call for evidence.
Please find below the issues and questions raised
in the correspondence received on 17 January 2007 followed by
our answers.
We remain at your service for any further questions
you may have or any additional clarifications you may require.
(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?
End-user prices for international roaming are
perceived as high by end-users within the Member States, unless
you have a special tariff or corporate rate.
This is a problem since it tends to lead to
a mind-set amongst the general public that result in reduced usage.
That in turn, inhibits the service from developing as fast as
it could.
Prices for products and services are normally
higher at the beginning of the "product's or services life
cycle", and will drop as the product/service matures and
usage is shifted from the "early adopters" to the "mass
market".
Few operators have yet at national level managed
to build out their infrastructure to fully cover the national
territory. This in turn leads to limited alternatives being available
to foreign operators wanting to offer a quality of service to
their home customers roaming in the visited country. Competition
in international roaming is highly dependent on choices of operators
available in the visited country and the geographical coverage
of each of these operators. It is therefore important that any
form of regulations does not inhibit the establishment and development
of new operators.
(ii) Is it appropriate for the Commission
to introduce legislation to cap the cost of roaming?
It was appropriate for the Commission to take
action as the wholesale market for international roaming seemed
to be in a "dead-lock" or not developing fast enough.
Since the introduction of a regulatory proposal
by the Commission at the beginning of 2006 a great deal of movement
has been seen and confirmed at the wholesale level. Major operators
have voluntarily reduced their wholesale tariffs reaching the
0.45 €c per minute in 2006, and 0.36 €c in 2007. This
in turn has resulted in retail price reduction of 25 per cent
(and on some destinations even more) according to market measurements
provided by an independent consultant, AT Kearney.
This proves that the heart of the problem did
indeed lie in at the wholesale level and that the intervention
by the Commission did have the sought after result.
As to the question whether or not further intervention
is necessary, one needs to consider it from two aspects. From
a market point of view, and from political point of view.
From a market point of view the threat of regulation
alone seems to have been sufficient to move wholesale prices downwards,
which in turn has lead to desired movements at the retail level.
It is likely that the process now in motion at the wholesale level
will continue, but to ensure that it does so, an imposed regulation
on wholesale prices over the next three years could be justified.
Since the retail level seems to follow the trends at the wholesale
level, albeit with a certain time difference which is natural,
there is at this point of time no justification to introduce a
regulation of the retail market.
From a political point of view the situation
is however quite different. The European Parliament (EP) has asked
the Commission to provide a proposal for regulation, which the
Commission has done. The Commissions first draft was not accepted
by the EP, which lead the Commission to reconsider its work and
present a new proposal. It could therefore now be very difficult
(if not impossible) for the European Parliament not to adopt some
form of regulation as proposed by the Commission. The issue becomes
even more sensitive as the Commission has stated that the purpose
of the regulation is for the benefit of the end-users in Europe
and that this is a good opportunity for the EU institutions to
prove that they bring value to the European citizens. In this
perspective it could be very difficult for the EP to justify opting
for a solution of "no regulation whatsoever".
(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?
Had the question addressed the past three years
instead of the last two, the answer would have clearly been "no".
However, in the last two years the industry
has reacted strongly to the threats of a regulation and especially
in 2006 many actions were taken to reduce the level of wholesale
prices. This in turn has led to retail prices decreasing a trend
which has continued into 2007.
The existing Framework does not give national
regulatory authorities the right to act outside their national
boundaries, and they have therefore not been able to address the
international roaming market efficiently.
(iv) Does the proposed Regulation risk narrowing
down the space for competition and thereby harming innovation
and investment in the sector?
If the regulation is limited to the wholesale
level, and structured in such a way that operators can predict,
or know, the wholesale levels to which they have to adapt to ahead
of time, then the negative impact on smaller operators, and/or
operators with recent investments, should be limited. By this
we mean that the level of wholesale prices in the first year of
regulation should be set with due care given to the cost levels
of smaller operators and thereafter decreased in yearly steps
according to a predetermined percentage. This would give predictability
to the regulation and allow operators to take necessary steps
to reduce their costs.
The wholesale regulation proposed by the Commission
could be made simpler by introducing a common cap for all outgoing
calls (whether national in the visited country or to another EU
country). This common cap could be set at 2.6 times the average
European MTR for the first year.
Setting the cap too low or introducing a retail
regulation as proposed by the Commission would most certainly
have consequences on competition and innovation. It would have
consequences on competition because the levels of return would
not cover some operator's costs, or give them sufficient returns
on their investments. Such operators are generally the smaller
or new operators that we do need to keep on the market to have
alternative choices in order to promote competition.
One should also note that with the retail regulation
proposed by the Commission certain innovative pricing packages
offered at present to the end-users will become "illegal"
and would have to be removed from the market. Such a move, apart
from reducing end-user choice, sends a signal to the market which
is to the detriment of innovation and investments in new offers.
(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?
We are doubtful that lower roaming charges would
lead to higher prices for other telephony services as we believe
that lower retail prices, providing that they are allowed to move
freely in an unregulated market, will eventually lead to higher
volumes and new innovative offers, in turn leading to new and
increased revenues.
It must however be remembered that any product
or service which does not recover its cost or give a satisfactory
return is doomed to be phased out. As it is not very likely that
international roaming as such will be phased out, the consequences
could be that operators, not earning a high enough margin per
minute on the imposed prices, would change the structure of their
offers to the end-users. One such change could be that only the
high volume users would have the international roaming service
as part of their basic subscription. Such an evolution is not
sought after neither by industry nor by consumers.
(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. Legal advisors have not yet been able to
bring forward reassuring arguments to the contrary, and the financial
consequences to European industry would be substantial if no reciprocity
of tariffs is obtained.
(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?
Statistics show that 33 per cent of all mobile
subscribers roam internationally. 25 per cent are business users
and approximately 8 per cent ordinary citizens (Source: GSM-Association).
Such percentages would indicate that the Commissions figure is
exaggerated.
Key issue is however, as stated earlier, how
customers perceive prices and how they react to them. If prices
are perceived too high, or excessive, (this goes even for business
customers who are less price sensitive than ordinary citizens)
and that this leads to restrictive usage by most users, then prices
need to come down.
(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?
Absolutely! Our answer is "yes" on
both accounts.
Any imposed regulation is the introduction of
an artificial force into the market and no one can with certainty
predict the consequences. Therefore such interventions should
be kept to a minimum and introduced only if, and after, it has
been clearly documented that the markets are not able to react
to customer demands on their own. In the case of the present situation,
where markets clearly show signs of reacting and there is proof
that prices are moving downwards both at wholesale and retail
level, the regulators should take a "time out" on retail
regulation and only introduce such a regulation if and when the
wholesale regulation proves to be ineffective.
A sunrise clause should be triggered by predetermined
factor obtained through a price index measurement that regularly
and systematically measures evolution of prices. Such a mechanism
exists already today through industry efforts (Ref. GSM-Association).
It must also be considered that even if the
commissions proposal is adopted and that a retail regulation automatically
comes into force six months after the adoption of a wholesale
regulation, considerable time (24 months or more) would have passed
since the Commission made its market analysis and impact assessment.
During that period, ie end 2005 to beginning 2008, the market
situation would have changed considerably and it is no longer
certain that the Commissions original proposal is the best remedy
for the actual market situation. This is a further reason why
the sunrise clause would be more efficient, as it would allow
the regulator to review the regulation of the retail market in
real time while in parallel observing and measuring market progress.
(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?
The simpler the regulation can be made the easier
it will be to implement and the more predictable it will become.
We believe however that the wholesale regulation should have two
maximum caps. One for outgoing calls, irrespective of calls made
locally in the visited EU country or to another EU country while
visiting an EU country. Such a cap can be designed as a multiple
of the average European MTR as indicated above. Parallel with
this a cap could be set for receiving calls at one single average
European MTR.
As a final comment TeliaSonera would like to
stress the importance of accompanying any imposed regulation by
clear and measurable objectives, that would allow the European
Parliament and Member States to follow the progress and the efficiency
of the regulation and to remove the said regulation as soon as
objectives are reached.
23 February 2007
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