Wednesday, 6 July 2011

EU sets goal to abolish roaming charges by 2015

European consumers will soon have the option to choose a separate mobile carrier for when they are in other EU countries, under a proposal put forward by the European Commission today. The goal is to stimulate competition in the market to make the phone companies stop charging the exorbitant rates for voice and data with which they sometimes make up to 99% profit.

The move is just the latest in a long-running battle between the mobile operators and the EU, but this is the most aggressive move yet. It is also an acknowledgement that the caps the EU set in 2007 and then extended in 2009 have not been successful in fixing the dysfunct in the market. Those caps lowered roaming rates to 45 eurocents (c) per minute within the EU. Previously the rate had been, on average, around 2 euros per minute.

Under the new plan, from July 2014 operators will be forced to open their networks to upstart competitors who can offer customers cut rate charges for roaming. They will also have to allow their customers to sign up to a seperate carrier for roaming if they so choose. The customer's phone would automatically switch to the other carrier when they go abroad, but they would keep the same number and sim card. They would then receive a separate bill from their 'roaming carrier'. Before it becomes law, the proposal must first be approved by the European Parliament and member states.

The new plan is intended as a long-term fix that will permanently alter the market. The commission hopes it will lead to a situation by the end of 2015 where the caps are no longer necessary. because healthy competition has made the large carriers offer their customers roaming rates that are the same as domestic rates. Opening the networks will also provide incentives for large mobile companies to operate across the EU. The long-term objective is to get to a situation where there is no longer 'roaming' within the EU, in the same way that there is no roaming charge when you go to a different state in the US (though when mobile phones first came out, there were such roaming charges within the US. Competition within the market eventually made those go away).

The caps didn't work

Currently the cap, excluding VAT, stands at 35 eurocents (c) per minute to make calls and 11c to receive calls or send a text (receiving a text is free). With VAT this usually translates to 45c/minute to make a call, 18c/minute to receive a call and 13c to send a text. With slight variation, this is the rate your mobile carrier now charges you if you're an EU resident in another member state. The EU has also set a cap on data charges, but this is on the wholesale rate the mobile companies charge each other. No mobile company has passed those savings on to the customer. So the plan will also introduce a retail cap of 90c per mb starting next year (the average now is €2.23/mb).

These caps expire in 2016. Their purpose was not to set a standard rate that everyone in Europe pays, but to set a maximum rate that would stimulate the mobile carriers to offer lower, competitive roaming charges to attract customers. But this never happened. Instead, all the mobile carriers across Europe now charge exactly the maximum amount allowed, prompting suspicion that they are colluding in order to make sure none of them have to lower rates. Some phone companies like Vodaphone have started offering special plans to give you roaming at your national rate, but in the small print they tell you they charge a 79c "connection fee" per call. If your calls are short, this could end up costing you more than if you didn't sign up for the plan.

Today EU Digital Agenda Commissioner Neelie Kroes announced that the caps are not working. Expressing her annoyance that the mobile companies have refused to cooperate, she said there is no other alternative but to force the market to be competitive.
"Within a Single Market there is simply no justification for huge mark-ups just because you've crossed an invisible internal border that is supposed to have disappeared," she said. "Until now, we have merely treated the symptoms of high prices - our new solution will introduce competition and cure the patient for good."
Cheaper to roam than at home?

But the fact that roaming in the EU is now so heavily regulated while national phone charges are not has led to some curious results.

For instance, I am on a top-up pay plan for my mobile. I top-up €15 a month and just as a reward for doing that my company gives me unlimited internet and domestic texts for that month. And I am left with €15 to make calls or for roaming charges. But the rates to make a call under this plan, especially to a non-Belgian number, are quite high. Bizarrely, if I text a friend with a German number while I'm in Belgium, it costs me 40c. But if I text him while I'm roaming, it only costs me 13c. So, let's say I'm meeting a friend from Germany in Paris. I will wait until I've crossed the French border to text him because it's cheaper.

These distortions are only going to get more pronounced with this new proposal. Over the next three years the commission will continue lowering the cap and also introduce a retail cap for data roaming. By July 2014 the cap will be 50c per megabyte for data, 24c/minute to make a call, and 10 cents to receive a call or send a text. But I am currently charged 29c/minute to make a call within Belgium. So by 2014 I will be paying more to make a call within Belgium than I will pay when roaming.

When asked about this anomaly at today's press conference, Kroes suggested the EU roaming caps might be a "wake-up call" to national regulators that they should also consider capping rates. But she seems to think the market would converge these rates naturally. Essentially, the idea is that roaming rates will eventually come down to a level that is equivalent to home rates, and mobile operators will increasingly start not making a distinction and offer their customers the same rate at home or abroad. So in the case of my phone company, they might just lower their national calling rate to 24c/minute and make it all the same.

Of course, if you have a pre-pay plan where you're given a certain amount of minutes per month, all of this might be less helpful to you. The proposal would not require mobile operators to have minutes used abroad taken out of your monthly allowance. The idea though is that the increased competition might force them to allow you to use your monthly minutes in the EU, otherwise more and more people would switch over to top-up plans. For someone who spends a lot of time in other countries a top-up plan is the smarter way to go anyway, especially these days when the high competition in the domestic markets has made mobile companies give fantastic bonuses just for topping up.

Either way, it's a good day for us jet-setters, and a bad day for the mobile phone companies who have been ripping us off for so long.


Captain Eurotrash said...

I've always found it strange that everyone just seems to accept the high roaming charges. I know that people think they're very high, but instead of trying to find a better carrier (which probably doesn't exist), they just don't use their phone abroad or use multiple SIMs.

I also find it suspicious that there is absolutely no competition between carriers to offer lower roaming charges. They know people hate the significantly higher charges, which would give them a competitive advantage if they lowered it.

I'd like to see more focus on the data part and not just calls and texts. If data plans were cheap enough we could skip calls and texts and use VOIP and e-mail instead. The mobile carriers are eventually going to be reduced to ISPs whose only job is to shovel bits from one end to the other. They are of course terrified of this, but they can't fight it. And I will rejoice when it happens, they have been bleeding us dry for too long already.

Marco said...

It is clear that the mobile carriers are colluding on this. It is illegal, but the commission can't find any proof that it's an explicit agreement. It's a (classically European) market faulure when everyone is charging the exact same regulated price. The mobile carriers had their chance to fix the problem themselves, now the commission must step in and force them to fix it and make this a real competitive market.

Brussels Blogger said...

Very good summary. The situation in Belgium is very specific and you raise very important issues.

Phone calls and mobile internet in Belgium is about 5-10 times more epensive than in Austria for example. It will soon be cheaper to sign up for an Austrian operator (some of them now even include free roaming minutes) than a Belgium one.

But my question is: isn't such a dysfunctional market a very standard economic problem with standard answers? Regulating calling prices by the Belgian national telecom regulator seems a bit odd to me. What needs to be done?