‘End’ of EU mobile roaming marks the start of implementation headaches
14th October 2016. By Magnus Franklin
EU lawmakers have promised consumers that they will be able to "roam like at home" as of the middle of 2017. But the phone bill of those returning from a trip abroad will continue to tell a very different story.
The degree of the discrepancy between rhetoric and reality will come down to how lawmakers define the technical rules aimed at enabling the end of roaming surcharges. On offer is a poisoned chalice. While a revamp of mobile operators' tariffs is clearly on the horizon, so too are loopholes designed to soften the blow.
The well-rehearsed mantra of EU politicians and officials is this: The mobile industry has been preparing for the end of roaming surcharges for some time and, therefore, it will face no great upheaval once the legislative rubber hits the road in June 2017.
This assertion is partially true. Many operators will indeed stop charging extra for using mobiles abroad — in fact, some have already done so.
But the planning by mobile operators may be more nuanced than policymakers care to admit. The worst-case scenario for those who backed the overhaul is that once the ban on charging extra for calling, sending SMS and switching on data connections abroad kicks in, operators could adopt commercial practices that will make a mockery of the claim EU citizens can "roam like at home."
The options available to operators keen to sidestep the requirements include a complete scrapping of all roaming offers — something that would make the promise to "end roaming" more literal than policymakers had intended.
Or mobile companies could rely on loopholes in the legislation to continue charging customers. Or they could revert to byzantine operational models that once underpinned EU roaming rules, only to be relegated to the trashcan of telecom history, alongside the "local breakout" right to allow consumers to sign up to a mobile network abroad purely for roaming purposes in the same way that you choose a WiFi signal.
In short, there is likely to be fancy footwork from the providers. Which model emerges as the escape route of choice will depend largely — possibly entirely — on the tariff that legislators impose on the wholesale rates operators can charge each other when subscribers log on to a mobile network abroad.
The introduction of high wholesale rates is the most disruptive scenario faced by the industry. The European Commission is proposing rates of around 0.85 euro cents per megabyte — that's 8.50 euros per gigabyte — coupled with an obligation for operators to allow consumers to use their mobiles abroad as they do at home, at no extra charge.
That's a pricing level that could go beyond some operators' pain threshold.
Take for example the mobile-data offer of a hypothetical Polish operator. This operator currently charges 32 zloty (around $8.20) per month, the equivalent of 7.50 euros, for eight gigabytes of data per month. If a customer uses his or her phone abroad for a month, with the same consumption patterns as at home, the operator would be stung with 68 euros in wholesale fees by another provider. That's nine times what they are earning at retail level from their customer.
So what can this operator — for the purpose of this analogy, let's call it 4G Polska — do? For a start, it could use a "sustainability" clause in the new roaming regulation that allows operators to revert to charging customers roaming surcharges when they lose more than 5 percent of turnover to wholesale fees.
So much for ending roaming.
The commission estimated that around 2 percent of Europe's operators would be able to revert to price caps. Berec, the umbrella body for EU telecom regulators, warned yesterday in a diplomatically worded analysis that the "percentages of operators with negative margins might be underestimated."
Torture by waterbed
The hypothetical 4G Polska has other options. It could split its customers between those wanting to roam and those who don't. The domestic tariff for using the data only in Poland could stay at 7.50 euros, while the tariff for those with enabled roaming services could cost, say, 75 euros per month.
All this assumes fairly static data consumption levels. You don't have to be a Nobel Prize winner to assume that the sharp increase in the volume of data usage will continue over coming years.
A third option available to the struggling 4G Polska would be to hike domestic prices. This is the "waterbed effect" that has haunted lawmakers in the EU since roaming price caps were first introduced in 2008.
The best that the EU can hope for is that across-the-board prices rises are kept in check by competitive pressures in the operator's domestic market.
All this would suggest a simple solution: cutting wholesale rates to the point where 4G Polska can offer its 7.50 euro per month data service abroad without significantly denting its balance sheet.
What kind of cuts? Well, try 1 euro per gigabyte, as proposed by the European Parliament's lead lawmaker, Miapetra Kumpula-Natri.
But whatever the agreed price, the question remains: How low is low enough for a wholesale rate to allow consumers to roam like they do at home without forcing their mobile operators to hemorrhage cash? And how far can the dial be turned without causing collateral damage?
All nodes lead to roam
Take another hypothetical operator based, this time, in Greece. Let's call it Apollo Mobile. The company takes on a surge of users from other EU countries who visit the Aegean during the summer months; expensive networks are upgraded and mobile base stations creak under the weight of summertime Facebook updates.
Come October, tourists have left and, by February, the expensive infrastructure put in place to cater for the roaming hordes sits completely idle.
Investing in networks in this way only makes sense if the operator is earning enough money from the tourist season to build and operate the network year-round.
Setting wholesale fees too low means that the money the operators earn will plummet, leaving them to focus on what, by comparison, is a stress-free cash cow: the domestic market.
This threat to investment is real, prompting countries in what Brussels diplomats call the "sun belt" to band together as a vocal minority to block wholesale tariff cuts. The group's protest needs to be seen in the light of the fact that the proposed 8.50 euros per gigabyte is a significant drop from the current wholesale cap of 50 euros per gigabyte.
On the other side of the ring are the northern countries — those with low tariffs and high data consumption, such as Sweden, Finland, Denmark and even Poland or the Baltic states.
Assuming the northern alliance wins and the wholesale pricing dial were turned right down, how would the managers of our hypothetical Apollo Mobile respond?
The most likely outcome is that the network investment in tourist hotspots would be tweaked to favor domestic users. Visitors wanting immediate access to cat videos on YouTube might find themselves staring at endless spinning-wheel icons. Facebook updates featuring photos of fun in the Dodecanese might have to wait.
And even that assumes the operator has managed to strike a roaming deal with the local provider in the first place.
In this context, the "end of roaming" wouldn't mean the end of surcharges. It would mean the end of roaming. Period.
Fraud and Uberization
The other risk identified by operators in a low-wholesale-price regime is that of arbitrage and fraudulent cross-border SIM-card use.
This occurs when a consumer signs up for a phone or data service in a country with cheaper plans, only to return to his or her actual country of residence. It raises the prospect of people roaming like at home simply because they would, indeed, be at home.
There is a proposal on the table to limit such behavior by requiring suspected fraudsters to prove their country of residence. Yet the proposed system is burdensome and complex, leading many to conclude that low wholesale fees and the abolition of roaming fees will be a nightmare to police and could distort competition on domestic markets.
Looking even further ahead, some analysts have repeated warnings of "commoditization" of mobile connectivity — prompted, in part, by concerns over fraud.
If wholesale tariffs for mobile data are lowered enough, large mobile operators fear that companies such as Google and Apple will use their stranglehold of the mobile-handset value chain to start cutting operators out of the equation altogether.
They would do this by offering connectivity via apps, thus bypassing the operators. This used to be called "iDroidphobia" — a portmanteau of Apple's product-labeling tradition and Google's Android smartphone operating system. Nowadays, it's best described as "Uberization" — after the taxi-hailing app that is wreaking havoc on business models around the globe.
Somewhere between these two extremes is a handful of more archaic options that more or less correspond to the political desire of the European Parliament.
Large mobile groups such as Vodafone, Orange, T-Mobile and Telia could, for example, eliminate cross-border roaming surcharges in the countries that they operate in, steering roaming consumption onto their own operator in another country at little cost. In fact, many of them have already done so.
Depending on their customers' habits, these companies could even extend such offers Europe-wide if the price of roaming from a small group of countries is offset by the fees they can charge visitors that sign on to their networks.
So by mid-2017, there are likely to be a handful of genuine roam-like-at-home offers. But there will be other models in places that don't reflect the spirit of the EU's political aims of creating a single market for mobile users.
The upshot? Roaming will almost certainly be revisited — perhaps coinciding with European Parliament elections — and sector participants will have to endure continued tinkering with their tariffs and business models well beyond 2017.
At that point, politicians might be tempted to throw in the towel as the roaming bandwagon grinds to a halt. Having successfully brought down roaming prices by between 92 and 96 percent since 2008, they might conclude there are more important things to worry about, and opt for a dignified retreat.
Complete this form to receive emails from MLex with selected highlights from our global coverage of regulatory risk and opportunity, as well as upcoming events, special reports and exclusive interviews.