Stop moaning about roaming, we’ve never had it so good

The view is nice, but what about the bill? Moomettes

Ever been on holiday and spent the next few weeks living in fear of the resulting phone bill? Well, if European regulators have their way, these fears could soon be a thing of past.

After first cutting the cost of roaming data by more than a third in June, The European Commission (EC) has devised a plan to entirely eliminate charges for cross-border roaming by creating a single European telecoms market.

The EU first seriously addressed the issue of expensive calls and data in June 2007, back when someone using a mobile device outside the country of registration was paying roughly five times the domestic rate per minute for voice and SMS and often several hundred times the domestic rate to transfer data.

So this latest proposal represents the most recent development in an ongoing struggle against the telecoms companies. As things stand, operators must inform their customers about their charges (the Eurotariff) which are then subject to a cap that can be undercut voluntarily.

For example, the price of a one minute outgoing call to a European member state that cost €0.49 before VAT in 2007 is currently capped at €0.24. From July 2014 the cap will drop to €0.19. Most crucially, the equivalent price for transferring 1 megabyte of data will drop to €0.20 - until last year data costs were entirely unregulated. It is also possible for customers to pre-specify a cap on total monthly expenditure. Operators have clearly been forced to reduce their prices radically in recent years.

The ultimate objective is to eliminate all the differences between domestic and roaming charges other than what can be justified by unavoidable costs. It is evident that the revenues and profits of operators have been whittled down over a period of years by these arrangements, so the immediate impact of the current year’s alterations is not that high. Equally, share prices have had time to adjust so nothing dramatic is likely to ensue in that regard.

But it is equally evident that phone operators have had it good, being able to milk roaming charges over a lengthy period. The current reductions are taking place within the context of difficult economic circumstances in many European Union (EU) states such as Spain and Greece that are hitting profit margins – hence the howls of protest from operators.

What we still aren’t too sure about in the mobile phone market is the level of what economists refer to as “elasticity of demand” - how closely linked demand for a product is to changes in its price. In this case, the question is whether operators’ revenues will increase once prices have fallen sufficiently, due to customers using their devices more intensively. And this in turn begs a further question, namely whether operators have the capacity to expand supply to meet any surge in demand.

For this reason, what the above has achieved is to bring to the fore the issue of structural reform. Most of the thirty or so countries affected have three or four domestic operators that range widely in size. However, even a large mobile network will still only have 20 million customers: too small to achieve full economies of scale.

There is a case, then, for combining networks with the particular aim of enhancing operators’ ability to generate funds for investment. This has become a crucial issue because so-called 4G networks are currently being rolled out to deal with a surge in data transfers.

In a few cases 4G network sharing has been authorised, and this represents a partial solution. But many believe we are simply heading towards larger operators taking over their weaker rivals.

A top executive at Ericsson, for instance, has said that consolidation would be good for the industry as “fewer, stronger players will have more spending power.”

National regulators understandably see this as leading to a reduction in competition, and several proposals have recently been turned down. A single market in mobile telephony where national boundaries play no part is accordingly still some way off.

As roaming charges are reduced towards zero, it becomes increasingly possible for an operator in one country to sign up customers based in another country. Something akin to code-sharing among airlines could develop among phone companies, where you sign up for one operator but your call or data is actually carried on a different network.

The EC has certainly been successful in forcing down roaming charges. Partly as a result, operators are suffering, but they have had time to make adjustments and the immediate impact should not be too severe.

However, the continuing poor economic climate is also having an adverse effect on the industry. This may mean a reluctance to roll out 4G beyond the minimum conditions specified in licences, particularly since upping the speed of data transfer tends to result in an upsurge in overall demand.

Necessary reforms to the phone market may take a while. National regulators are keen to cling to their powers despite EU pressure to accelerate the move towards a single market in mobile communications.

And for the customers? The phone bill might be less scary, but they’ll still have to pay somehow.