Research Notes

Mobile operators should thank the EU for the Roaming-intervention

In the media and in the EU a lot is said about the intervention on roaming taking place. It will cost the industry Billions of Euros, seems to be the consensus. At Strand Consult we believe this approach will be costly in the short run, but in the long run it’s probably the best thing that has happened to the operators in years, and the shareholders can start rejoice.

One can view the intervention from many different angles: The significance for the mobile industry, for innovation within the mobile universe or for the many companies who develop, market and sell different communication solutions to the industry The mobile operators are not the only companies making a living of selling communication cross boarders, far off. The EU just has not realized that.

One of our old heroes once said “ it is every company’s damn duty to try to establish a monopoly”! Some do this by developing products the customers are crazy for, others by being in the right place at the right time with the right product, others again do it by consolidating companies, or taking control of the supply chain.

What happened yesterday, is the EU helping the mobile industry in creating a monopoly on communication across boarders. A situation that will make it harder for alternative communication solution providers, and which in the long run will create a monopoly for communication across boarders.

The fact is that is has always been expensive to call across boarders. The liberalisation of the telecommunications market made it possible for other providers to offer cheap international telephony, circumventing the old monopolies. With the invention of the internet and Skype, suddenly new ways of communication had arisen, and prises on international traffic dropped significantly. Simply put, competition and the high prises charged by the old monopolies, created a sub-industry that also impacted the prices downwards. If regulation on international calls had taken place in those times, one might ask the question if a company such as Skype or the many other IP companies or international telephony providers would have had arisen.

What are going to happen now on the mobile market is simply, the prices on roaming drops, the politicians are proud of their effort, and the many companies in the communications industry offering alternative telephony solutions or offering cheaper prices on roaming will have a hard time making a living. The venture industry will say that companies in this area are not as interesting as before and customers will have a hard time seeing any benefit in using alternative communication solutions across boarders.

The EU has created a foundation for a monopoly for the mobile operators. Now they do not only offer roaming but also competitive prices.

Normally it would be expensive and very hard work to create a monopoly, but in this circumstance, it is almost free for the operators. The low prices mean growth in traffic as customers will change attitudes in regard to use the mobile phone abroad. We have seen this before in Denmark, Sweden and Norway, when falling prices quickly was compensated by increasing traffic and increasing turnover.

What the EU has done is a prime example on the fact that regulation of a competitive market can be dangerous. When politicians regulate a competitive market such as the mobile market, they influence the natural competition, which exists in the market, so that the market so to speak gets out of balance. In the next 18 – 24 months we will see the hard evidence on the political systems lack of understanding of price, regulating and the way the telco industry works. This will kill the innovation as well as create a monopoly for the mobile operators.

A lot of people say that roaming is a problem, however it is not only a EU problem, but actually it affects all countries, especially the ones with large amounts of tourists. Historically we know that the mobile operators first competed in cheap mobile phones, then its was cheap national traffic, then cheap SMS, and now, there is a lot focus on cheap regional traffic. Roaming should be next in line, and actually already is in a number of countries.

Our conclusion is that the EU with Viviane Redding as commissioner knew that the public recognition and the votes lie in getting the customers cheap roaming here and now! However either they forget to tell the end-users about the consequences for competition and innovation in the long run, or they simply don’t know the consequences? EU has sent the biggest present to the European mobile industry they could have wished for – The foundation for a monopoly for communication across boarders.

Mega trends in the mobile industry – a question of life and death

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