Research Notes

”Roam like home” is probably dead

– EU Commission’s digital single market proposal raises more questions than it answers

A week ago the EU Commission presented its proposal for the Digital Single Market Connected Continent including the “roam like home” mobile roaming plan, and a debate erupted. Strand Consult is pleased that the Commission made an effort to address digital competitiveness and hopes that the proposal can be the foundation for a constructive discussion on how to develop the European telecommunications sector  and to solve some of the challenges the industry faces, particularly those around incentives for investment. Strand Consult has already published two research notes where it reviews the proposal in detail. Read the first research note and read the second research note.

In a democracy it’s important to have a debate, however uncomfortable it may feel for politicians.  EU Vice President Neelie Kroes has advocated for a digital single market for the last three years, so naturally the proposal was eagerly awaited. Many including the the European telecom regulators association BEREC and Strand Consult expressed concerns and criticisms to the proposal.  Unfortunately rather than acknowledging the criticisms, Kroes’s office has claimed that its critics are frivolous and untrustworthy.

The first reaction Strand Consult received from Neelie Kroes’ spokesperson Ryan Heath came from Twitter where he wrote: “Kroes’ proposal for cheaper #roaming means collapse of European mobile industry”=why no-one should listen to anything John Strand says”.  See the tweet.  Strand Consult submitted a list of questions to  Kroes’ office to address its concerns about the proposal, but has not received a response.

With this proposal the Commission has an importantopportunity for leadership, and it should not be afraid of criticism.  Indeed it should listen to the questions and concerns to see how the proposal could be improved. Strand Consult has worked with the mobile industry for 20 years and has a good idea of the industry’s history and challenges. It is for that reason that Strand Consult could identify the 8 false assumptions of the EU Commission’s proposal.

The 8 False Assumptions of the EU Commission proposal’s for the Digital Single Market

  1. The Commission asserts that the conditions for infrastructure investment in the USA are better, so Europe should just do what America does. It gives the example of the USA being ahead of Europe in LTE. Yet the telecommunication histories of the US and EU are very different. The Commission does not explain why American operators have invested heavily in infrastructure in recent years, but these reasons, a combination of history and luck, are not things that the EU can create. Read Strand Consult’s research note explaining why America is ahead in infrastructure investment.
  2. The Commission also  asserts that Asia and Africa are ahead of the EU in LTE rollout. Again, to assume that Europe should just do what other regions do is not tenable.  The Commission fails to mention that that Asian and African operators simply repurposed old spectrum to new technology. The EU made a conscious choice to refarm the spectrum, a process which takes years. This means that the spectrum is allocated in an orderly fashion, and divided in such a way as to maximize money for national governments. There is a big difference whether an operator can use repurposed spectrum or whether it must purchase spectrum which must first be refarmed from other uses. In fact EU countries such as the United Kingdom, Denmark, Sweden and Norway have LTE. They got it the same way as certain Asian countries, by reallocated existing 1,800 MHz spectrum.
  3. The Commission makes some oversimplified assertions about operators’ high debt levels. Debt levels are consequences of conscious decisions by the EU government, national regulators, and telecom companies and their shareholders. There are many reasons why operators have economic challenges ranging from fierce national competition to exorbitant prices for licenses to the focus on raising dividends to fund investments in new markets outside Europe rather than existing national business.
  4. The Commission makes a common mistake of many politicians to misunderstand the data about broadband speeds. This is based on a mistaken assumption that just increasing broadband speed in a mature European economy will increase economic development. The reality is that broadband is one of many important economic inputs in the digital ecosystem. Furthermore there’s a big difference between what is available to consumers and what they choose to buy. For example 65% of homes in Denmark are passed by a broadband technology that can deliver 100 Mbps, but only 0.7% subscribe to the fastest tier. In countries such as Denmark, Sweden, Belgium, and Netherlands, residents have access to high speed broadband but they choose the level that fits their needs and budget, which is generally a lower tier.
  5. The Commission makes a claim that there is a 774% differential in call per minute price and refers to this source. The methodology of the study was simply to collect figures from European national regulators who were not supplied a standardized format to enter or calculate the prices. In practical terms, operators provided the information to the regulator, and then the EU itself had to guess at how to determine by the prices by looking at a series of differentiated bundles of voice, SMS, MMS and data. The study is directly misleading and is two years out of date. Thus some of the countries that appear to have the most expensive prices, are in fact some of the cheapest for mobile telephony, according to the OECD.
  6. The Commission makes another complaint that wholesale copper prices vary from €4-€14 euros per month, a 333% difference. This assertion fails to recognize that it does not cost the same to build, operate and maintain a copper network in all 28 EU countries. Kroes also forgets to mention that if an operator earns €14 euros per month, then the national regulator has the power to lower the price, if it wants. The current framework gives nations sovereignty.  To be sure, the EU would like there to be a single regulatory authority for the region, but stopped short of calling for that in its proposal. Instead it requests veto power.
  7. The Commission decries that telecom prices vary across the 28 member states. But the Commission also fails to address another elephant in the living room:  taxes. Each European country has its own tax regime. If a telecommunications company sells TV from Luxembourg, there is only a 3% VAT on the services, but other countries are as high as 20-25%. If fact, taxation on telecom products can go as high as 27% in Hungary. Don’t forget that Hungary levied special telecommunications taxes to offset the impact of the financial crisis. For more information see this document.
  8. Another false assumption from in the Commission’s proposal is that competition will drive operators’ incentives to invest in infrastructure. The scenario the Commission proposes may increases competition, but it will also increases operators’ sales and marketing costs. So while prices may fall for consumers, costs will go up for operators. Operators’ earnings will be less. When earnings are under pressure, there is less is incentive to invest

These false assumptions made by the EU Commission lead Strand Consult to believe that the authors of the repeort don’t under the telecommunications market. Given that they hold these assumptions, they have misdiagnosed the situation in the EU and have made the wrong suggestions for improvement.

The bottom line is clear. “Roam like home” is probably dead and will be replaced with a new model

Strand Consult has made a detailed analysis of the suggested roaming plan called “roam like home.”  Simply put, the plan divorces prices from the underlying cost structure of the industry.  While it can lower mobile prices in the short term, it has disastrous long term consequences and creates perverse incentives for border trade and SIM card arbitrage.

The EU seems to forget than many nations and operators worked a long time to craft the existing roaming transition plan which is on track. However in an effort to get popular support for an overall digital single market proposal the EU Commission panders to consumers with a promise of the same price for mobile calls everywhere in Europe, regardless of the costs that the industry has to bear to provide it.

It is regrettable that the Commission wants to harmonize prices without respect to divergent costs and tax structure across countries. The Commission had a leadership moment with this proposal, and can  take on the root causes of the problem, namely taxation and regulation. But instead, it just demands that all prices be the same and leave operators to deal with it. 

One additional area where the EU Commission feigns responsibility is consolidation. The proposal states that consolidation is necessary, but takes no steps to make it easier for operators to consolidate.  It asserts, “Creating a Single Telecoms Market would allow operators to expand more easily to other European markets and change way in which consolidation is looked at under applicable EU competition control rules.”  Allowing operators to consolidation across 28 countries so they could get scale would create the margins and revenues that operators need for investment.   

It any case, it appears that “roam like home” is dead, given the obvious points raised by national regulators and others. Instead “roam like a local” will likely emerge. This is a model where one pays the prevailing rate for the country where he is visiting, but not pay a roaming surcharge.  This would at least allow operators to cover their costs and eliminate theincentive for exploitation by arbitrage.

To learn more about this topic, request a copy of Strand Consult’s research note “Generating Growth in Europe – How ICT Is the Solution”. Strand Consult’s CEO John Strand can be reached at and +45 2085 0444.

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