Research Notes

Roaming proposal shows that EU telecom policy is falling apart. 13 questions on roaming and fair use for European Commission

The revised EU proposal on roaming shows that the European Commission faces an existential crisis. It cannot succeed to make telecom policy that incentivizes new economic growth; it can only impose regulation. The EC press release on roaming purporting “to make it work for all Europeans” means that it has made a mess of roaming regulation which it leaves to the member states to clean up. With this desperate attempt to look like it is doing something for consumers with lower mobile prices, the EC is worsening the already moribund environment for infrastructure investment and unwittingly imposing a roaming surveillance regime on European citizens in the name of ensuring “fair use”.

This research note reviews the revised roaming initiative and demonstrates how the EU’s telecom policy, promised to be resurrected with Juncker’s team, is now in ruins.  As predicted in our note on BREXIT, regulation will only increase on Europe’s telecom operators. The EU is perhaps the world’s least attractive market for investment. Strand Consult’s report about the EU falling further behind the US in the digital economy is spot on.

Commissioners Ansip and Oettinger may have had good intentions, but they don’t have the skills to execute. This was evident at last year’s FT-ETNO’s summit when they reneged on their promise to the industry to improve the environment for investment. With the new proposal on roaming, the EU has taken regulation of the mobile industry to a new and grotesque level. To put it into perspective, the vast majority of Europeans have a monthly ARPU (average revenue per user) that is less than the price of three café lattes at Starbucks. Maybe the next project for Margrethe Vestager will be to harmonize the price of coffee in the EU.   

The roaming debacle is a good example of what happens when politicians make a promise they can’t keep; they leave it for the next set of politicians to solve. Strand Consult has long documented the EU’s lack of understanding of telecommunications, and its flawed roaming policy is just one example.  It was Strand Consult which exposed the potential for abuse and arbitrage of mobile contracts which the EU now recognizes. But rather than solve the root cause of the problem—lack of pan European networks—the EU makes the problem worse by imposing a fair use regime that requires member state surveillance of mobile users’ contracts.

Consider how nations such as the US, Japan, Canada, and even China have networks which cover the whole country. People need not roam when they travel because their network provider is allowed to get the economy of scale to cover the region. Moreover a rational telecom policy that allows operators to consolidate means that they can deliver the next generation of mobile technologies at scale. It’s no surprise that more than half of all mobile subscriptions in the US are 4G/LTE, while in the EU, less than one-third are.

The European Commission has had a dream of Digital Single Market but the reality is that there are 27 different countries each with their own language, currency, culture, and government. Importantly, costs to deliver mobile traffic differ significantly across the states. Building a network is Luxembourg is considerably less expensive than Sweden, a country 36 times as large. Not only does each state have a unique set of incumbents and challengers, but there are different mobile regulations, spectrum rules, VAT, wages, contract requirements, and so on.  It’s understandable that the EU wants mobile prices to be the same across 27 countries, but then it should allow prices to evolve with the market forces of consolidation and efficiency, rather Soviet style central planning.

The truth is that roaming charges have dropped 90 percent in the last decade; SMS charges by 92%. Naturally the Commission tries to take credit for this. SMS prices have fallen because of technology; users prefer free Internet substitutes such as WhatsApp instead of buying SMS. While operators now offer unlimited SMS in their data bundles, they don’t make the same revenue as they did in the past. Data bundles are significantly less profitable as voice and SMS, so operators have less money to invest in networks just when mobile traffic is exploding. On top of that the European Commission won’t approve mergers, even when the entities that want to merge are suffering financially and need to consolidate to avoid raising prices and laying off workers.

The EU is so unpopular that it will revive a flawed policy in a desperate attempt to look like it is doing something for Europeans. To be sure, the telecom industry has not made compelling arguments in their own favor. They have not succeeded to communicate the value of what they do for society, the importance of investment for the economy, and the fact that they enable the safe and reliable communications on which Europe depends.

Roaming was supposed to be the political quid pro quo for net neutrality; telecom operators would agree to roaming regulation in exchange for reasonable net neutrality rules which not disincentivize operators to invest and innovate. But this deal is gone with the wind as Brussels and BEREC (the Body of European Regulators for Communications) have been captured by Google-funded Internet activists.  Net neutrality is another mess created by Brussels and handed off to the member states to sort out. BEREC opened its August 30 press conference on net neutrality implementation guidelines boasting of a record 480,000 submissions, an “unprecendented” number to a BEREC consultation, mainly from the Google-funded SavetheInternet. BEREC admits that just 1000 submissions had any substance.

While BEREC describes its consultation process as “transparent and inclusive,” it will publish only 46% of the total comments received as SavetheInternet respondents frequently choose to make their submissions confidential.  As Strand Consult’s research reveals, Google is a funder or member of at least 7 of the 14 official stakeholders which developed the BEREC guidelines. Moreover Google funds 3 of the 4 official “civil society” organizations. These Google-supported advocacy organizations delivered the vast majority of responses, leveraging their user bases outside the EU. A sample of SavetheInterent emails which Strand Consult obtained under sunshine laws showed that one-third of the responses came from the US.  BEREC also admitted that non-European responses are weighted the same as those from Europeans.  The only good thing that can be said about the BEREC guidelines is that they are non-binding.  For more information, get Strand Consult’s report and workshop on net neutrality.

Here are 13 questions on roaming and fair use for Andrus Ansip, Günther Oettinger, the European Commission and the 28 national telecom ministers and regulators.

Strand Consult looked at the scope of the new rules and offers 13 questions about how the new rules will be implemented. Here are the questions:

1. How are the boundaries of fair use defined? If national regulators, not the European Commission, have to determine whether the customer is abusing a SIM card, will it mean that there will be 28 different interpretations of fair use?

2. An average Dane travels an average two weeks outside Denmark every year. How much must he roam before his usage is considered abuse?

3. Business customers travel up to 5-6 months a year. When is their usage considered abuse?

4. How will these thresholds for abuse be harmonized among heterogeneous Europeans?

5. If an abuse standard is established, how can a mobile operator distinguish between those users who roam “fairly” versus those who now abuse the roaming because the new standard is higher than what they would have used when they had to pay for their usage outright? How then can mobile operators price their domestic services fairly when heavy users are getting an artificial reward while light users are suffering a tax?

6. The EU wants mobile operators to investigate whether people have multiple SIM cards and whether they abuse those cards. How should this be done in practice? SIM cards, including prepaid SIM cards, are linked to a social security numbers. Frequently users purchase multiple SIM cards for friends and family (frequently for a child under a parent’s name). How will those purchases be differentiated from the person who purchases four SIM cards but abuses them himself?

7. The EU distinguishes between different types of use and says that mobile operators should evaluate the usage patterns of different SIM cards against each other. How should this be done in practice? How does a mobile operator identify a “normal” consumption pattern without violating the privacy of its customers?

8. How will this enforcement of fair use be implemented if a user has multiple SIM cards across multiple providers?

9. What does it cost to implement these fair use enforcement systems? How should discount MVNOs with limited staff and budget implement them?

10. The new roaming rules will make distortions such that a Dane roaming in Germany pays less than a German using a domestic mobile subscription. The wholesale price for 1 GB of data in many European countries is above the retail price in other European countries. In practice it means that to comply with the roaming rules, the operators must deliver the traffic at a loss. How are mobile operators to address the shortfall in revenue that results from these new rules? The cost to deliver roaming is three times higher than to service domestic traffic.

11. The Telecom Industry Association in Denmark has calculated that the roaming cost for a customer using 20 GB of roaming data in a month is equal to 90% of the annual ARPU for that customer. How does DG Connect that such poor operating ratios will be attractive for investors?

12. What suggestions does the European Commission have for operators to recover revenue for network investment now that revenue is so severely reduced?

13. Consumers may disagree with operators on fair use. How are complaints to be addressed? Who will pay for the adjudication of complaints and disputes?

Reviewing the 13 questions reveals that the European Commission has not thought through their proposal. It also shows that Brussels is out of touch with Europeans. Clearly they have not considered the costs that the roaming regulation will impose. Moreover Brussels has prioritized this feel good/look good initiative over making the important economic reforms that improve economic growth. The point of the Digital Single Market is to help the EU exit the financial crisis, create jobs, support investment, and improve Europe’s competitiveness in the world. Brussels has utterly failed to support a real world telecom framework, and instead proffers price regulation–populist pandering to consumers parading as serious policy.

But this strategy is an insult to consumers. It posits that consumers’ top economic priority is cheap mobile prices. Consumers are not so stupid and ill-informed as Brussels believes. Consumers understand arbitrage and regulatory distortions, which they experience in the lack of European dynamism from decades of bad EU policy. That the EU insists on regulating something that the market has largely addressed already is yet another example of Brussel’s ineptitude. As observed, Juncker’s telecom policy amounts to shuffling deck chairs on the Titanic.

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