The thrust of what we know is:
1. Incoming call charges while travelling in the EU will be banned from 1 July 2014. Companies have the choice to either: OFFER phone plans that apply everywhere in the European Union (“roam like at home”) OR ALLOW their customers to “decouple” and opt for a separate roaming provider who offers cheaper rates.
2. There’s also a price cap on making calls. For mobile intra-EU calls, the maximum price would not be more than EUR0.19 per minute (plus VAT). The EC said: “In setting prices, companies could recover objectively justified costs, but arbitrary profits from intra-EU calls would disappear.”
So, adios roaming (within the EU) as we know it.
Of course, the news that Europe wants to do away with surcharges or premium pricing for roaming is not, in fact, news. The elimination of the roaming premium has been a stated goal of the Digital Agenda since the EC started consulting on this stuff towards the end of the last decade.
What we are looking for now is exactly how the EC sees this going ahead in a way that is technically and economically feasible. It’s fair to say that it has kicked around a few options to date, and we are still unsure quite how it sees things working out.
When the EC and Kroes first placed on the Agenda the commitment that roaming surcharges would go by 2015, what then happened was a discussion about how to go about eliminating roaming fees. Operators were absolutely mortified at suggestions that a flat pricing control would be placed on them – so the Commission came up with a “market focussed” approach (now known as the “decoupling” option). It would tell operators that they must allow their customers to choose, if they wanted, another operator other than their domestic operator to provide them with roaming services. Competition would then likely drive the roaming price down to domestic levels.
Result: operators face losing the roaming premium with the added integration and technical, legal and regulatory hurdles of supporting an alternative providers’ roaming market.
BEREC, the association of national regulators, was asked to consult on the feasibility of the creation of this alternative roaming market – and on how it could be structured. (There were lots of technical discussions at this point about local breakout, APNs and the rest of it, including the news that enterprise Blackberry users would not be supported).
In fact, arcane technicality aside, BEREC wasn’t too keen on the idea from an economic/market standpoint, doubting if the creation of such a market would have the impact the EC would like. But it conceded that it could be technically feasible, and its concerns were not enough to derail Kroes’ team from pushing ahead with the idea.
Operators were told they had until July 2014 to get their systems in place to enable the operation of this alternative roaming market. They had no choice but to comply, even if many of them doubted that they would ever seriously have to have systems in place to support millions of roamers connecting to their networks and being billed by alternative roaming providers.
Meanwhile, alongside this creation of a competitive roaming market, leaks and reports suggested that Kroes was keeping alive the prospect of the price-led approach – ie flat out price controls that take “the market” out of it, and largely mandate the “roam like at home” approach. If this went ahead, what was the point of the alternative roaming providers?
Well, what we have seen the EC announce is something of a merger of the two. It has said to operators, “If you reduce roaming charges to the same as your domestic tariffs, we will exempt you from the requirement to enable the alternative market. But on the other hand, if you don’t, we’ll make it so your customers can choose another provider.” It’s a sort of belt and braces approach, or a choice of two roads that both lead to the same destination (a case of all roads not leading to Roam, if you like).
To make the “roam at home” packages easier to structure, the EC proposed that operators will be urged to form and join roaming alliances covering large swathes of the EU. Kroes wrote in a blog post that we would see “measures to encourage those deals onto the market as soon as possible”.
In other words, operators are faced with losing their roaming premium one way or the other, but at least the alliance approach means:
1. They avoid the regulatory, legal, technical and financial hurdles of enabling a competitive roaming market – a market where competition could only be based on ever-lowering prices (so that roaming prices could even in effect be lower than domestic prices)
2. Although roaming tariffs will be the same as domestic tariffs, at least operators will keep hold of those remaining revenues, rather than face losing them to competitors.
However, there is still considerable uncertainty about how a no roaming premium blanket approach could work. Let’s look at an alliance that structures a price plan so that a consumer can travel to a bunch of countries whilst paying the same as they do for domestic calls. The following becomes apparent.
1. Certain operators couldn’t afford it.
Let’s say you are an operator in Romania or any other country where price plans are currently considerably lower than the northern and western countries. Your customer travels to the UK, and you must pay (as part of the alliance you have joined) that visited operator a wholesale price for that call that is more than the retail price you can charge your customer. That’s no good for the Romanian operator. Perhaps, then, the visited country’s wholesale price needs to come down – to make it economically viable for the Romanian operator to offer “roam like home” to its customers. But to give the Romanian operator any sort of margin, it then destroys value for those “expensive” operators who are being asked to provide minutes at a price that may be less than their cost of production.
How will a roaming alliance take account of this cost of production differential? Will roamers from cheaper countries be acting as value destroyers? Perhaps we see now why the alternative roaming provider comes in. Will it be that groups will form alliances of like-priced operators, where contractual interconnect deals will not be so difficult to structure, and then outside of that if you want a roaming deal – well you can go and find an alternative provider.
2. Permanent roamers?
You are a UK customer, resident 365 days (or near enough) a year in the UK, who buys a Romanian SIM, paying Romanian prices for voice, text and data (cheaper than any UK operator offers). You are then effectively a permanent roamer in your “home” market. Orange Romania cannot charge you a premium – because there can be no surcharge for roaming within the EU. It must offer you “roam like at home”. Or if that is not an option, you contract a roaming contract from an alternative provider outside the UK, and roam constantly whilst living in the UK.
One intermediate proposal that might lessen the impact of 1 and 2 above, is the idea of a tariff that allows any roamer to roam not at the price of their home market, but of their visited market. Analysys Mason, where James Allen (Head of Regulation) and Tim Harrabin (Senior Advisor) have been considering these matters, calls this approach “roam like a local”. As we have seen, though, the EC is committed to “roam like at home”, not like a local.
Another aspect to consider is that Group operators may be much better placed than their smaller competitors, given their ability to structure cross-group price deals. Are smaller operators to be placed at a competitive disadvantage, bringing only a small number of minutes to an alliance, at unattractive margins?
Finally, is there another unintended consequence looming? If operators cannot charge a premium for roaming, perhaps they may feel it’s time to up their domestic prices to the level of the roaming price cap. Then would the many (those who are non-roamers) be paying more because they are in effect “subsidising” the few (roamers). How does that play for the agenda of digital inclusion?
So what we still need to see from the EC is what those “measures to encourage deals to come on the market” (Kroes’ words) actually are. Saying you will do something is indeed, the easy part. We need to see how it has considered the potential knock-on effects on the business models of wholesale pricing within the EU, and what it will do about it.
Without such measures, perhaps there will after all come a day when we will all be Roam-anians.