Saturday, October 03, 2015

The End of Mobile Roaming charges

Declaration of Interest  - I have worked in a wide range of management roles for various companies and divisions within the BT group for thirty years this November, and am currently employed in Openreach. I also stood for the European parliament last year. I don't think this is biasing my opinion about mobile roaming charges but I declare it so the reader can make your own judgement.

The European Union has been taking action for the last seven years to cap mobile phone roaming charges, and most recently the pressure has been on to abolish them. On Thursday a Conservative government minister, Lady Neville-Rolfe, tweeted favourably about a recent EU Council resolution aimed at doing so. My fellow North-West Conservative Sajjad Haider Karim MEP is one of the people who has done excellent work pushing for this.

This has not been popular with all Euro-sceptics, with Dan Hannan MEP attacking the change, tweeting the effect of the policy would be

"Forcing phone companies to raise tariffs and so obliging travellers to subsidise non-travellers. Great news for MEPs."

That is a potential - repeat potential - outcome of a ban on roaming charges, though not an inevitable one, so this is an entirely legitimate argument, but let me explain why on balance I think the mobile roaming charges ban is likely to do far more good than harm.

First a word on the context. In the past, starting in the days when national monopolies  known as PTTs dominated the telephone market, there were massive mark-ups on all international telephony charges, generating enormous profits were used in all countries either as a cash cow for PTTs (and/or the governments which usually owned them) or to subsidise the rest of the telephone industry.

These huge profits were only possible as a result of monopoly and incompatible with the growth of telecommunications as a leading edge part of global business and trade.

With the growth of competition and a more consumer-oriented approach to telecommunications a combination of competition and government regulatory action - with competition by far the more important of the two - dramatically reduced both prices charged to the customer and percentage profit margins.

However - and this is the key answer to those like Dan Hannan who argue that the end of mobile roaming must inevitably clobber non-travellers - the wipeout of monopoly-level profits on international calls and services did not wipe out the global profits of all companies carrying international telephony traffic. Of course some of the more dinosaur-like companies lost out very badly and some former giants even went to the wall but more nimble companies including start ups did very well, thank you, because total international telecoms traffic increased enormously.

As global telecoms profits crashed for completely different reasons in the first five years of this century, it is impossible to say what the net cut in profits to phone companies as a result of the reduction of these massive markups was - or even whether there was such a reduction at all.

What we can say for certain is that although the price of international calls fell off a cliff, and thereby generated a world in which far more people and businesses could take advantage of international telecoms, this in itself neither crucified telephone operators nor causes an increase in domestic telephone charges. Quite the contrary, the real price of local and national telephone services in the UK continued to fall while international prices were collapsing.

I know exactly who I blame for the difficult time which many telephone companies have been through in the past fifteen years or so - the worst single culprit richly deserves the 25-year prison sentence he is currently serving at Oakdale Federal Correctional Complex in Louisiana - but it was not down to the elimination of monopoly profits for international phone calls.

Let's turn this argument to the issue of mobile roaming.

Mobile phone companies took off in a big way after the fall in international call prices had begun but well before it had been completed, so international calls to and from mobile phones started off in the era of big international markups.

It took a while to sort out the technical issues around international use of mobile phones and in the interim, mobile phone operators were able to, and did, charge high prices with the sort of markups which had been associated with international calls to and from landlines.

What is far worse, many of the charges for international calls to and from mobile phones were not always immediately obvious to the person making the decision which leads to the charge, and were not always paid by that person.

People ringing a number which turned out to be a mobile in another country were not, in the past, always aware that they were phoning a mobile or paying a premium to do so - until the bill arrived. People who took a mobile phone with them on holiday "just in case" and left it in their bag the whole time arrived home to find that they had been charged for data roaming services they had never used just because the phone itself had moved between countries.

The reason these rip-offs were unfair and bad for the consumer is obvious, but they were also bad for the industry and for the business world in general because the uncertainty they created made people less willing to use international mobile services. People afraid of being ripped off made the perfectly rational decision to leave their phone at home.

Frankly, in my opinion it would have been better for everyone including the mobile phone companies if the telecommunications industry had come together at a global level and sorted out these issues themselves without waiting for the regulators to do it, and some of the problems I have described above have already been mitigated either by the companies themselves or by the regulators, but not all of them. Hence the action of the EU to first drive down mobile roaming charges and now hopefully to scrap them from 15th June 2017, is reasonable and proportionate.

Let's put a figure on the sort of cost we could be talking about. I have seen estimates that removing roaming charges might cut the revenue of mobile operators by all of two percent - and even that might not materialise if the increased usage from people who are no longer so afraid of unexpected billing shocks is greater than expected.

The EU proposes to apply safeguards to limit the recovery of this lost revenue by mobile operators: they also propose to allow roaming providers will be able to apply a 'fair use policy' to prevent abusive use of roaming. This will include using roaming services for purposes other than periodic travel. For roaming that goes beyond fair use, a small fee may be charged. This fee cannot be higher than the maximum wholesale rate that operators pay for using the networks of other EU countries. The limit for fair use will be defined by the Commission by 15 December 2016.

Sceptics like Dan Hannan are right to ask what the knock-on effect of ending roaming charges should be, because the law of unintended consequences can apply whenever a regulator interferes with the free market.

However, I believe that any well-informed person who thinks all the consequences through is likely to conclude that by increasing certainty and transparency, and reducing the fear and reality of unexpected bills, the abolition of mobile roaming charges is likely to do much more good than harm for everyone concerned, including ultimately the mobile phone industry.

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