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European roaming law moves one step closer to the statute books

Operators decry margin call

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The war on European roaming charges went to the next level this week, with the European Commission agreeing the shape of the legislation it will put in front of European Parliament for approval, and diluting somewhat the proposals that were initially made by Viviane Reding EU Information Society Commissioner.

She had wanted the legislation to be brought into play this year, and as we published last week, a confident cellco lobby leaked the fact that Reding had been forced to stand down on that count, and cellcos have been given a six month moratorium on at least part of the proposals. The general principle of roaming charges costing no more than 30% more than wholesale cross charging between the cellcos has remained in the bill, but will face a tough ride through the political side of the process, where cellular operators will lobby hard yet again to crush the legislation.

Right now a consumer faces two type of roaming charge. When out of his or her native European country, in order to receive a call, that call is treated as if it was placed in his home country and a charge for "being in a country which the caller does not expect," is billed to the recipient of the call.

Similarly if a UK traveler in Spain wants to call a Spanish number, he is charged as if the call was placed in the UK. The actual costs of roaming are trivial, and merely a fiber routed query and authorization that takes a tiny faction of a second.

The mark up on these calls is fantastic and the average is around five time the wholesale cost of the call (the price that each operator charges the other). This makes doing business across borders in Europe vastly expensive, despite the fact that Europe is meant to be one consolidated market.

Around 80 per cent of all these roaming calls are made by business travelers and they pay what is essentially a tax on traveling of around $11bn a year. Savings from this bill would be at least half of that, cutting around $6.4bn from roaming charges.

But the cellular operators have been given six months longer to drop their roaming charges voluntarily, and the closer they get to that 30 per cent cap, the more likely that European politicians will not vote through the bill. The cellcos argue that by charging such high prices to roaming travelers they can keep local pricing lower.

If the bill becomes law once the European Parliament sits, debates and votes on it, then there would be an immediate 30 per cent cap on calls received, and a six-month grace period would begin for calls made while abroad, so only one side of the roaming equation would be cut initially. A 30 per cent margin has been chosen because that’s the margin that most cellcos work to when charging their own domestic cellular traffic Right now consumers get hit with two roaming charges, one for people he or she calls and one for when people call them.

When Reding wrote the bill originally it included the idea of "home pricing," that calls should eventually come down to the same price that callers are charged in their home market. This side of the proposal has now been dropped after disagreements within the European Commission.

The GSM Association immediately criticized the bill as unworkable, but roaming charges could disappear anyway if the market accepts dual mode handsets, and overseas calls end up being made mostly through wi-fi connections, and delivered as Voice over IP, so cellcos must expect to lose this revenue at some distant point in the future.

Copyright © 2006, Wireless Watch

Wireless Watch is published by Rethink Research, a London-based IT publishing and consulting firm. This weekly newsletter delivers in-depth analysis and market research of mobile and wireless for business. Subscription details are here.

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