International Mobile Roaming - How smart regulation could achieve sustainable improvements in the competitive climate of the European telecom sector.

Abstract

International roaming has been a frequently debated subject in the European telecom sector
lately. While prices on most other mobile services have been reduced by half during the past few
years, roaming charges have remained fairly static since the service was first introduced with
the birth of GSM. While generating large profits for Europe’s dominating operators, the
situation constitutes a restriction to the freedom of movement concept within the EU Internal
Market. In June 2006 the EU Commission proposed a regulation by capping prices for roamed
voice traffic on both the wholesale and the retail level.
Through studies of literature, articles and statistics, and through interviews with the regulators,
operators and other experts it has been my ambition to give answers to the following questions:
1. In what direction is the European mobile telecom sector developing? Who are its
dominant players today and tomorrow?
2. What role does international roaming play in this development?
3. What are the purposes of the proposed regulation, and how would it change the
conditions for effective competition?
4. Could the regulation’s design be modified to better fulfil its purposes?
The study shows that the sector through a massive trend of consolidation is developing towards
a pan-European service oligopoly, consisting of Vodafone and two strategic alliances formed by
some of Europe’s dominating operators.
It further shows that international roaming has played an important role in this development by
adding to the industry’s already strong network externalities, thus posing a significant problem
for Europe’s few remaining independent operators. Low roaming charges has sailed up as the
top priority in the lucrative MNC (Multinational Corporations) market segment, making cost
efficient supply of roaming services into a key success factor in industry. By reciprocal discount
agreements, oligopoly players have the possibility to margin squeeze independents out of this
market.
Regulation as proposed by the Commission would, by applying a wholesale price cap, reduce the
scope for such margin squeezes significantly and thereby evening out the competitive conditions
among operators. However, the study draws me to conclude that the competitive climate has
not been a major concern of the Commission’s. The EU is in serious need of public support, and
the regulation’s design rather points towards that speed and clarity of results have been the top
priorities. Such results are ensured by capping prices even on the retail level. In the meanwhile
other issues, such as price caps for roamed data traffic and standardized contract procedures,
have more or less been left out of the discussion.
The general conclusion is that the Commission, by adding a few modifications to its proposed
model, could trade short-term populism to achieve sustainable improvements in the competitive
climate of the sector. The study includes three recommendations addressed to the Commission:
Ad to the model a uniform wholesale price cap on roamed data traffic
Ad to the model a uniform duty to provide roaming contracts to all interested parties
Give national regulatory authorities the responsibility to independently handle retail issues
The study finally argues that regulation of international roaming, if designed to encourage
competition in the network sector, has the potential to achieve positive dynamic effects even in
upstream (equipment) and downstream (content) markets.

• author: Everell, Henrik
• supervisor: Carl-Johan Asplund
• organization: Production Management
• course: MIO920
• year: 2007
• type: M1 - University Diploma
• subject: Technology and Engineering
• report number: 07/5262
• language: English
• id: 1981095
• date added to LUP: 2011-06-20 15:58:19
• date last changed: 2015-09-06 14:23:15