E.U. plan would cut roaming charges on wireless

Investor's Business Daily picks up a MarketWatch.com article that reports the European Commission "unveiled proposals to curb the amount that phone companies can charge consumers when they're traveling abroad in a move that would scrap a significant source of revenue for the likes of Vodafone Group."

Phil Kendall at Strategy Analytics said, "It's a pretty major recommendation. If the commission can push it through, it will have a major impact as roaming is a hugely profitable business. It's pretty bad news for the network operators."

The initiative "endorses ceilings on wholesale and retail roaming charges." According to Goldman Sachs, network operator Vodafone " makes as much as 10% of total sales from roaming."

According to the article, "consumers would no longer be charged for receiving phone calls while abroad, and customers wouldn't pay a higher tariff just because they are traveling. Indeed, data compiled by the commission show that for a four-minute call, roaming prices vary from as little as 0.20 euro for a Finnish consumer calling home from Sweden to 13.05 euros for a Maltese customer calling Latvia."

In addition, "the proposed changes to the E.U. regulatory framework would also ensure that operators don't charge their peers in neighboring countries substantially more than the actual cost. Such modifications would counter operators' claims that they are merely passing on the high prices demanded by overseas local networks. The proposals need the approval of the European parliament and E.U. governments. Telecom ministers are scheduled to discuss the initiative on June 8."

Obviously the network operator are not too happy. Goldman Sachs told clients the "new pricing scheme may reduce earnings per share by up to 6% starting in 2007." Strategy Analytics' Kendall warned that "it could take years for the legislation to come through." He opined, "I do expect to see a lot of litigation over this."

visiongain issued a press release giving their thoughts on the proposal. The firm said, the proposal "is undoubtedly a positive step for the consumer, but generally mobile operators will not be happy about the news. Deriving between 10-18% of revenues from roaming services, operators will be hardest hit should the European Commission's proposal become legislation." visiongain notes that:

The major problems behind the roaming issue are that charges to the end-user are deemed too high and customers are often not aware of the price of calls. Confusing tariffs and disparities between countries have contributed to this. For example, British tourists in Italy are charged 50% more for calls than French tourists. In addition, charges vary so much from country to country and operator to operator that consumers are confused as to how much they will be charged for making a call. All of which is unacceptable to the European Commission, which has the backing of European Telecoms Regulators in EU countries.

visiongain then states:

Moves to reduce roaming charges are long overdue, as consumers have been paying excessively for too long. European operators are expecting the end of inflated and disparate roaming charges, but this must be seen as a call for increased competition in the market, before regulation is imposed. As the premium points that mobile operators can charge extra for are gradually being eroded by competition trying to attract new subscribers and reduce churn, it is only a matter of time before roaming becomes a serious point of competitive advantage.

visiongain concludes with:

operator's would actually benefit from being more open about roaming charges. If roaming charges are more transparent and simple, subscribers abroad might actually use the service more frequently, this would potentially offset revenue loss from decreased tariffs. Furthermore, the operator's image with their customers would receive a much-needed boost, and would reduce churn for an operator.

The move by the Commission is a good starting point for solving the roaming problem, from the consumers' perspective. But visiongain believes that operators need to be more proactive in providing a solution to this problem and using it as a competitive advantage rather suffer the political intervention that could further harm voice revenues.