If the market doesn’t work, cap prices?
The European Commissioner every telecoms executive loves to hate is at it again – Viviane Reding will today propose further legislation to cap mobile phone prices: further reductions to call prices and also this time for SMS and mobile internet data charges. These proposals follow rules put in place in 2007 to limit call charges for calls made abroad.
So what should be made of this? The BBC and the Irish Independent give the standard line – that legislation in this area will help consumers, although the BBC erroniously says it’s the EP doing this, not the Commission. On the other side BERR and Ofcom in the UK have got their attack in first (as reported by The Guardian), yesterday voicing their concerns about the Commission proposals and how this could lead to an increase in call charges for poor domestic consumers. This UK government position also states that a 2011 start date, as hoped by the Commission, is too optimistic. T-Mobile and Vondafone share the UK government concerns – no comment on that.
But let’s take a step back here. What essentially is going wrong? The way the mobile telephone market is structured in Europe is, well, not enough of a market. Each country has 3 or 4 operators that partially compete and partially collude, with national regulators to keep an eye on them. When you take your phone away from your home country you’re completely stuck. Most of the time you have no choice over the network you connect to, and all of them charge a hugely inflated rate.
Let’s make a comparison: driving a car and filling it up with fuel. This would mean that if you filled your car at Shell stations they gave you a decent price for fuel. You can’t use Esso, BP or your local supermarket station. Then when you go once a year on holiday in your car you can fill it up at any station you want to, only all of them charge you four times as much for a litre of fuel as the locals pay for the same fuel. Sounds silly? Well, that’s more or less how the mobile market is in Europe.
So what does the Commission do? Well it cannot force changes to the market. It cannot create a proper EU-wide telecoms regulator as the Member States would cry foul. But it can manage to make the populist decision to cap prices, nevertheless leaving the problems with the market essentially unchanged. Better than nothing I suppose, but far from satisfactory.
There seems to be a misconception that you cannot force companies to compete. To answer Kosmopolit about what kind of instruments exist to tackle the situation- it’s simply – DG Competition.
If companies are not competing, they’re colluding. This is known as a cartel and is quite against EU competition rules. If companies are overcharging, that’s also against competition rules…
Kuneva said today at the press conference that prices for voice roaming are “clustered around the upper limits” and that the situation is being “collectively exploited” by the industry. Reding and Kuneva are doing the best they can. Kroes… is in my humble opinion not doing enough.
So yes, it is possible to do something about it- investigate and fine the companies who are working against the consumer.
We (I work as the editor of New Europe newspaper) ran an extensive story on the issue of Roaming last week (http://www.neurope.eu/articles/89716.php)
Also, Jon, keep in mind that the companies who have “concerns” are the ones who the commission was investigating for anti-competitive practices in 2004…2005…2006… and most of 2007 🙂
Where there is lots of money there is lots of influence.
Good point and very nice comparison with the fuel in Europe! The last EC initiative already showed that something is wrong with the telecommunication market.
I wonder what kind of legal instruments actually exist to challenge the situation… At the same time the Commission could surely push into that direction if there was some political will.
Actually it is interesting that all sectors that used to be state-run (energy, telecommunication, trains, postal services,…) have somehow incomplete integrated markets from a European perspective.
Handy example! 🙂
I think it’s a matter of time and numbers though. How many individual consumers in the EU use their personal mobiles in other countries on a day to day basis? Probably far fewer than New England inhabitants crossing to neighbouring states.
How many people would change their mobile provider on the basis of international call charges? I would, but I reckon someone who goes for a 2 week holiday each year as their only sortie from their home country would not.
So while I reckon there is collusion, I think the market incentive to change is also weaker.
I agree, it’s essentially a market failure in Europe. In the US, when mobile phones first started becoming popular in the late 90’s, the carriers typically offered you a “home area” where you could use your phone, and if you left this area you would be charged roaming fees. For instance, my first cell phone was in Boston, and if I left New England I would be charged a roaming fee. Then one mobile operator said, ‘from now on our customers can use our entire network nationwide without roaming.’ Then obviously the other mobile operators had to follow suit. It was a natural market innovation.
So why haven’t the large pan-European operators like T-Mobile and Orange offered the same thing? Clearly it would give them a big advantage over the domestic companies, and they would snatch a whole lot of cusomers from them. I think that these large European mobile operators have colluded and made a pact that none of them will do this, because they saw what happened in the US when one operator ended roaming fees in the US.
So, it’s a failure in the market. But I wonder if one of the carriers will see the way the wind is blowing and suddenly decide to ‘generously’ offer their customers free or reduced use across their other national networks. That’s the way T-Mobile presented it to me when they lowered their roaming rates after the first round of legislation passed. I nearly threw my phone out the window when they sent me that text message!