1 International mobile roaming: regulatory policies in the EU Hans Bakker Director, Regulaid NATP-II Project leader

2 What is international mobile roaming? Service by a mobile network operator enabling access to its network for subscribers to a foreign mobile network for making and receiving calls

3 Calling home: how does it work.

4 Calling home: what does it cost 1.Wholesale fee of Host operator including profit mark-up 2.International transit charge including profit mark-up 3.Destination network termination fee including profit mark-up 4.Your home operator profit mark-up __________________________+ 5.Your invoice

5 Receiving calls: how does it work.

6 Receiving calls: what does it cost 1.(Caller pays own call to your home operator) 2.International transit charge incl.profit mark-up 3.Host network wholesale termination fee incl. profit mark-up 4.Your home operator profit mark-up ____________________________+ 5.Your invoice

7 Why are the rates so high? Costs not significantly different from non-roaming calls No competitive pressures in wholesale market Low consumer awareness: Many travellers –not aware of high rates and of “called party pays” –not aware of choice options –no easy access to alternatives Compare: hotel room telephone tariffs.

8 No competitive pressures in wholesale roaming market Random selection of roaming network: wholesale buyers can not exert buying power and induce competitive behaviour However, emerging traffic direction technologies enable operators to lead calls to specific roaming suppliers, thereby enabling themselves to take a negotiating position But do they want to? International standard agreements between operators in GSM Association

9 European Union efforts to address international roaming price problem 1. Use of antitrust powers (EU Treaty) for ex post sanctions against “abuse of dominance” with cross border effects 2.Promotion of transparency 3. Ex ante regulation

10 Use of antitrust powers 1999 start of ‘Sector Inquiry’ Initial findings 2001/2002 on-site inspections 2004 statement of objections against two UK mobile operators: abuse of 100 % dominance on own network by charging excessive prices 2005 statement of objections against two German operators Ongoing. Very slow, difficult legal issues: –Delineation of relevant market –Prove excessive prices.

11 Ex ante regulation: the old framework -Cross border problem by definition -Regulation on behalf of foreign stakeholders calls for reciprocal and concerted action, which was not taken -Regulators inactive under old regulatory framework: -not all were empowered -not all were inclined to take action

12 ….so for a while nobody moved -Ex post measures too slow and uncertain -Ex ante regulation deadlocked -Only transparency initiatives (website EC) -Some initiatives by operators to introduce wholesale discounts (up to 50 % - from what margins?) but these were not passed on to consumers

13 ….until introduction of new regulatory framework 2002: -2003: Wholesale international roaming one of 18 markets eligible for ex ante regulation -2004: Regulators send questionnaires to operators -2005: ERG drafts common approach to market analysis -Market analyses now being implemented

14 ERG common approach (1): -Although terminating incoming calls to foreign roaming end users is part of the wholesale market, this is generally done against usual terminating tariffs (same as other calls coming from international transit). High end user prices for “receiving calls abroad” therefor come from home network mark-up -Handling originating calls from foreign end users (“calling home”) is charged heavily by Host network to Home network through Inter-operator Tariffs (IOT). End user prices for “calling home” are combination of IOT and Home network mark-up.

15 ERG common approach (2): Role of traffic direction -Growing use of traffic direction technology makes it possible to single out preferred roaming partner network, but unclear if this is used to negotiate lower IOTs or just to enhance alliances -Where fully operative, traffic direction technology may enable substitution of preferred providers, enhancing competitive price incentives -It is not expected that MNOs will direct 100 % of traffic to one preferred partner network in the short to medium term; contracts will all MNOs. -All MNOs in a given country therefor part of the wholesale roaming market.

16 ERG common approach (3): Single player SMP -Market dominance of single Significant Market Power (SMP) players not indicated by market share: no evident high and persistent market shares. -Single player SMP less likely if widespread use of traffic directions technology for price negotiations and countervailing buying power -Single player SMP may however result from ability to use membership of alliance to behave independently from buyers

17 ERG common approach (4): Joint dominance -Joint dominance/Tacit collusion: “Even in the absence of structural links between operators, market structure can be conducive to co-ordinated outcome”. Likely if: -Mature product: yes -Homogeneous product; yes -Stagnant growth on demand side: yes -Similar cost structure of operators: yes -Low elasticity of demand: yes -High entry barriers: yes -Lack of potential market entry: yes -Likely collective interest stronger than likely gains of individual competitive behaviour: yes

18 Market analyses ongoing 1.Market analysis in each member state: “market 17” often is last in line, possibly to enable concerted approach 2.Consultation procedures 3.Notification to European Commission, which can veto market definition 4.Choice of remedies 5.And then…..appeal procedures.

19 Recent consultation document ARCEP (Fr.) 1.No single SMP player in wholesale international roaming market 2.Situation qualifies as joint dominance 3.European Commission should assess legitimacy of GSM Association agreements 4.If necessary, regulation by new law

20 Options for remedies (1): Transparency ERG report lists transparency options, e.g.: -Websites by regulator or independent third party -SMS initiated by home operator or end user -SMS by host operator (expanded welcome message) -Paper info in airplanes

21 Options for remedies (2): enhance competition 1.Bypass option: local prepaid SIM cards 2.Competition on the networks: mandatory networks access for MVNO’s targeting roaming prices 3.“Carrier selection” for mobile roaming 4.Voice over broadband bypasses will grow in use

22 Options for remedies (3): price regulation 1.In retail price control (not EU): Linking up with non-roaming retail tariffs for identical functionalities 2.In wholesale: Retail-minus wholesale rates Remedies must be internationally co-ordinated to prevent market distortions.

23 NATP-II Project 1.Workshops with in-depth transfer of information 2.Bilateral direct assistance (“leverage”) 3.High level meetings EU and MEDA country regulators 4.Help prepare common approach

24 Thank you