The European Commission yesterday announced measures which directly intervene in the roaming market. These measures are in addition to the expected continuation of price caps on voice and SMS and new caps on data downloads.
The Commission, first under Vivianne Reding and now under Neelie Kroes, has adopted an agenda in relation to roaming (as part of the Digital Agenda) with the explicit aim of reducing the differential between national and roaming tariffs to zero by 2015.
The Commission also published yesterday a paper setting out the background to the new proposed measures, which explains their view, drawing on BEREC’s analysis, that the structure of the market inhibits competition acting as a constraint on prices. As a result, in the Commission’s view, without structural intervention there is an ongoing requirement for price regulation with no prospect of it being withdrawn. Their analysis clearly shows the influence of Commissioner Kroes’ prior competition job, with two proposals to address their identified conclusions in the demand and supply side of the market.
Taking the demand side first, the paper cites factors including the bundling of roaming with domestic minutes, high switching costs, the lack of adequate substitutes and the competitive focus on the domestic tariff as contributing towards a lack of competitive pressure on roaming prices. Their proposed solution is to decouple the sale of roaming from the domestic bundle by allowing consumers to buy roaming services from an operator other than their home network. The Commission hopes this will lower switching costs and increase demand elasticity as well as improving tariff transparency.
Looking then at the supply side of the market, the Commission identifies that it will need to mandate wholesale roaming access in order to facilitate market entry of competitors (in particular MVNOs) to the retail roaming market.
Whilst the Commission sees these measures as delivering the required outcomes in the long-term, over the medium term they propose an extension of existing retail voice and SMS price caps and new price caps for data downloads until at least 2016 and wholesale price caps for a longer period until at least 2022. In both cases the Commission reserves the right to lift the caps if the structural solutions deliver the desired market outcome, although they also reserve the right for additional structural intervention.
In terms of market impact, this is clearly more bad news for the mobile network operators. In a week where some UK operators have withdrawn handset subsidies for some pre-pay customers, it remains to be seen whether this will result in ‘water-bed’ price increases in domestic tariffs as the mobile operators face increased capital expenditure requirements as they embark on an expensive program of spectrum acquisition and LTE roll-out to meet the increasing consumer demand for data services. This will be more positive news for MVNOs and I would expect more market entrants in that segment.