MVNOs Urge EU Lawmakers Not to Squeeze Them Out of the Mobile Roaming Market

Without “substantial and radical changes,” mobile roaming reforms floated by EU lawmakers will be a huge failure, a representative for independent mobile virtual network operators (MVNOs) said Wednesday at a European People’s Party hearing in Brussels. The event, chaired by the author of the draft legislative response to European Commission plans to force down high data roaming costs, looked at proposed price caps and “structural measures” such as “decoupling” of domestic from roaming contracts and giving alternative providers access to networks in other EU countries at regulated wholesale tariffs. MVNOs fear the report’s recommended roaming prices are so low that independent virtual operators will be barred from competing, said Innocenzo Genna, speaking for Italian MVNO Poste Mobile and independents in general. The Organisation for Economic Co-operation and Development warned that any solution to pricey roaming rates must consider smaller players.

The EC plans to allow customers to make roaming agreements that are separate from their national service contracts and keep the same phone number (CD Dec 14 p9). Alternative providers such as MVNOs will have access to others’ networks in other EU members at regulated wholesale prices. The legislative report, by Angelika Niebler, of Germany and the EPP, urged a more ambitious approach to price caps (CD Dec 21 p6).

The EC wants wholesale calling charges that operators of a visited network are permitted to collect from a user’s home provider limited to not more than euro 0.14 ($0.19) per minute to begin with and euro 0.06 by 2014, while the draft parliamentary report calls for euro 0.10 decreasing to euro 0.04. The EC plan caps retail calling rates at euro 0.10 per minute, the legislative report euro 0.05. Roaming texts will eventually drop to a wholesale rate of euro 0.02 per message under the EC proposal, and euro 0.01 per message under legislative response. Retail texting rates won’t be able to exceed euro 0.10 per message under the EC proposal, euro 0.05 under parliament’s. For data roaming, the EC and parliamentary report agree on an eventual wholesale cap of euro 0.10 per megabyte, but converge widely on retail ceilings (euro 0.50 per megabyte in the former proposal as opposed to euro 0.20 in the latter).

Independent MVNOs support structural solutions but not parliament’s proposed price caps, Genna said at the hearing. Europe has around 1,000 MVNOs but only a few of them are capable of boosting competition unless the right regulatory conditions are set, he said. Independents need two basic things to enter the international roaming market, he said: a fair wholesale price and an adequate margin between wholesale regulated tariffs and retail caps. It may be hard to assess a fair wholesale price because no one knows mobile operators’ industrial costs and there’s no available cost-accounting methodology, he said. But the proposed wholesale rates are much higher than those calculated by the Body of European Regulators of Electronic Communications (BEREC), he said.

Another problem is that BEREC has amassed data for identifying a wholesale price, but the same can’t be said about the appropriate margin between wholesale and retail rates, Genna said. Since there’s no MVNO business in international roaming now, there’s no objective evidence, he said. If the margin is too small, MVNOs will never get off the ground, he said. If the margin is right or excessive, however, the consequences are different, he said. Whatever that margin, MVNO revenue at the beginning will be “zero or just peanuts” because of the small customer base for new entrants, he said.

Moreover, what little revenue there is will be eaten up by major start-up costs such as networks, marketing and informatics systems, Genna said. So even with a beneficial margin, independent MVNOs are looking at losses for the first two to three years, he said. But if they grow and the margin then becomes unbalanced, they can simply cut retail prices, reducing the margin and meeting EU objectives, he said. Only very low wholesale prices may help mobile operators decrease retail prices, he said. If wholesale rates aren’t low enough, MVNOs won’t grow and will have no incentive to lower retails tariffs, he said.

One of the main barriers to action is the lack of jurisdiction over operators abroad, said speaking points for OECD Science, Technology and Industry Director Agustín Díaz-Pinés. The EU has legal requirements for intra-EU routes but other OECD countries don’t, he said. They're likely to try regional solutions in the form of bi- or multilateral agreements, he said.

The EC proposals for wholesale access and unbundled roaming services move in the right direction, Díaz-Pinés said. Price caps so far have addressed high prices but not the underlying issue of lack of competition due to the particular market structure, he said. Europe will probably need price ceilings and structural measures for some time, he said.

The costs and technical solutions for structural measures may be worrying, Díaz-Pinés said. The OECD believes that regulators and the industry can come up with a good solution, but they must pay attention to smaller operators, considering that competition should be coming from them, he said. “Established players are unlikely to make a move for more competition,” he said.

Initiatives aimed at regulating mobile roaming are “surging” worldwide, Díaz-Pinés said. But efforts in Russia, Australia and New Zealand, the Gulf Cooperation Council and the Association of Southeast Asian Nations focus on price regulation and transparency and don’t address structural measures, he said. “The world is watching the EU” to see if decoupling and the other proposals work, he said.