International mobile roaming: regulatory policies in the EUHans BakkerDirector, RegulaidNATP-II Project leader

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

Calling home: how does it work.

Calling home: what does it costWholesale fee of Host operator including profit mark-upInternational transit charge including profit mark-upDestination network termination fee including profit mark-upYour home operator profit mark-up __________________________+Your invoice

Receiving calls: how does it work.

Receiving calls: what does it cost(Caller pays own call to your home operator)International transit charge incl.profit mark-upHost network wholesale termination fee incl. profit mark-upYour home operator profit mark-up ____________________________+Your invoice

Why are the rates so high?Costs not significantly different from non-roaming calls No competitive pressures in wholesale marketLow consumer awareness: Many travellers not aware of high rates and of called party pays not aware of choice optionsno easy access to alternativesCompare: hotel room telephone tariffs.

No competitive pressures in wholesale roaming marketRandom 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

European Union efforts to address international roaming price problem1. 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

Use of antitrust powers1999 start of Sector Inquiry 1997-20002000 Initial findings2001/2002 on-site inspections2004 statement of objections against two UK mobile operators: abuse of 100 % dominance on own network by charging excessive prices2005 statement of objections against two German operatorsOngoing. Very slow, difficult legal issues:Delineation of relevant marketProve excessive prices.

Ex ante regulation: the old framework

Cross border problem by definitionRegulation on behalf of foreign stakeholders calls for reciprocal and concerted action, which was not takenRegulators inactive under old regulatory framework: not all were empowerednot all were inclined to take action

.so for a while nobody moved

Ex post measures too slow and uncertainEx ante regulation deadlockedOnly 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

.until introduction of new regulatory framework 2002:

2003: Wholesale international roaming one of 18 markets eligible for ex ante regulation2004: Regulators send questionnaires to operators2005: ERG drafts common approach to market analysisMarket analyses now being implemented

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.

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 alliancesWhere fully operative, traffic direction technology may enable substitution of preferred providers, enhancing competitive price incentivesIt 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.

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 powerSingle player SMP may however result from ability to use membership of alliance to behave independently from buyers

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: yesHomogeneous product; yesStagnant growth on demand side: yesSimilar cost structure of operators: yesLow elasticity of demand: yesHigh entry barriers: yesLack of potential market entry: yesLikely collective interest stronger than likely gains of individual competitive behaviour: yes

Market analyses ongoingMarket analysis in each member state: market 17 often is last in line, possibly to enable concerted approachConsultation proceduresNotification to European Commission, which can veto market definitionChoice of remediesAnd then..appeal procedures.

Recent consultation document ARCEP (Fr.)No single SMP player in wholesale international roaming marketSituation qualifies as joint dominanceEuropean Commission should assess legitimacy of GSM Association agreementsIf necessary, regulation by new law

Options for remedies (1): TransparencyERG report lists transparency options, e.g.:Websites by regulator or independent third partySMS initiated by home operator or end userSMS by host operator (expanded welcome message)Paper info in airplanes

Options for remedies (2): enhance competition

Bypass option: local prepaid SIM cardsCompetition on the networks: mandatory networks access for MVNOs targeting roaming pricesCarrier selection for mobile roamingVoice over broadband bypasses will grow in use

Options for remedies (3): price regulation

In retail price control (not EU): Linking up with non-roaming retail tariffs for identical functionalitiesIn wholesale: Retail-minus wholesale rates

Remedies must be internationally co-ordinated to prevent market distortions.

NATP-II Project Workshops with in-depth transfer of informationBilateral direct assistance (leverage)High level meetings EU and MEDA country regulatorsHelp prepare common approach

Thank you

hbakker@natp.orghbakker@regulaid.com

( (5 22-23 2006