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Why the EU is hung up on mobile roaming

Published in Business Spectator (Melbourne), 21 May 2015

simcardsAt a time when Britain is considering whether to leave the EU, Greece still teeters on the brink of bankruptcy, and Brussels cannot find a response to the refugee crisis in the Mediterranean, many ordinary Europeans will question what European integration has ever done for them.

For Europeans concerned about the value of the EU, one project has always been cited as exemplifying what is so good about it. It has nothing to do with Greece or the euro, but with their mobile phone bills.

Except that this example might now backfire on the EU.

For years, both the European Commission and the European Parliament have been trying to eliminate those unpopular extra fees that mobile phone customers face when travelling around Europe. In the past, these fees were often ridiculously expensive. An unsuspecting user making a few calls, sending text messages or browsing the web abroad could face a bill shock on his return.

Arguing that such roaming fees were violating Europe’s common market, the EU had already limited mobile telephony surcharges. Making phone calls would thus cost no more than an extra €0.19 a minute extra, receiving calls €0.05, and sending text messages €0.06 (all compared to domestic mobile phone rates).

For the EU’s ambitious leaders, this was not good enough. Rather than limiting roaming surcharges, they were determined to abolish them altogether.

A leaked document from the European Council now revealed that it will not come to that. Apparently in response to pressure from large telecommunications providers, the EU is watering down its proposals for roaming rates caps.

Instead of abolishing them, the EU now only wants to mandate some roaming free basics. Customers would then only be allowed to use their mobiles abroad for the price of the domestic tariff for up to 50 minutes of telephony, 50 text messages and 10 MB of data per year.

For the EU, its Commission, and its Parliament, this watered-down roaming solution would be an embarrassment. After all, the EU and its institutions had always used mobile roaming charges as the best example of the EU’s beneficial nature for consumers. In the past, both EU Commission President Jean-Claude Juncker and European Parliament President Martin Schulz have used the abolition of roaming charges as a positive example of the EU’s work.

In some ways, it is good that the EU is failing in this prestige project. Because if this is what Europe is all about, the European institutions would not be worth having.

The EU’s standard argument against roaming charges is simple. As there is a single common market for all EU member states, prices should not vary whether you use your phone at home or abroad. Having extra charges for mobile phone use would then look like an unjustified distortion.

But the truth is that despite having a common market without borders, there is not one European telephony market but many national ones. Mobile phone operators typically maintain a network in one country. They may have sister firms or subsidiaries in other countries but they still operate as national providers.

When customers travel from country to country, there are costs for which national mobile phone providers have to compensate their international counterparts whose infrastructure was used. The costs are probably quite a bit lower than the charges customers used to face, but there is still a difference between domestic and international phone use costs.

The basic definition of justice is that you treat like things alike and different things differently. It is only fair, then, that consumers pay different prices for domestic and roaming calls, texts and data because they are using different products.

The EU, meanwhile, tried to use roaming charges as a populist tool to demonstrate its usefulness. In doing so, it neglected this basic principle of justice. And in pretending to make the common market work better, it was prepared to interfere with market mechanisms.

Let’s face it. The proposed abolition of roaming charges is nothing but old-fashioned price control. It is an intervention in the freedom of contract for phone companies to set their own rates. Admittedly, many phone companies have in the past used roaming charges as a cash cow. But they had every right to do so, and consumers always had ways around them anyway by switching SIM cards at the border or using WiFi and internet telephony instead.

There is another argument against mandating uniform telephony prices across Europe. It will benefit a small group of users at the expense of everybody else.

Most Europeans do not travel excessively around other countries. They might go on holiday once a year but for the large majority, this will be the only time they are confronted with roaming charges. The group most affected by roaming charges are business travellers, who are more likely to be heavy users of communications services as well.

If prices became uniform across the EU, it could be expected that telecommunications providers will seek to recoup their losses by increasing prices for all contracts and customers. In this way, light users would be subsidising heavy users. It may not be the EU’s intention but it would mean that occasional roaming users would pay for business users’ right to roam.

Finally, should EU-wide roaming ever be implemented, it would probably still require additional regulations. Once any SIM card from any European country offered the same services, consumers might just shop around for the cheapest offer. In this way, a British mobile phone user could install a, say, Latvian SIM card if Latvian contracts are cheaper. To prevent this, Italy has already suggested that a “fair use” policy should be mandated which limited the number of days a mobile phone could be used outside its home market. It is a case of one regulation triggering the next one.

The idea of abolishing all roaming rates across the EU may have populist appeal, and it is easy to see why EU politicians are pushing the idea. However, it is equally clear why such a policy does not make much sense. It could make mobile telephony more expensive for all users, lead to additional regulations to make the scheme workable and shows the EU at its worst: as an interventionist price regulator.

Unfortunately, none of this has anything to do with promoting the EU’s common market. All it does is provide a convenient distraction from the EU’s real problems and its failings.

But as it turns out now, the EU is not even able to deliver that.

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