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December 12, 2006

EU approves mobile roaming price cap

Member states of the European union have approved, in principle, plans by the European Union to cap mobile roaming charges, which could slash 70% off the cost of using a mobile phone in Europe. The move came despite a proposal by France and the UK to buy mobile operators some more time over the price cuts.

By CBR Staff Writer

It was back in July this year when Viviane Reding, the EU Commissioner for Information Society and Media, revealed plans to cap roaming charges. At that time, it appeared as though the Commission had watered down its initial proposal in the face of fierce of political and industry opposition. In particular, it abandoned plans to stop operators charging consumers to receive calls when they are abroad.

Instead, the Commission proposed that the wholesale cost should be capped based on the cost of the termination rate for calls, which varies from country to country. For example, for UK customers the cost would be capped at roughly 11 pence (20 cents) a minute. Calling home from abroad will be limited to 32 pence (58 cents) a minute, whereas making local calls while abroad will be limited to 22 pence (40 cents) a minute.

Reding also wants a cap on retail tariffs charged to EU customers to ensure lower wholesale prices filter through to consumers straight away.

For years, mobile roaming charges have remained at unjustifiably high levels, in spite of repeated warnings to the industry, said Reding five months ago. This is why Europe needs to act now.

But Reding’s moves are being fiercely resisted by mobile operators, who warn the regulation could damage investment in the mobile sector. They argue that healthy competition is the best way of forcing mobile operators to cut prices, a view backed by the GSM Association, which believes the proposals are unnecessary as competition is already delivering substantial reductions in the prices of roaming services.

Over the years, mobile operators have justified high roaming charges not only because of the complexity of routing a call over different networks, but also the complex billing process involved for making a call to a roaming mobile handset.

But there is little doubt that roaming is a lucrative revenue stream. Industry estimates suggest that these services can account for up to 20% of operators’ revenues. It is thought that around 147 million people in Europe use their mobile phones overseas, paying fees totally more than 5bn pounds ($9.17bn) a year.

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Reding’s proposals were always going to be controversial, but the plans have now been approved in principle by both the European Parliament and a majority of member governments. However, member states are also backing a proposal from the United Kingdom and France, which argued that a six month window was needed for operators to come with voluntary price cut before the EU imposed mandatory cuts, a so called sunrise clause.

In particular, the UK and France believe that the cuts favored by the Commission would put too much of a burden on mobile operators, which over the past few years have been struggling to pay off huge debts from 3G license sales.

However, Reding is adamant that this grace period will not work. Speaking after a meeting of national telecoms ministers, she insisted the UK and France’s proposals could sink her plans to cut roaming costs, because of the logistics of trying to monitor every tariff from every European mobile operator would be too great a task for the Commission. She remains convinced it would be best to go for a immediate clampdown on roaming charges straight away.

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