Mobile operators’ share prices are recovering in the aftermath of EU raids on their offices.
The European Commission on Wednesday afternoon launched surprise raids on the headquarters of nine mobile telecoms operators in the UK and Germany. The Commission, which has been investigating the mobile market since January 2000, said it had uncovered serious competition concerns that required further investigation. The news hit operators’ share prices hard, but they have now regained some of the losses.
While mobile call changes in general have fallen hugely over the last few years, prices for roaming (using other operators’ networks while abroad) have stayed high, at an average of one euro per minute for calls within the EU. Operators make good margins on these calls, too. A formula devised by the GSM Association in 1991 gives the host operator a 35% markup on roaming calls.
If the Commission can prove that the mobile operators have formed a cartel, it can fine them up to 10% of their worldwide revenues. This would be a disaster for the operators; for example, Vodafone’s turnover last year was $30.1 billion. However, such a finding looks most unlikely. The Commission is more likely to introduce price caps, arguing that the market is uncompetitive but not actually cartelized.
Previous experience of industries being investigated for competition reasons also shows that the operators are likely to cut prices ahead of the Commission’s report. After all, no industry likes having its prices forcibly regulated.
It’s questionable, though, whether the Commission will really affect operators much. Mobile roaming is likely to become more competitive in the near future anyway, as the mobile industry consolidates into groups such as Vodafone and Orange with networks across the world. Since European penetration rates are high enough that mobile operators now need to increase revenue per user rather than acquiring new customers, they are highly likely to bring roaming into the mass-market. More companies will start offering flat-rate pan-European talk plans, bringing prices down.
