LFMI response to Public Consultation on a Review of Regulation (EC) No 544/2009 (the “Roaming Regulation”)

The underlying question concerns not only the regulation in question (544/2009) but the general idea of whether the government (or governments) in a capitalist economy should regulate prices. The discussion should not be compartmentalized as a choice between the current and the new regulation, but rather a discussion on whether we should have this regulation at all. The supposed effectiveness of the current regulation does not justify its existence; the perceived shortcomings do not call for the improvement of the regulation. The process of review should consider the fundamental question of whether such regulation is needed at all.

Question 1: To what extent do you believe that the current regulation achieved its objectives in terms of:
(a) Contributing to the single market for roaming services?

Single price is not the same as single market. It is not clear how and why EC compares single market and single price. While it is true that in integrated (single) market prices tend to gravitate towards the same level (market price), regulated price is not a consequence of market forces.

In the same time it is not clear what is meant by “single market”. Transactions for goods and services traded in the single European market are made by innumerable deals by many businesses and people. Existence of “sub-markets” and “single market” are not mutually exclusive. If company A decides to sell a service to company B, but not to company C, it does not mean that the three companies are not in a single market. If certain operators sell roaming services to other operators at preferential rates or direct contracts, this does not mean that these transactions take place not in a single market.

(b) Ensuring consumer protection?

Consumer protection prior to regulation was sufficient. There is no evidence that the level of consumer protection before the regulation was insufficient, or that consumers were not protected adequately. The level of consumer satisfaction with mobile telephony was high before the “Roaming Regulation” and remains high after the “Roaming Regulation”. There is no precise way to measure how exactly Roaming Regulation affects consumer satisfaction or consumer protection.

Prices, differences between prices and other elements of the market cannot be interpreted as undisputed signs of lack of consumer protection. Moreover the effective policy of consumer protection should focus on protecting the rights of the consumer when such rights are being violated by other parties (e. g. fraud, provision of incorrect information, deceit etc.) Regulating the price of end-products cannot be seen as a means of consumer protection.

Roaming is not important to majority of consumers. The Commission seems to agree that the question of roaming is unimportant to users of mobile telephony. The actual consultation document says that “… subscribers do not choose their mobile operator based on the roaming charges offered. In the retail market, the focus of competition is on domestic services and roaming does not seem to be given much weight by a typical customer…” This supports the notion expressed by many parties before Roaming Regulation was put in place: roaming services are a niche market not used by the majority of consumers. The issue of consumer protection in roaming is not more significant (or most likely – less significant) than in any other sector of the economy.

More importantly the fact that consumers do not choose their provider based on roaming prices indicates that consumers themselves do not identify roaming practices as restricting their rights as consumers.

Roaming is a niche market. Roaming and calls made inside the country (regular) work in separate market segments. Because regular service is much more popular companies spend more resources competing in this segment (advertising, discounts etc.). But this does not in any way suggest that there is a lack of competition in the roaming sector. There are special payment plans for roaming services, pre-paid cards and other products which compete in the segment of international calls for mobile telephony.

Moreover the Benchmark[1] report indicates that customers (e.g. businesses) for whom roaming is a significant issue, negotiate special rates and discounts. This shows that there was and there is a functional – niche – market for roaming. Difference between domestic and international rates do not indicate lack of competition or consumer protection. The proposed aim that the international and domestic rates become equal is misleading and not worth pursuing. As explained before the two markets so far operate in different segments therefore it is entirely reasonable companies charge different amount for domestic calls and roaming (essentially – international calls).

More importantly it is irrelevant to discuss whether roaming really is a different service than regular calls. If the consumers think (accept) that roaming is an additional service, it should be treated as an additional service, for which the consumers are willing to pay extra. Therefore it is not unreasonable that companies charge different rates for domestic and roaming calls.

Difference between cost and price is irrelevant in judging the level of competition. The observed difference between wholesale and retail prices of roaming services is also irrelevant when discussing competition. There is no basis to assert that there should be only a “small” (another arbitrary notion) difference between price and cost.

More importantly there is no basis to assume that the costs and prices should converge. In a free-market economy prices are set by interaction supply and demand, not only by the cost of production.

The difference between wholesale and retail prices is not unreasonable. The Benchmark report shows that the wholesale price for voice is 26 €c/min, the “Eurotariff” for making a call is 43 €c/min, receiving – 19 €c/min. On average (average between making and receiving a call) this implies 19% difference between the wholesale and the retail rate. In SMS situation is similar: wholesale 4 €c/min, Euro-SMS sent 11– €c/SMS, received – 0 €c/SMS. Moreover, as already mentioned previously there is no basis to assert that the difference between the wholesale and the retail prices should be miniscule.

(c) Promoting competition?

If the objective of the regulation is to create a single market for roaming services then the price regulation hampers this objective rather than helps to advance it. Markets expand and integrate best when there are no (or minimal) restrictions. When the price caps are below the market price companies try to minimize economic losses from the activity rather than expand it. By setting the “Eurotariff” the EC has harmed the competition.

Experience from other sectors unambiguously shows that price regulation is detrimental to competition and EC has taken steps to remove price regulation. For instance EC is completely phasing out regulated tariffs in energy. Price cap for roaming and “Eurotariff” is tantamount to a regulated price for end-users in energy. More striking phasing-out of regulated tariffs in energy sector is happening regardless of existence of de­-facto monopolistic market structure. Therefore this is a paradox: EC is introducing a regulated tariff in a very competitive market (mobile telephony) and phasing-out regulated tariffs in a much less competitive market (energy).

If cross-subsidization between roaming and domestic rates truly took place, such cross-subsidization would not have been damaging to competition. First, the both markets, roaming and domestic, operate in conditions of competition. This means that cross-subsidization would have been happening between two competitive segments of the market. As such there would have been no damages to competition.

Current price levels gravitating around price caps show that the price caps may be too low. These low prices are not a consequence of competition but of regulation.

Data showing the increase of volume of calls, SMS or data does not prove that roaming regulation increased competition. The volumes could have increased simply because of natural trends and expansion of the sector. Alternatively lower prices might have encouraged more roaming calls, but once again, this is not a sign of increased competition but of elementary law of demand. Moreover the Benchmark report shows a drop in volume in 1st quarter of 2010, indicating that there are other significant factors behind the volume of roaming service.

Q2. Do you consider that regulatory intervention for roaming services is needed beyond June 2012? If you consider that Roaming Regulation should expire in June 2012, please explain why, and describe how the market for roaming services will evolve in the absence for regulation.

The reasons why the regulation is not needed are described in the answer to Question 1. The vision or forecast for the market for roaming services is not relevant when answering the question whether we need “Roaming Regulation”. Experience prior to the introduction of the “Roaming Regulation” shows that the sector can function and expand without this specific regulation. The “Roaming Regulation” is not needed, just like it was not needed when it was being introduced.