itu roaming workshop - incyte consulting€¦ · international roaming and ... eurotariff-outbound...

InternationalTelecommunicationUnionOctober 2010

1

ITU workshop onInternational Roaming and

International Traffic Termination

International Roaming –achievements and experiences

Bangkok 5-8 October, 2010

David Rogerson

2

Agenda

� Recap The EU case study on the regulation

of international roaming

� The 2007 Decision

� The 2009 Review

� Lessons to be learnt


3

Recap

4

The regulatory challenge of roaming � There is little competitive pressure on roaming prices – consumers don’t generally consider roaming charges when selecting mobile operator

� The principle component of roaming charges is the wholesale inter operator tariff (IOT)

� There is little competitive pressure on IOTs as the network selection is not closely matched to the level of IOT

� Some market-led solutions to high roaming charges exist but none is widely used� Home country SIMs designed for roamers

� Host country SIMs

� Reduced-price roaming based on traffic steering.

� Regulatory solutions have to be trans-national if they are not to have a negative impact on economic welfare

5

Possible regulatory approaches

� Dominance in national wholesale market for international roaming � Each operator controls the market for provision of roaming services to its customers

� Prices may either be excessive or predatory

� Define a trans-national market� Mobile operators in two countries may be considered jointly dominant in the supply of roaming services between these countries

� Hard to prove joint dominance and/or collusion in setting tariffs

� Consumer rights� Establish price controls on retail roaming

� Hard to enforce while IOTs are excessive since they are major component of retail costs


6

The EU case study on the regulation of international

roaming

7

A rough guide to EU roaming history

1999 2004 2007 2009

Competition investigation opened

Mobile operators HQs raided

Relevant market for wholesale roaming established

2002

EC urges NRAs to take action on roaming

ERG report identifies problems and difficulties resolving then

EU consultation, draft proposals and impact assessment

EU Roaming Regulation 717/2007

Review of regulation

EU Roaming Regulation 544/2009

2005 2006 2008

Ex-ante national regulation

Ex-post EU regulation

Ex-ante EU regulation

Key points

� It has been a long and resource-intensive

process

� Ex-ante regulation failed – the problem was

beyond national limits.

� Ex-post regulation failed – it was impossible to

make the case for abuse of dominance stick

� A co-ordinated trans-national approach was

required.

The ex-post investigation

� A sector enquiry was launched in 1999 to investigate whether

roaming charges infringed Article 82 of the Treaty of Rome.

� All mobile operators were considered dominant in their

national wholesale market as roaming agreements had to be

concluded with all operators in the visited country.

� The specific example of UK-Germany roaming was considered

and O2, Vodafone and T-Mobile investigated.

� Traffic steering was established in 2004, making the position

of single dominance hard to maintain.

� Joint dominance was considered but legally this is hard to

prove, and evidence was insufficient to take to court.

Ex-ante national regulation

� The new EU regulatory framework of 2003 included the national

wholesale market for international roaming as one of 18

relevant markets for ex-ante regulation.

� Little progress was made, but ERG drafted a common position

for consultation in June 2005

� In December 2005 the ERG published its final common position

which:

� Described the problem as “not trivial”

� Indicated that the 2003 regulatory framework was insufficient in

this “exceptional case” and the NRAs could not resolve the problem

on their own

� Urged a cross-border effort from the European Commission and

European Parliament

� Committed the support of ERG and the NRAs to working with the EC

to resolve the problem.

11

The basis for co-ordinated EU action

EU wide action on roaming rates

Retail rates unjustifiably

high

High IOTsand high

retail mark-ups

Lack of

transparencyin retail prices

Strong linkages between member states

The nature of the problem

00.20.40.60.81

1.21.4

Average EU

local postpaid

call (€)

Average EU

local prepaid

call (€)

Average EU

roaming

postpaid call

(€)

Average EU

roaming

prepaid call

(€)

Prices of local and roaming calls per

minute (2005)


13

The EU’s 2007 decision

14

Summary of the Regulation

� Price controls should be imposed at retail and

wholesale levels (“temporary” and “exceptional”)

� A maximum average per minute wholesale charge,

applying to any pair of operators over a specified

period

� Maximum retail charges established through a

Eurotariff, set to guarantee sufficient operator margin

and leave room for competition below the Eurotariff.

� Alternative roaming tariffs below the Eurotariff,

including fair-use all-inclusive monthly tariffs, may be

offered as a retail alternative.

� Full retail tariff transparency via message service

The Eurotariff rates

Sent calls Received calls

2007 0,49 €/min 0,24 €/min

2008 0,46 €/min 0,22 €/min

2009 0,43 €/min 0,19 €/min

Eurotariff automatically applied within 2 months unless subscriber opts-out

All prices exclude VAT

The maximum wholesale rates

All roaming calls

2007 0,30 €/min

2008 0,28 €/min

2009 0,26 €/min

Calculated between any two operators on any route.Averaged over a 12 month period.No peak and off-peak distinctions.

Eurotariff- outbound call scenario, 2007

Y X

Customer from Country X but roaming in Country Y calling another customer in Country X

Network in X bills the customer maximum of €0.49 per minute

Network in Y bills Network in X maximum of €0.30 per minute

MSC

IGW

MSC

IGW

Eurotariff- inbound call scenario, 2007

Customer from Country X but roaming in Country Y receives a call from another customer in Country X

X Y

Network in X pays Network in Y a maximum of €0.30 per minute

Network in X bills the roaming subscriber a maximum of €0.24 per minute

MSC

IGW

MSC

IGW

Network in X receives standard mobile termination rate from caller’s network, say €0.15 per minute

19

The process followed by the EC

� Consultation 1

� 51 respondents

� Operators claimed no regulation was needed

� Governments, regulators and user groups favoured

wholesale regulation

� A few respondents wanted retail price caps.

� Consultation 2

� 101 respondents

� Sought opinions on the proposal to peg retail roaming

prices relative to the equivalent tariff in the home

network, with compatible wholesale regulation

� Responses favoured wholesale rates being linked to

mobile termination rates (weighting in range 1.5 – 2.0)

20

Regulatory options considered

Regulation

Wholesale

Cost orientation

Price cap

NationalPan-

European

Wholesale + Retail

Retail

Home pricing

Visitor network

European home market

Model assumptions - 1

0

0.2

0.4

0.6

0.8

1

1.2

Estimated

wholesale cost (€)

Estimated IOT (€) Estimated average

retail charge (€)

Roaming prices per minute

45% retailmargin

300% w’salemargin

Model assumptions - 2

Price elasticity of demand

Scenario 1: pessimistic, based on industry input

Scenario 2:“minus one” considered to be realistic

Scenario 3: optimistic, based on analysis of actual tariff changes

Business -0.55 -1.0 -1.2

Residential -0.55 -1.0 -1.0

All scenarios assume substantial increase in traffic volumes as prices of roaming services decline. This in turn requires transparency of price information.

23

Conclusions from 2007 impact analysis

� International roaming provided revenues of

€8.5b in the EU in 2006, representing 5.7%

of total industry revenues.

� EC estimates that 75% of these revenues

are taken as profits = €6.1b.

� Proposed wholesale and retail regulation will:

� Reduce supplier surplus by €3.8-4.2b

� Increase consumer surplus by €5.3-5.9

� Bring increased economic welfare of €1.1-2.1b.


24

The EU’s 2009 decision

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Summary of the Regulation

� There is a continuing need for regulation of roaming

charges: no significant evidence of effective

competition in these services

� Price controls should be continued at retail and

wholesale levels, with prices declining year-on-year

� Price regulation extended to include SMS, MMS and

data roaming charges

� Billing for roaming services to be in 1-second intervals

� Receipt of voicemail while roaming to be a free service

� Regulation to be reviewed again before June 2011.

The Eurotariff rates

Sent calls Received calls

2009 0,43 €/min 0,19 €/min

2010 0,39 €/min 0,15 €/min

2011 0,35 €/min 0,11 €/min


All calls to be billed in increments of 1 second, with exception of a minimum charge of no more than 30 seconds

The maximum wholesale rates

All roaming calls

2009 0,26 €/min

2010 0,22 €/min

2011 0,18 €/min


Trend in EU roaming rates

0

0.1

0.2

0.3

0.4

0.5

0.6

2007 2008 2009 2010 2011

Retail out

Retail in

Wholesale

28

The Euro SMS tariff rates

Retail Wholesale

2009 -

2011

0,11 € 0,04 €


Euro SMS tariff automatically applies from July 2009 unless subscriber opts-out

30

German traveller faces €46,000 bill after

downloading TV programme while

roaming in France

UK student shocked by €9,000 mobile bill

while studying abroad

Mobile phone customers entitled

to protection from data-roaming

"bill shock"

European news headlines

31

Data roaming services

� Provision of consumer information

� Adequately informed of charges before and regularly

during the contract

� Explain how to switch off service when roaming

� Automatic personalised message to specify charges

when roaming

� Tariff and usage options

� Option to receive free-of-charge updates on

accumulated consumption measure in volume or value

� Option to establish one or more maximum financial

limits per billing period

� Default financial limit of no more than €50 of

outstanding charges per billing period.

� Notification when 80% of limit is reached, indicating how

to increase the limit

The maximum wholesale data rates

Per Mbyte of data

2009 1.0 €

2010 0,8 €

2011 0,5 €


33

Inputs to the 2009 Regulation - ERG

� The ERG is the club of national regulatory

authorities in the EU (now called BEREC)

� ERG has published six-monthly reports on

roaming charges since just before the 2007

Regulation

� It found that:

� There was full compliance with 2007 Regulation

� On average only 10% of roaming tariffs were non-

Eurotariff

� On average the billed roaming minutes were 24% (calls

made) and 19% (calls received) above network minutes

34

Inputs to the 2009 Regulation – public consultation

� 45 responses to 39 questions raised

� Wide support for extending the voice regulation

(except from larger, more established mobile

operators)

� All but one Member State supported introduction

of SMS regulation.

� GSMA noted that SMS roaming tariffs had fallen

18% and there were few consumer complaints

� Everyone against “bill shocks” but operators

favour self regulation.

35

Inputs to the 2009 Regulation – economic model

� The economic impact model from 2007 was

updated and extended using:

� New Euro tariffs for 2007-2008

� Costs based on average EU mobile termination rates

which had fallen to 10.5 Euro cents per minute

� Voice and SMS data

� No changes were made to the price elasticity

scenarios

� A range of forecast scenarios were assessed to

show that the Commission’s Euro-tariff proposals

provided the most favourable outcome.

36

Results of the economic impact model

-2000

-1000

0

1000

2000

3000

4000

5000

2007 2008 2009 2010 2011

Consumer surplus

Supplier surplus

Social welfare

Change in economic welfare (€m) under “pessimistic scenario” and EC’s proposed Euro tariffs

Volume of roaming callsreceived

Price of roaming calls received (€/min)

2007 103.4 0.35

2009 113.1 0.18

37

Volume of roaming calls made

Price of roaming calls made (€/min)

2007 143.4 0.70

2009 153.7 0.41

Is the economic model reliable?

Implied price elasticity of -0.19 (c.f. -0.55 in pessimistic EC scenario)

Implied price elasticity of -0.17 (c.f. -0.55 in pessimistic EC scenario)

Data from Berec 2010 Roaming Report

38

Revised results of the economic model

-1500

-1000

-500

0

500

1000

1500

2000

2007 2008 2009 2010 2011

Consumer surplus

Supplier surplus

Social welfare

Change in economic welfare (€m) under empirical elasticity data and EC’s proposed Euro tariffs

39

Conclusions from 2009 impact analysis

� EC analysis supported the continued (and accelerated)

downward trend in roaming charges.

� Decision supported by suspect economic analysis – in

fact the roaming charges are likely to have a negative

impact on economic welfare.

� Despite tariff transparency measures, tariff reductions

have not significantly altered traffic levels.

� The GSMA argument that roaming regulation transfers

benefits from price-sensitive consumers (non-

roamers) to price-insensitive consumers (roamers)

may in fact be true.

Regulators beware!

40

Setting prices for SMS roaming

� Wholesale charge (IOT):

� For origination of SMS by host network operator

� Equivalent to termination cost of SMS

� Average of 4€c per message in EU

� International transit may be ignored as close to zero

� Retail charge

� Includes IOT + termination charge + retail costs

� Termination charge must include allowance for SMS

received for which there is no revenue

� Option 1: 4€c+2*4€c+3€c=15€c uses termination rates

� Option 2: 4€c+2*2€c+3€c=11€c based on cost estimate

� Option 1 favoured after economic impact analysis

41

Policy options for data roaming regulation

� Let the market decide:

� EU prices fell from €5.81 to €3.50/Mbyte in 9 months

� But still variations between countries and vast difference

between home rates and roaming rates

� Transparency regulation:

� Tackles bill shocks but unlikely to bring excessive prices

down

� Wholesale regulation:

� Needed to allow retail prices to fall, since traffic steering

limits effect of competition at wholesale level

� Retail regulation:

� Premature as alternative forms of data access exist (e.g.

WiFi, fixed broadband, local mobile broadband SIM)

42

Tariff transparency options

� Basic price information:

� Necessary but not sufficient

� Cut-offs and warnings:

� Directly tackles bill shocks

� Puts the customer in control

� Real-time expenditure information:

� Technology in development but not yet stable or widely

available

� Flat-rate offers:

� Ideal for consumer and could be a commercial option

� Disproportionate as a regulatory remedy

43

Wholesale regulation options

� Aggressive wholesale cap (rejected):

� Costs are similar to national level data services

� Estimated cost of 45€c per Mbyte (NITA: Denmark)

� Actual tariffs in 25-50€c range

� Might restrict wholesale competition while encouraging

retail competition

� Wholesale cap at safeguard level (preferred):

� Some headroom on costs to allow wholesale competition

� Market rate of 50-250€c per Mbyte for non-group

companies

� New wholesale model (possible in the future):

� Time-based rather than volume-based

� Use domestic data service in host country

� Yearly volume commitment from home network


44

Lessons to be learnt

45

Lessons from the EU experience

� Regulation of international roaming is tough and time-

consuming

� It is necessary to deviate from the standard approach

of dominance assessment in national markets

� Regulation must be regional and needs to stay in place

for potentially many years

� There is need to cover:

� Voice, data and text

� Wholesale and retail regulation

� EU economic impact models look to have over-stated

the economic benefits; others might have to regulate

more tentatively.

46

Does EU experience transfer elsewhere?

Yes

• Same problems;• Same solutions

No

• Needs regional regulator;• Proportionate only where lots of regional roaming traffic

47

Principal sources

� European Union, Information Society Directorate,

International Roaming Website:

� http://ec.europa.eu/information_society/activities//roaming/ind

ex_en.htm

� Body of European Regulators of Electronic

Communications (BEREC, formerly ERG):

� http://www.erg.eu.int/documents/berec_docs/index_en.htm


48

Thank you.

In the next sessions a number of case studies will be presented to

provide alternatives to the EU model

itu roaming workshop - incyte consulting€¦ · international roaming and ... eurotariff-outbound...

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