End of roaming charges: CERRE’s Martin Peitz comments


From today, European consumers who travel within the EU will be able to call, text and connect on their mobile devices without having to worry about roaming charges. The European Commission has claimed the new rules as ‘one of the greatest and most tangible successes of the EU’. Indeed, it is true that the decision is immensely popular and long awaited, in the eyes of consumers. But looking beyond the headlines, Professor Martin Peitz, CERRE Research Fellow and Professor of Economics at the University of Mannheim, says the picture is not so clear:

“The regulation of roaming fees is an intervention that does not follow regulatory principles applied to other communication services, as it directly regulates the price paid by consumers. By removing roaming fees, consumers will typically pay the same retail prices when calling somebody in their home country no matter whether they are making their call from another country or from their home country. With some qualifications this also applies to SMS, incoming calls and data traffic. Regulating retail prices has become rare. However, reducing roaming fees has proved one of the most popular policy decisions by the European Commission. A defense of that policy is that it encourages European integration. Another defense is that it remedies the market failure that arises when consumers are unaware or do not fully internalize the payments they have to make for roaming services.

As regards the respect of this rule, I expect that most established operators will comply, as hidden charges for consumers in violation of the regulation is likely to tarnish their reputation. It is less clear to me whether small virtual operators may try to find some ways to charge consumers for roaming services despite the regulation.

However, regulating a particular retail price as part of a large bundle of services provided to consumers is likely to lead to overall price changes.

The question then is which part of the lost revenues for roaming services will be recouped, for instance, through an increase of the monthly subscription fee. If such a pass-on takes place, it is easy to identify the winners and losers of the regulation. The winners are those consumers who frequently use roaming services, while the losers are those consumers who rarely use them, in particular, because they do not spend much time outside their country. Thus, those who frequently travel in the European Union are the winners and those who do not are the losers.

If overall profits for telco companies go down because only part of the lost revenues are recouped, this may have an effect on investment decisions. However, I would not be too worried about such investment effects. 

Finally, roaming is different from making calls from one's home country to another country. Is there a need for regulating also the latter? Due to the rise of so-called over-the-top players (OTT) such as Skype and WhatsApp, many people can avoid high payments for such communication services.

This does not necessarily put much pressure on prices charged by telcos. A lack of price pressure can be the result of telcos giving up on competing with OTTs and only trying extracting rents from captive consumers who, for whatever reason, do not consider or do not have the option of using services provided by OTTs.

One would need to make the argument that these consumers need special protection. I see little reason for intervention in this market segment, unless concrete evidence emerges that a particular group of consumers is systematically exploited.

As a general guidance to regulators, only well-identified market failures should lead to regulatory intervention and not the discomfort with a certain price as part of a bundle for a complex service offer.”