Neelie Kroes, Europe’s digital commissioner, wants to unify the EU telecom market by the spring of 2014, including provisions that would end all roaming charges across national borders within the EU. But there are two distinct potential revenue implications.
Ending roaming charges will put pressure on mobile service provider top line revenue. But a single telecom market also should help clear the way for continent-wide consolidation of service providers, moves that should strengthen revenue and also allow operating cost economies.
The issue is whether a faster end to roaming charges is balanced with greater freedom to consolidate assets.
The European Commission has already restricted how much operators in Europe can charge for roaming, and the EC also has made clear its intention to seek further changes. In that sense, the end of roaming charges will be a negative for mobile service provider top line revenue.
| Current and proposed retail price caps (excluding VAT) | ||||
|---|---|---|---|---|
| 1st July 2012 | 1st July 2013 | 1st July 2014 | ||
| Data (per MB) | 70 cents | 45 cents | 20 cents | |
| Voice calls made (per minute) | 29 cents | 24 cents | 19 cents | |
| Voice calls received (per minute) | 8 cents | 7 cents | 5 cents | |
| SMS (per SMS) | 9 cents | 8 cents | 6 cents | |
As an example, the existing price caps, in place since July 2012, allow a maximum of
70 cents per Megabyte when using the Internet whilst travelling abroad.
In July 2009, use of a megabyte worth of data would have cost more than € 4. So the cost of roaming use of the Internet was cut about 600 percent or more, in some cases.
Charges will continue to fall down to 19 cents per minute for calls and 20 cents per MB for internet access by 2014.
Given the financial pain lower wholesale roaming rates have been causing for European service providers, and the certainty that revenue will continue to fall further, an end to all roaming charges might not seem a welcome change.
Vodafone, for example, says international roaming in Europe accounts for around three percent of group revenue. And you can assume profit margins are very high, as there is almost no cost to generate the roaming revenue.
Vodafone furthermore generates around 11 percent of group earnings before interest, taxes, depreciation and amortization from European roaming, according to Bernstein Research.
But there is another potential change if the EU really can move to a single telecom market framework, namely that cross-border operations, and presumably cross-border mergers and acquisitions, will allow carriers to gain the scale they believe they need to make investments and slice operating costs.
On the other hand, European service providers have broadly called for relaxation of antitrust rules, to allow for much more consolidation in the market.
With more than 1,200 fixed network operators and almost 100 mobile networks, most operating with less than optimal economies of scale, operators argue it is not possible to create viable long-term businesses unless cross-border acquisitions and mergers are permitted and even encouraged.
Part of the impetus for reform is a perceived need to create a more-encouraging climate for investment in next generation networks. That is more controversial than might first seem to be the case.
One of the problems with the wholesale framework used in Europe is that network owners do not have high incentives to upgrade their networks. At least, that is the underlying carrier argument.
Where service providers leasing wholesale capacity often have profit margins in the 20-percent range, few network operators who provide that access have profit margins much exceeding 10 percent, if they make money at all.
As was the case in the United States, European service providers have complained that mandatory wholesale provisions with high discounts for wholesale customers make high-risk investments in next generation networks unappetizing.
So the call for an expedited move to a single telecom market conceivably would allow service providers more freedom to acquire assets and create fewer, but larger, suppliers.
Somewhat ironically, restricting mobile service provider revenues (lowering and then ending roaming charges) to gain a consumer advantage also creates a greater need for service providers to consolidate, which might create more market power, which some would argue necessarily means consumers lose advantage.
But consolidation now seems inevitable, as the underlying economics of the fixed network business worsen, while the mobile business also faces more challenging economics.
"Bulking up" to remove overhead costs and gain customer and revenue scale is a proven way for contestants to increase operating results and obtain growth in mature or declining markets.
Under those conditions, regulators have to pay as much attention to spurring investment as to ensuring robust competition.
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