Wednesday, June 15, 2016

Roaming Rate Controversy Illustrates "Large Carrier, Small Carrier" Economics

In wholesale communication markets, it matters whether a supplier is small or large, and whether most traffic is on-network, or off-network. At any given level of rates, smaller carriers will have a larger percentage of traffic roaming off network, while larger networks will tend to have less roaming traffic, all other things being equal.

That is a controversy within the European Union as regulators move to institute a complete ban on roaming tariffs for voice, text  and mobile data, by June 2017.

As you would guess, smaller service providers and larger service providers with high amounts of customers who roam are at odds about the actual remaining roaming rates. Within the EU, the big divide is between net receivers and net providers of traffic.

Operators in countries with lots of incoming roaming traffic such as Spain, Greece and France want high wholesale rates.

Operators in countries with low domestic rates and whose customers travel a lot, such as Baltic and eastern European countries, want low rates.

Wholesale prices are currently five euro cents a minute for calls, two euro cents for text messages and dive euro cents per megabyte of data.

Small carriers, with small customer bases, typically “send” more traffic than they “receive,” meaning in this instance that high rates are costly, as they will “get” less inbound roaming traffic (and revenue) than they send, and buy.

That is an issue for mobile virtual mobile networks, for example.

Some would argue that Internet interconnection involves the same traffic and cost dynamics, even when regulators ignore such differences. In other words, all other things being equal, large networks tend to accept more traffic than they send to smaller networks.

Small networks send less traffic to larger networks than they receive from large networks.

The big exception is content networks, which virtually always send more traffic than they receive. In fact, it is correct to say there are, among network types, "customer networks" operated by retail Internet service providers that mostly receive traffic, and "content" networks that mostly send traffic.

One might argue that the costs of unbalanced traffic are insignificant. That might be more true of the server and interconnection costs. It is manifestly untrue for ISPs that have to build gigabit and higher capacity access networks.

source: European Commission

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