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Reding Guns for Data Roaming Cuts

Michelle Donegan
GSMA News Analysis
Michelle Donegan
2/11/2008
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BARCELONA -- Mobile World Congress -- European commissioner Viviane Reding did her best today to spoil the party here at the mobile industry's biggest event of the year by issuing an ultimatum to operators to cut data roaming charges.

In a speech delivered earlier today, she said that Europeans are paying too much to use data services when they travel outside their home markets, which is known as data roaming. She warned that if operators did not lower these charges by July 1, she would be forced to intervene and slash prices just as she did with voice roaming fees last year. (See EU Adds Mobile Law, EC Welcomes Roaming Caps, Euro Carriers Cut Prices, Carriers Wrestle With Roaming Caps, Reding Rides Into CeBIT, and Reding Rattles Regulatory Saber.)

Reding wants data roaming charges cut at the wholesale and retail levels and she is giving mobile operators a chance, for now, to introduce their own price reductions.

"If the mobile industry responds to the need for attractive packages of data services offered to their customers, with a credible Eurotariff for data roaming in all EU Member States, I will applaud your action," she said. "However, if I see no such single market offers for data roaming evolve by 1 July of this year, I will have no other choice than to propose regulatory intervention again."

Operators have responded recently with a small flurry of price reduction announcements in hopes of staving off regulatory action and mandatory price cuts. (See Operators Cut Data Roaming, V'fone Cuts Data Roaming, and Vod Slashes 3G Prices.)

Five operators -- KPN Mobile , BASE , E-Plus Mobilfunk GmbH , Play, and 3 Group -- have agreed to a wholesale data tariff of €0.25 (US$0.36) per Mbyte of data downloaded. Vodafone Group plc (NYSE: VOD), meanwhile, said it would reduce data roaming charges by up to 45 percent for business travelers.

While data roaming may not account for a significant amount of revenue for mobile operators, regulated price cuts can still put a dent in their profitability, particularly when combined with last year's voice roaming price cuts and continued reductions to mobile termination rates in Europe.

During last year's half-year financial results conference call with analysts, Vodafone CEO Arun Sarin described the regulatory pressures in Europe as "double and triple whammies." The operator's European operating profit was down 2.3 percent in the first half or 2007, compared to the previous year, partly due to regulated price cuts. (See Carrier Scorecard: Vodafone and Vodafone Reports H1 Results.)

In Barcelona, Reding also said that mobile termination rates need to be reduced even further to stimulate what she called the mobile Internet. She noted that mobile termination rates are nine times higher than fixed termination rates and vary widely across Europe. She said that the industry will likely shift to a "bill and keep" charging model, eventually, where operators agree to interconnect without charging each other.

But the industry is a "very long way" from this model, she said. "If Europe's mobile industry were to be serious about mobile convergence, you would certainly have to bring down mobile termination charges more aggressively," she said.

Reding also told the mobile industry today that growth of the mobile Internet has been "disappointing" and that it was time for operators to tear down their walled gardens.

"It is time to put the traditional 'walled garden' approaches that have served the industry very well during the 2G era behind us and move towards an IP-based approach to service delivery," she said.

Mobile operators certainly can't say they haven't been warned. Reding is clearly ready to introduce another regulated price cut -- this time to data roaming charges.

— Michelle Donegan, European Editor, Unstrung

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