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Continental Shift

Ray Le Maistre
9/12/2013

You've got to admire Neelie Kroes for her ambition. Europe's network operators might be despairing at her vision for the continent, given that it involves the abolition of one of their main sources of high-margin revenues (mobile roaming fees), but if her proposals become reality then Europe's communications market will certainly be a very different place within the next decade and should benefit the hundreds of millions of broadband (fixed and mobile) users who live in European Union (EU) member countries.

The first step towards that "Connected Continent" has now been taken, following the formal adoption of a number of proposals aimed at creating "a single market for telecoms." (See Euronews: Single Telecom Market Is Go!)

Kroes, the European Commissioner responsible for the Digital Agenda, has a vision for a single European market that will see the abolition of mobile roaming charges, consistent access to fixed broadband networks across all EU countries, new rules that promote public WiFi access and support fresh broadband network investments, and open access to Internet services and applications (ensuring that no one is blocked from using services such as Skype).

Her vision is outlined in this statement, while this Connected Continent website includes a great deal more information about the proposals and their potential impact.

Kroes is very focused, quite rightly, on the very important role that communications infrastructure and services play in Europe's economic prosperity -- she wants Europe to have the best possible networks and services to boost productivity, create jobs and attract investment. That's something all Europeans want, right?

Creating that single market and ensuring equal access to networks and applications is not going to be easy, of course, and there will be turmoil along the way. It's even possible that the implementation of the single market proposals could weaken Europe's digital standing in the world: In an email newsletter that describes Kroes's proposals as "a ticking bomb in the European telco market," industry analyst John Strand suggests that if "the whole proposal is implemented, it will have a negative effect on Europe and the telecommunications industry's willingness and ability to invest in the infrastructure the next 12-24 months, the very infrastructure that Ms. Kroes believes to be so vital for the digital single market."

The GSM Association (GSMA) , the industry body that represents mobile operators, is understandably muted in its response to the proposals. "The Commission has rightly identified that increased investment in Europe's telecoms infrastructure is needed to drive progress across all sectors of the economy but, on balance, the package needs to do much more to support this goal," noted GSMA Director General Anne Bouverot in this statement on the EC proposals.

Telcos are not great at adapting to change at the best of times and they are not going to be holding any parties to celebrate Kroes's proposals. Strand might be right: The operators might look at the potential loss of revenues from roaming and decide that their capex and opex budgets will need to take a hit to make up for the shortfall, resulting in a potential decrease in investments and job losses, two things that no one, including Kroes, wants to happen.

The operators may also look for ways to increase non-roaming charges to address the potential shortfalls. And they may decide their business plans don't make any sense in a single market and look for a way to exit the market.

I'm sure they will make their views known to Kroes and the EC hierarchy. Who knows, there may even be room for compromise, especially on timescales.

No one knows how this game will play out. At the very least we have to hope there will be some winners and that Kroes will be regarded as a people's champion who helped to regenerate Europe's economy and create a truly open, digital society. But even if that happens, I can't help but feel there might be some major communications casualties along the way.

— Ray Le Maistre, Editor-in-Chief, Light Reading

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hendrikr
hendrikr
4/10/2014 | 2:19:13 PM
Strand is mistaken: mobile arbitrage is a feature
John Strand seems to think that "mobile arbitrage" is a bug.

In the 1990s, Callback, calling cards and refiling were arbitrage instruments bringing down international long-distance prices with huge margins.

Arbitrage isn't a bug, it is a feature.

The EC has tried to bring international mobile roaming under the 2003 New Regulatory Framework, but with the first market analysis round (2005) the new framework couldn't handle it.

Hence Viviane Redding issued a price regulation for mobile voice roaming.

That approach failed to push down rates a lot, and with mobile data roaming operators did bite back even stronger.

 

Promise protesting operators a "way out" in case of rampant arbitrage, is an easy promise.

To understand arbitrage behavior it will require quite some time. Then operators have to demonstrate the real harm it does and make the case things really continue to go out of hand.

Off course the intervention itself has to be designed, and a public consultation round has to be performed, before it would be completed and introduced.

As a result most mobile operators will adapt themselves faster to the new realities, than attempting to influence the rules.

John Strand knows there isn't a lot of different scale in mobile network costs between various countries that justify the very different prices. Equipment costs don't vary much. Volume per basestation is what counts and cell-size are adjusted accordingly.

As a final point. Creating an advantage for an operator from a tiny cheap country may help changing things a bit faster. There's a lot of precedent. Radio Television Luxembourg has pioneered and tested for years Radio and satellite-TV regulation.

 

 
RitchBlasi
RitchBlasi
9/12/2013 | 2:35:22 PM
Intl Roaming
The conundrum here is huge.  Chicken and Egg?  Recent research shows the European mobile market has lost revenues recently and this will drive the numbers lower.  And I agree, will investors put their money into a falling market or search for other opportunities.   That said, most of the other opportunities probably have a mobile component and depend on European carriers upgrading their networks to achieve success, which won't happen if VC money dries up or carriers themselves don't upgrade to the newest technology.  From reading this and other articles and following the industry, it's easy to see why the U.S. is far ahead of the rest of the world in investing and deploying mobile infrastructure and everything surrounding it. 

My understanding here is that the ruling only pertains to the 28 countries (?) that make up the EU so there will still be some money left on the table for roaming.  I'm sure US business travelers will be depositing a large chunk of change to European operators as they seek to expand globally.  Hey, there are always options available for saving on international roaming, some that are even more convenience and cost effective than carrying around a bag of SIM cards.  :-)
MordyK
MordyK
9/12/2013 | 2:26:31 PM
Re: It's a game of poker
Capitalism willfind the path of least resistance. Operators need to think of other models to generate cash.

Wireless was a new model as was data over lines. The carriers will have sufficient interest to begin thinking about new things instead of just protecting profitable moats.
Carol Wilson
Carol Wilson
9/12/2013 | 2:13:28 PM
Re: It's a game of poker
But if investors don't see how operators earn a return on their dollars, won't they turn away from investing in operators? 
MordyK
MordyK
9/12/2013 | 1:17:39 PM
Re: It's a game of poker
ultimately the telco's cant go out of business so they will need to adapt to the new market conditions or face shutting down. Therefore IMHO the risk is really only present for the short term yet the long term benefits are worth the short term pain.
Carol Wilson
Carol Wilson
9/12/2013 | 9:00:32 AM
Re: It's a game of poker
This seems to be stacked up as winnner-take-all tournament -- either consumers win, and operators lose, or vice-versa, with the EC stacking the deck in favor of consumers. Consumer groups in the U.S. argue that our market conditions/regulations are set up to heavily favor the operators, pending this week's Network Neutrality decision, of course. Whose found the middle ground, in terms of balancing regulation and free market investments? Anybody?
gfinnie
gfinnie
9/12/2013 | 7:36:46 AM
It's a game of poker
Generally speaking, the Commission has taken the side of consumers rather than producers, especially in its competition policy. But if the big producers (ie the telcos) refuse to invest on the grounds it's not worth the risk, Europeans could suffer in the longer run. Who blinks first? And who would be a policy maker?? 
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