Why data roaming costs too much

Summary:ZDNet UK investigates the real cost of using the mobile internet while travelling abroad and explains why the price you pay is unnecessarily high

...there should be a significant difference in the allocated costs of network or spectrum for domestic users versus visitors," he says. "Apart from things like [visitor location registers], there are no dedicated 'roaming network assets'." Bubley also notes that operators may be under pressure to maintain their margins, but they have "various ways to protect those" other than raising domestic prices.

A similar analysis comes from Steffen Hoernig, an associate economics professor at the Universidade Nova de Lisboa in Portugal. "If you talk to an economist, they say you should only take marginal costs into account, and that is certainly close to zero for all telecommunications services," he says. "If you just send an additional megabyte over an existing network, obviously that costs nothing."

"Economists would put the cost of constructing the network aside and just match demand and how people want to use the network — people in the business tend to think the other way round, saying: 'We have to spend money to build the network and therefore charge higher prices'," Hoernig added.

The problem with high prices, Hoernig says, is they "distort demand downwards". This is a problem acknowledged by Orange's Martin, who tells ZDNet UK that his company and its rivals recognise how previous bad experiences with 'bill shock' have scared many customers off ever leaving their smartphones turned on while travelling.

"We as operators and the whole industry recognise that the price points we started with are not acceptable anymore, and also not consistent with our policy of subsidising smartphones more and more," Martin says. "With smartphones, we are increasing the level of subsidy extremely high to afford to have so many iPhones, Android products, etc, and it would be stupid for us to frighten our customers and let them not use their mobile phone when roaming."

The European situation

Martin's main market is in Europe. Here, the European Commission, the hub of the continent's political power and a keen advocate of creating a truly single market, has displayed every sign of being fed up with roaming prices in general.

The Commission has already forced operators to drastically cut their retail prices for voice and text (SMS) roaming, and digital agenda commissioner Neelie Kroes has now turned her sights on data roaming. However, the only concrete measure so far has been a non-binding cap on wholesale prices. This means an operator in Greece, for example, will be unable to charge more than €0.80 per megabyte to an operator in the UK when the UK operator's customer visits the Greek operator's network. According to Bubley, there is no evidence that these falling prices for data roaming have led to higher domestic prices.

In June, that cap will fall to €0.50 per megabyte, and the Commission will make its proposals for what should happen next. Demonstrating the Commission's stated reluctance to impose harsh conditions unless it is proved absolutely necessary, even the €0.50 limit is already well above the wholesale prices charged by most operators. According to Hoernig, a recent contributor to a support document for the Commission's upcoming regulatory impact assessment, the average wholesale data-roaming charge is now around €0.30 per megabyte.

However, Kroes said in September that she wanted "the gap between roaming and domestic prices to approach zero", as "significant differences between roaming charges and national tariffs cannot be justified in a true single market".

Neelie Kroes data roaming

Digital agenda commissioner Neelie Kroes wants "the gap between roaming and domestic prices to approach zero".

According to Martin, there is no way operators will agree to data-roaming charges that are equivalent to domestic rates. "We have explained to Neelie Kroes that, if you do that, you open huge discrepancies and a huge risk of value destruction or prevention of investment in the European market, in the sense that the small operators — for example, Malta Telecom or Luxembourg Telecom — which have a very low cost of network coverage, could compete with T-Mobile in Germany or the UK by offering a national-level price to [their German or] UK customers," he says.

3's Hugh Davies, whose company is one of the smaller operators, says he cannot see prices falling significantly without wholesale regulation for everyone, including the biggest players. Arguing that small companies are unable to offer low prices without industry-wide momentum, he cites the example of 3 Like Home, an ill-fated 2007 attempt by the operator to eliminate roaming charges for those of its customers who were travelling between the relatively few countries where 3 has networks.

"Unfortunately it didn't work for customers because they didn't realise [they would only pay no roaming charges] if they were on our home network," Davies says, pointing out that it is difficult not to accidentally start using someone else's network and rack up a hefty bill. "We're doing what we can from our perspective. You need some sort of regulation or legislation at the wholesale level, because unless the big operators decide they want to bring their prices down, it's scale that counts."

According to Davies, the €0.50-per-megabyte wholesale cap will still be far too high. "We believe it has to come down at least 10 times that," he says. "It's choking off the market and the growth of the mobile internet."

I can't see how the global prices would come down, but the EU prices are coming down quite quickly. I don't see where the driver is to bring [global prices] down currently because there's no global regulator.

– David Gannon, T-Mobile

No global regulator

Given the historical successes of Kroes and her predecessor, Viviane Reding, there is every chance the Commission will get its way on data-roaming charges. Outside Europe, though, the situation is very different.

There is no global regulator to stop operators charging what they feel like, and T-Mobile's David Gannon says that means no change. "I can't see how the global prices would come down, but the EU prices are coming down quite quickly," he says. "There are bilateral roaming agreements that go in place and deals are there to be done between the different operators, but that's their commercial nature, so I don't see where the driver is to bring [global prices] down currently because there's no global regulator."

Hoernig agrees the lack of a global regulator would make it impossible to control wholesale charges from abroad, but he thinks...


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Topics: Data Roaming Charges, Mobility

About

David Meyer is a freelance technology journalist. He fell into journalism when he realised his musical career wouldn't be paying many bills. His early journalistic career was spent in general news, working behind the scenes for BBC radio and on-air as a newsreader for independent stations. David's main focus is on communications, of both... Full Bio

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