How Orange defends data-roaming charges

Orange executive Yves Martin has explained why data-roaming charges in Europe should not approach domestic levels, despite the EC's wishes
Written by David Meyer, Contributor

Orange, part of France Telecom, is one of the largest mobile operators in the world. ZDNet UK recently caught up with the company's head of roaming, Yves Martin, the man in charge of its data-roaming pricing.

Data-roaming charges are a currently crucial issue because they affect ever-increasing numbers of people who take smartphones, tablets and laptops abroad.

As part of the data-roaming charges campaign, ZDNet UK spoke with Martin to discuss how the operator justifies its data-roaming prices and whether they are likely to fall significantly.

Q: What is your opinion of the pricing levels that are currently in place for mobile data roaming?
A: Data roaming is something that is moving extremely fast. One big trend in our industry is the huge increase in smartphone penetration — in western Europe two years ago, less than 10 percent of people had smartphones. Nowadays it's between 70 and 80 percent penetration. That drives a lot of usages.

A typical use case is that an iPhone is released in June, people buy it in July and go swiftly on holidays, download a lot of YouTube [videos] and come back in August with a big bill shock. That was the story, unfortunately, in the past two years.

Here, clearly, the operators are learning, and we're trying to digest that as fast as we can. We agree the price that used to [apply] maybe even one year ago — which was a few euros per megabyte — was completely disconnected to the price you could find in the domestic market, which is a few cents per megabyte maximum. Here you have the collision between [different factors].

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.

On the one side, operators try to maintain [average revenue per user] on the domestic level by giving more than the customer needs. A lot of operators have offered 1GB bundles at a very low price. This lowers the barrier to entry. People aren't using the full gigabyte. Statistically they are using 80MB to 100MB a month [but] average usage is increasing more and more.

So on one side, domestic pricing is extremely low and there are more congestion issues, in the sense that we have priced those bundles [according to] an incremental value, whereas we should take into account the long-term investment in our network. Right now, the mobile operators are a bit stuck into low domestic data prices.

On the other hand, the roaming price was extremely high, first of all because operators had to test the market. But there is also a slightly technical explanation behind that. It does [entail] some cost to connect and open routes in data — there is a fixed cost you need to recover at least with the first users. Every route costs €10,000 to €100,000 [£8,700 to £87,000]. You have around 700 operators [worldwide], so it's a lot of investment to open all those routes.

What do you mean by opening routes?
You interconnect, say, Orange UK with an operator in India. You need to allocate time to physically connect the two networks and also test the networks and ensure the billing and everything is going well. Also, there is investment in real-time billing. It is not that obvious that someone using data in India, for example, can be billed immediately, especially in pre-pay. We also need to make sure we have a proper anti-fraud mechanism in place, and for bill-shock prevention as well.

Economically, that is not the reason why it is so expensive, but the reason why it started at a more expensive price, and then the price need to lower.

The second technical reason is, when you build a network, you do so based on traffic assumptions, mainly on what your domestic user will use there. The telecoms industry is made in such a way that lots of things aren't predictable, and we made them predictable by 12-month contracts, knowing where people live, etc. Roaming adds an extra layer of complexity in the sense that people visiting your network are not recurring revenue. It's also relatively volatile revenue: as soon as you have a difficult economic or political situation, it goes down.

For example, right now if you look at all the Arab countries, you see roaming decreasing by 50 to 80 percent year-on-year in those countries.

Having said that, 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.

With smartphones, we are increasing the level of subsidy to be...

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...extremely high to afford to have so many iPhones, Android products, etc. It would be stupid for us to frighten our customers and let them not use their mobile phone when roaming. Once you have bill shock, you never turn on your mobile phone again while roaming, or you use Wi-Fi.

So clearly, with the influence of the [European Commission], but also with the interest of offering our customers at least a minimal service while roaming, I think the operators are giving signs that roaming brings benefits and you can control what you pay. That's why we have moved from a few euros per megabyte to a few tens of cents per megabyte.

It would be stupid for us to frighten our customers and let them not use their mobile phone when roaming. Once you have bill shock, you never turn on your mobile phone again while roaming, or you use Wi-Fi.

That's within Europe, but what about data-roaming charges for those travelling outside the Commission's jurisdiction?
Today, by default we charge €2 for 2MB. Inside Orange, the maximum price a customer should pay is €1 per megabyte. Based on your usage, you can choose other [packages that] bring you below 50 cents [per megabyte]. It's all about segmentation — there are customers who do not need to go that low, and others who are heavy users.

So will Orange bring its European data-roaming charges down to domestic levels, as the Commission wants?
Honestly, no. We explained to [digital agenda commissioner] Neelie Kroes that, if you do that, you open up 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.

Here you would see clearly a big risk. For example, Apple [is working on patents regarding] a soft-SIM solution. It could easily buy a small operator in Europe and become an operator itself for all Europe. Then it would kill all investment for all the other operators to invest in LTE [long-term evolution], etc, because someone else would use your network and take your margin without you being able to reinvest in your own network.

Structurally, there has to be some bias, unless [Europe] gives a single licence of GSM or LTE across Europe. As long as there are different ways of building up networks, for us it's not realistic. Nevertheless we need to accept there are different segments and, for example, people working on the border. Those guys should not pay five times as much as soon as they cross the border, whereas a Danish guy visiting Spain once a year should accept the premium.

Neelie Kroes data roaming

Neelie Kroes is the European Commission's digital agenda commissioner.

Obviously there is no global regulator, no equivalent to the European Commission. What could drive down prices internationally, and how low will they go?
At Orange, we operate mainly in Europe and Africa, so this is an internal debate for us. Our African colleagues will not happily decrease their own prices for all tourists coming in and visiting them. For them it's a strong way of getting cash, and there is clearly strong resistance for emerging countries not to drop their prices. My own view is that prices will continue to decline, but at a different level than in Europe.

What sort of level will it go down to?
I think we can always expect that inside Europe and outside Europe there will be a ratio of 1:2, I would say, at the retail price. I believe it's already the case.

How much does it actually cost to provide data, per megabyte?
That's a tricky question. When you look at the long term, you try to reinvest in the sense that you are not [allowing] congestion, and you're looking at [capital expenditure], its tens of cents per megabyte. If you look the other incrementals, the cost of energy and so on, you have [different] figures.

Subsequent to this interview, Orange asked ZDNet UK to clarify that Martin was "referring to 'technical' cost, before other costs are added" such as interconnection fees and customer service.

If you're not talking about reinvestment and capital expenditure, what is the actual incremental cost per megabyte.
I don't know if we'd communicate that. It's very difficult.

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