Europe acts on mobile charges

The European Commission yesterday released details of its plan to push down termination rates - the charges mobile phone networks make for carrying each others calls. The Commission noted that rates, although falling, are still nine times as high as equivalent fixed line charges and vary widely across Europe. The Commission …

[Simon Rockman]

This is a disconnect

You have to remember that the UK networks paid the government £22bn for 3G spectrum. The, admittedly optimistic, business case for this included termination charges. For the EU to then turn around and undermine the business case isn't on.

Simon

[john loader]

Why should charges go up?

If every phone company is paying every other phone company termination charges then surely they cancel each other out. The biggest operators get the biggest income but also have to pay out the most and vice versa. So the turnover will drop but the net effect on profits will be zero. Or am I missing some vital piece of high level economics

[Darren B]

Pay-to-Receive!

Bye-Bye-Mobile-Communication-Device! Hello-Life!

[Anonymous Coward]

I'm going to slap them idiots silly

if they bring in the pay to receive...

Grrrrrr

[Charlie Clark]

@Simon Rockman

You make it sound like the operators are champions of fair play! In fact the point you make is irrelevant. The operators knew full well that there was likely to be European regulation at some point - many of the business cases were in fact predicated upon pan-European operations and, therefore, pan-European regulation (at some point). And of the 22bn you'll find that a nice part of that was clawed back through taxes not paid due to "losses" incurred.

The commission is highlighting the discrepancy across Europe and how this is a barrier to competition and as such needs to be regulated. If lower connection charges mean that operators stand to lose money (not that any of them do) then they will have to increase the cost for owners - either through the monthly fee or offering to pay to receive. Customers will then have more of a choice.

Where's the Viviane Reding is an angel icon! ;-)

[Dan White]

Pay-to-receive...

Not going to happen. It was briefly tried over here right back when mobiles had a car battery slung underneath them for six hours standby time, and was the reason the networks stagnated for a few years.

If would have to take *all* UK networks to bring this in simultaneously for it to work, and that would immediately be slapped down as collusion and anti-competitive practice.

The first network that tried to bring it in would see an enormous spike in desertions, as it would be a significat contract change meaning any user could cancel their contract without penalty. Any operator that didn't charge could expect to see their customer base surge, which would nicely offset the cost of not charging to receive.

Paris, because she's used to paying to receive...

[Max]

We're the phone company, we can do whatever we want

"Vodafone said the changes would make owning a mobile more expensive for consumers."

Interpreted as: 'if you cut our termination fees, we will just find another way to charge customers excessive amounts'

[A J Stiles]

It's like cigarettes

(remember cigarettes?)

You buy a pack of 20. If you offer them around, then you might only end up smoking a dozen of them yourself; but you will still end up getting eight back from the people who smoked yours. If somebody doesn't give you back the one they owe you, then you just make sure not to give them another one next smoke break. How unpopular must someone end up feeling, if even other smokers are shunning them?

It's the same with telephony. For every call that arrives into your network from someone else's network, you'll end up having to route one from one of your own callers out across someone else's network. And it all evens itself out in the long term.

Anyway, pay-to-receive will never fly. Does anyone remember when the banks tried to charge customers for withdrawing their money via other banks' cash machines -- and how long that lasted?

[Tim Spence]

@ A J Stiles

"Does anyone remember when the banks tried to charge customers for withdrawing their money via other banks' cash machines -- and how long that lasted?"

Well, it lasted for really quite a while, but yeah, power to the people for getting it killed!

On pay-to-receive, if the networks were to bring it in, I can't imagine they would try to force anyone onto it, but they're more likely to tie it up new tariffs and market it as being better somehow - possibly cheaper?

Pay to receive is a completely backward system from the word go - although the American's use it, make of that what you will - so I can't see it working over here.

[dervheid]

"Or am I missing some vital piece of high level economics"

Almost certainly!

[Hans]

@john loader

Yes, they charge you, the end user, 50 cents to put you through, "because they have to pay these termination charges." True, the actual termination charges they have to pay they will certainly receive again ... almost .... some more, some less, but 90% of what they charge us for termination charges goes into their pockets ....

In France, where I happen to live, mobile telco's are really bad, they have been found guilty a price fixing, had to pay a hefty fine, that they now have us consumers pay that while they go on price fixing!

Besides, has anybody heard of pay as you go card valid fortnight? Well, in France, you have that .... so pay as you go is exactly the same as a 1.5 hours subscription ... only you don't get 1.5 hours airtime ... Go buy a phone in this country, ask a phonehouse employee which operator to choose. In Holland and Germany they ask you how much you call, where you call ... in France, it's which providers do most of your firends have - sick!

Then again, I do not believe the corrupt bunch of Brussels sprouts is gonna change that, they'll just a find a way to let it go on like that, while filling their Cayman Island Bank accounts faster ... they are entitled to a share after all, they control the market.

Don't get caught!

[Mark Flingstone]

@ A J Stiles

"Does anyone remember when the banks tried to ...?"

Very well, since it still happens in Italy, where I happen to live.

Also, when Italian telcos were forced to clear "recharge" commissions for pay-as-you-go contracts, *all* the rates jumped up (10% to 20%) even for credit card or bank-based bills that weren't subject to additional fees at that time, and no one was able to restore the status quo ante.

Hans tells a different story on the very same tune.

The coat is mine, that guy is the telco man.

[Max Miller]

@john loader

There is a big difference in economics depending on who the operator is and what the make up of your customer base is. There is not a 1:1 relationship between making and receiving calls. Pay as You go customers for example are very good at receiving calls (when it costs them nothing) but tend to hold back on making calls. Whereas Contract customers who have almost unlimited calling minutes will tend to do all the outbound calling.

There are some very clear differences in the customer portfolios between operators (and also in the termination rates each operator charges each other) and these have been in place since the building of the mobile networks, partly due to who came first and their continuing reputation in the market places.

Networks have to build their networks according to the peak load of traffic they generate or receive. If the makeup of this traffic has a higher proportion of calls received, the networks have to be able to recover this cost and generate additional margins through termination rates to ensure they can compete against the operators generating their revenues through customers making outbound calls. If termination rates fall significantly (as they are likely to) some operators are going to have to find new ways of generating revenues or they will find themselves in a very uncompetitive position in the market place (the operators whose customers are generating the traffic are unlikely to pass on the cost reductions to their customers entirely). As a result it may become uneconomical for some networks to continue operating a network which reduces competition and is ultimately bad for the market and for Joe Public.

[Bryce Prewitt]

@ AJ Stiles

"Does anyone remember when the banks tried to charge customers for withdrawing their money via other banks' cash machines -- and how long that lasted?"

Why yes, I remember being charged $3.95 just the other day.

Funny how you Europeans are so much better at this anti-corporation thing than we are. I guess Americans just hate money so much that they just love fees! Go away filthy money, shoo, shoo, you are the root of unhappiness! The corporations are just doing me a favor by charging me pay-to-receive fees and ATM fees! Go make your corporate masters unhappy, filthy money!

[Dan White]

@Max Miller

You may be right that PAYG customers don't make as many calls as they receive, but don't forget that they *haven't* had a nice fat subsidy off their handset. What the operators lose in extra termination charges, they can gain in receiving full price for the handset they sell.

[pctechxp]

@Darren B

I agree mate, mobile will be going if this comes in.

O2 customer service (prepay) tell me that they have not been briefed on it but we'll see what happens.

I'm not on contract because I dont use my phone that much and why would I want an instalment plan for my handset (and I dont like direct debits anyway)

I was a member of 3g.co.uk for a bit, while I appreciate that it costs money to build and operate a network, I find it hard to believe that companies are not making enough to cover this cost, why did they pay the ridiculidicukous sums for a 3G licence if they were concerned they wouldn't recover it within a reasonable timescale.

It'd be like me buying a Ferrari 430 scuderia without calculating whether I could afford the repayments and then asking my employer for more money to help me pay for it.

[Mr Ropey]

Pay-to-receive

The day they start that, my mobile off into hibernation! I'll be damned if I'm paying to receive grief from my boss, so it might be a way of getting the tight old git to cough a works mobile!

[AJ]

Pay-to-receive...

... They can kiss my arse and shove my mobile up there if they think I will be paying to recieve a call, people for get in the US where this happens they all have standard numbers for cell phones, no different to a landline!

I agree that termination charges should be reduced, I find it disgusting that a landline was peanuts in terms of a termination charge yet a mobile operator can charge anything from 2 cents to 18 cents (in bulgaria which is poor in comparison to other EU countries) I think all networks should only be allowed to charge a max of 7 cents (5p) and texting from within the UK should be the same as if you were in your own country, and come out of your allowance!!!!!!

[Mark]

Bryce Prewitt: Money is the root of all evil

But a man does need his roots!

[Mark]

Remeber the banks?

This spiel makes much the same arguments as the banks did, when they were told not to overcharge for overdrawn services.

"We'll have to remove free banking to cover the losses!".

In that case, I wanted someone to ask them "so, if nobody went overdrawn, you'd still lose all your charges and, since these charges are more than your costs for servicing the overdrawn accounts, would mean a drop in profits, so you'd have to get rid of free banking because nobody is going overdrawn. Is this right?"

Same here.

[Steffen Hoernig]

FTM and MTM

Hi interesting discussion here. I just wanted to skip in with a piece of info which I believe is important: While all of the previous comments seem to be concerned about M2M termination charges (ie what mobile operators charge each other), this seems only to be of lateral concern for Brussels -- with the exception of "being a disadvantage for small operators", which is a real issue on some countries.

Brussels' true concern is competition between fixed and mobile networks! They are convinced that fixed networks, who are losing more and more customers to mobile telephony, are hurt too much by high F2M termination charges (which mobile networks receive, basically a subsidy from the times where mobile networks got help to grow), and thus want to bring them down to the levels of M2F and F2F termination charges (which fixed networks receive). Thus it's more an exercise of trying to guarantee technological neutrality in a larger market than just mobile telephony.

Naturally, this begs the question why F2M and M2M charges should be equal, if their economic effects are so different (and they are). The argument seems to be that charges must be cost-based because that has been imposed by regulation, and because F2M and M2M costs are the same -- but that only shifts the question as to why regulators are right to impose this (Maybe they are -- but this needs to be discussed!).

As concerns "receiver pays": In a sense, FOR THE CALL, you will pay more for calls from fixed networks, while this should more or less cancel out concerning in- and outgoing calls between mobile networks. As concerns the price for the MONTHLY package, that will adjust accordingly, or will change not at all IF competition works (apart from the F2M bit, which operators are presently spending on customer acquisition/retention - that is the "waterbed effect"). By the way, if you have a pay-as-you-go tariff your per-minute-charges are still quite high -- they will be lower under RPP, so again there will be contradictory effects and whether you win or lose depends on your personal characteristics.

Thus RPP is neither "antiquated" nor crazy, it is just a different way of pricing. Let the market decide. And as many of you say: you can substitute away, to other operators, VOIP, throw the phone into the bin and meet friends directly instead.

From a philosophical point of view, it doesn't seem wrong to let operators compete freely in retail pricing strategies and, at the same time, increase the number of competitors. One should also mention here that low termination charges create more space for MVNOs and more inventive retail tariffs in general.

"coat icon" because obviously I haven't forgotten that MNOs' principal goal is to make money --- but isn't that also what we are working for?

[Anonymous Coward]

Justification for regulation?

So far as one can tell, the MNOs are charging termination rates that Brussels considers too high but who are otherwise not doing anything illegal or anti-competitive under the law. So back to the question asked as to the justification for regulation.

Just because we don't like the price of a service (it could be any service, e.g., cinema tickets, the price of a plane ticket or a downloaded song, or a text with the location of the nearest pizzeria sent to our mobile phones) doesn't mean that Brussels should step in and "fix" the price charged by the companies offering their services.

The incumbent telcos are obviously different from mobile companies because they started out life with free resources and a monopoly. These incumbents are regulated because their markets aren't yet competitive. But no one is suggesting that mobile operators are acting illegally or anti-competitively, or are abusing a dominant position. Nor did they start out life as monopolies like the incumbents. It's just that they are charging more than the termination rates of fixed telco operators.

F2F termination is not the same service as F2M termination and presumably the costs of business are different. So why should they be the same price? Why does Brussels get to decide how much I charge for a commercial service that I offer if I'm not doing anything illegal and all I'm doing is charging more than another service that isn't even the same service as the one I'm offering?

[Steffen Hoernig]

As to necessity of regulation

Good point raised there, as to whether regulation is justified at all here.

Again one should look at different cases separately. Basically, F2M termination implies that (mostly) regulated fixed line incumbents are forced to accept MNOs demands for termination charges, and set retail prices as termination charge plus regulated margin. They cannot threaten to disconnect or set retail prices so high that customers don't make F2M calls, nor can they counter with high M2F prices as bargaining threat or punitive measure. In other words, there is not enough "countervailing bargaining power", as has also been found in a few court cases, and MNOs can set their F2M charges at will. That is, MNO can set F2M charges at will and cash in.

To worsen things, in some countries fixed line callers can't distinguish which mobile network they are calling, which means that consumers effectively face the average price over different mobile networks -- and mobile networks have even stronger incentives to set higher prices.

So far so good, but what happens to this money? Part or all of it (this is a point of contention) will handed over to mobile customers -- the waterbed effect mentioned above. Thus we have a transfer, total or partial, of money from fixed-line users to

Thus it has been concluded that there are clear market failures, partly caused by existing regulation on fixed networks, for sure, that need repairing. So either cut regulation on fixed networks (for which competition may still be lacking -- but then again Reding's whole exercise is about having fixed and mobile networks compete!) or impose regulation on mobile ones -- your choice.

As concerns M2M charges, the case is much less clear-cut. Economic theory has for the last 10 years produced many contradicting results, on whether firms would agree on low or high termination charges if they talk to each other in the absence of regulation. The answer is "depends". A sufficiently clear case can still be made with respect to asymmetries: It has become clear that high M2M charges, in particular if they are symmetric, make small networks pay significant amounts of money to larger networks, which certainly doesn't help them in the entry phase at least. (It's not true that in- and outgoing payments always cancel out).

As concerning "Brussels" -- I feel a kind of Brussels-meddling-in-our-affairs kind of mood here. If "Brussels" didn't exist, national governments would do most of the same things on their own, and they actually did. Furthermore, at least in telecoms, "Brussels" has for a long time copied quite faithfully what happened in the UK (or let's say, since the UK has a big say in "Brussels", the latter quite often adopted as official policy what had been thought up in the UK before. Thus "Brussels bashing" turns out to be a sort of auto-flagellation). The latest "Brussels attack" on termination charges is the logical continuation of this policy, and not some kind of continental conspiration. (this doesn' mean all their ideas are good, hey!)