Roaming rates to fall by up to 70 per cent

European mobile operators have nothing to fear from impending roaming tariff regulation if they remain competitive, according to an EC spokesman.

The spokesman for information society and media commissioner Vivian Reding, told silicon.com sister site ZDNet UK on Tuesday that lower roaming tariffs would encourage more customers to use their mobile phones abroad.

While acknowledging the move would be "painful" for mobile operators, he insisted they would "still be able to make a substantial profit [through] considerable economies of scale".

He warned: "Those operators who simply want to stick to the old model will see their customers say they don't want that service," adding that consumers could be able to save as much as "50 to 70 per cent" on current roaming rates.

On Monday, Reding's office released some "fine-tuned" details of its proposals for regulating the roaming rates charged by European mobile operators for usage across the EU.

The proposals seek to ensure the EU becomes a "home market" for mobile phone users, where crossing a border within the union will not lead to higher call costs.

The original version involved flat-capping, at cost price, the wholesale rates charged between operators for terminating calls. As this was seen as unnecessarily complicated, the Commission now proposes taking a European average as a reference point for such charges, a move which would penalise operators in countries with higher wholesale rates.

Reding had originally proposed that customers pay the same rate for mobile calls when roaming as when at home. In the revised proposals, this retail rate could be up to 30 per cent higher than the Europe-wide wholesale charge.

The GSM Association, which represents almost 700 mobile operators worldwide, reacted angrily to the concept of an averaged wholesale rate, saying it would put a "rigid straitjacket on retail prices across Europe".

A GSM Association spokesman said on Tuesday: "We would say that is an extraordinary degree of intervention, because you don't have a single price for any other services across Europe. It doesn't reflect the geographic, the demographic, the regulatory, or the commercial differences across Europe."

He added: "We don't regard this change in the Commission's proposals as a step forward."

But Reding's spokesman denied the proposals would create any kind of "straitjacket", and claimed the regulation did not say what a call should cost in any specific place.

He said: "We could have said that operators cannot charge more than actual costs but that would have required that every regulator [across Europe] would have had to calculate in detail for every operator their cost," adding that this "would have been a very burdensome exercise".

He added: "The proposal now says at the wholesale level these costs will be pegged to the national termination rate. By taking the average of all the European mobile termination rates, we peg the roaming rate to a national tariff but we also [ensure] a certain margin of competition between operators."

The spokesman claimed the average would be a "dynamic figure" which would go down annually, in line with recent trends, and that mobile roaming fees would therefore follow the average down: "We are not the enemies of the mobile industry.

"We want this legislation to provide the initial ignition to a more competitive European mobile industry."

Stefano Nicoletti, analyst at Ovum, welcomed the decision to revise the proposed roaming controls: "Reding has sensibly moved away from the home pricing principle. Reding has now found a balance between it and the more sensible ERG recommendations. It is important to point out that properly functioning markets do not need retail controls, and intrusive retail regulation may reduce innovation and competitive pressure."

If the EC approves Reding's proposals in July, the regulation would become effective in the summer of 2007.

Operators such as O2, Orange, T-Mobile and Vodafone slashed their roaming fees following the original proposals, in a move some said was intended to pre-empt the regulatory process.

David Meyer writes for ZDNet UK