Denys Rudyi - Fotolia

Roam like at Home will prompt European telco consolidation

Mobile users are understandably looking forward to an era of low phone costs now they can roam freely around the European Union, but it is very possible that they will be disappointed

This Article Covers

Mobile networking

There is little doubt that coming home from a relaxing holiday to the shock of a hefty phone bill was one of modern life’s great headaches, so it is no surprise that the scrapping of European Union (EU) roaming charges on 15 June 2017 came as welcome news to the vast majority of EU citizens.

Now that they can use their data and calls in other member states while still paying nothing more than they would pay back home, they are understandably looking forward to an era of low phone costs. Unfortunately, there is a very strong possibility that they are going to be disappointed, and that the abolition of EU roaming charges may herald an era of market consolidation and higher prices.

More specifically, by taking an initial step in creating a single market for phone operators, the EU has created the conditions for the biggest of these operators to expand into other EU states, and to acquire those rivals that are less able to adapt to the new system.

The likelihood of this scenario becomes more evident when it is recognised that, to all intents and purposes, the removal of roaming charges is tantamount to forcing all EU operators – regardless of where they are and their particular costs – to accept the same fixed payment for allowing foreign citizens to roam on their networks.

This is what was imposed on them by February’s agreement of a wholesale cap, which obliges, say, EE to charge Deutsche Telekom no more than €7.70 for every GB of data the German operator’s customers use while in the UK.

Such a ceiling has drawn criticism from many of Europe’s smaller operators. On the one hand, those based where data and calls are more expensive fear that it will prevent them from recouping their costs in full. On the other hand, those based where data and calls are cheaper worry that they will end up paying more in wholesale costs than they can afford.

For example, the chief executive of Finnish operator Elisa, Veli-Matti Mattila, said in June: “Roam like home regulation will not work. If our customers use 10GB when in Spain, we will get the wholesale bill based on Spanish prices, which is higher than the fixed monthly charging we have with our customers.”

Read more about the end of roaming charges in Europe

In other words, Elisa will be paying more in wholesale costs than it receives in fees from its Finnish customers, while other operators elsewhere (particularly in tourist-rich countries) will be receiving less than the amount it costs them to run their networks.

The upshot of these imbalances is fairly obvious: many operators will suffer falls in profits, if not outright losses.

Indeed, this is what has been predicted by several studies on the end of EU roaming, with a widely discussed 2013 report from Danish telecoms analysts Strand Consult forecasting: “There is a high probability that mobile operators in Europe will lose up to 20-40% of their turnover, and that the industry will lose up to 75% of its revenue, based on the EU's own figures.

And given the formidable risks of drops in revenue, it is likely that smaller operators will falter. They will become easier picking for their bigger competitors, who will be more able to absorb the financial tolls of free roaming.

To put it differently, the bigger operators will be driven to merge with other operators and consolidate the market, and it is interesting to note that certain EU telcos had already been merging in the build-up to 15 June.

Mergers increasing

In July 2014, for instance, almost a year after the EU first announced plans to end roaming premiums, the European Commission (EC) approved Telefónica’s €8.6bn takeover of German rival E-Plus, creating Germany’s biggest network.

Other acquisitions have followed, and although CK Hutchinson’s attempted acquisition of Telefónica UK was ultimately blocked in May 2016 because of fears for the UK market, it is likely that other trans-Europe mergers will follow now that EU roaming surcharges are no more.

This means that the European telecoms market will become more homogenised and that, in the face of decreased competition, prices could very well rise for consumers (witness the UK water industry since the creation of private monopolies).

It almost goes without saying that this would be the opposite of what was intended by the EU when it announced its plans to stop roaming charges in 2013.

What is ironic is that the one possible saving grace here is that some operators (for example, in Finland and Germany) have opted out of the new rules, enabling them to continue charging for roaming as before.

As such, it might conceivably be the case that at least some European consumers end up being spared market concentration and higher prices by, well, higher prices.

This was last published in July 2017

CW+

Features

Enjoy the benefits of CW+ membership, learn more and join.

Read more on Mobile networking

Start the conversation

Send me notifications when other members comment.

By submitting you agree to receive email from TechTarget and its partners. If you reside outside of the United States, you consent to having your personal data transferred to and processed in the United States. Privacy

Please create a username to comment.

-ADS BY GOOGLE

SearchCIO

SearchSecurity

SearchNetworking

SearchDataCenter

SearchDataManagement

Close