EU Risks Public Fury with Plans for Radical Review of Mobile Pricing Across Europe

The European Commission has signalled its support for a radical overhaul of the pricing structure for mobile services in the region, in a move that is bound to hit operators' revenues hard and could lead to charges for received calls. Under the proposal being touted by the EC's Commissioner for Information Society and Media Viviane Reding, the telecoms industry will be forced to cut, and eventually harmonise, termination rates on the fixed and mobile networks. Reding will also support an initiative for mobile operators in the region to switch over to a "bill and keep" pricing structure and ditch the current reliance on negotiated mobile termination rates (MTR). The Commissioner has long posited that MTR distorts the market because it is significantly higher than termination rates for fixed telecoms services. In addition, she argues that termination-rate negotiations put undue burden on regulators and choke up time that could be used for other duties.

Shifting to "bill and keep" would mean operators get to keep whatever they bill their customers, and could result in mobile users paying for receiving calls. Citing the trend in the United States, where regulators argue that "bill and keep" encourages low consumer prices by encouraging more innovative pricing, Reding's department noted that the new structure could lead to new business models and more consumer-friendly schemes. Reding will not propose a cap on prices when she unveils her long-awaited recommendation, but will instead suggest a methodology for achieving a consensual price cap. "A shift to "bill and keep" was not expected "overnight" and there would be no compulsion," Reding's spokesman, Martin Selmayr, told a European Commission news briefing. "It's the operators' decision…a common methodology in the long run would lead to lower termination charges."

Outlook and Implications

• Paradigm Shift: Beyond triggering a paradigm shift in pricing of telecoms services in Europe, Reding's proposal would undoubtedly hit the revenues of mobile operators who have built a business model based on a generous MTR. Indeed, Reuters reports that shares in mobile operators—such as Vodafone—have already come under pressure in anticipation of this shift. Reding is not conceding any ground though; and is vocal in her belief that pricing for telecoms services in the region should move forward. "The whole market is developing so we should not stay on the rules that have been in place 10 years," Reding told the Financial Times yesterday. For mobile operators, any new clampdown will pressurise their margins and would deepen their feeling of being "under attack" from EU bureaucrats—and they have a point. The EU's mandated cuts in mobile voice roaming in 2006 hit their revenues hard, and the proposed plans to clamp down on mobile data roaming from July 2008 will add an even greater burden to the operators (see Europe: 5 October 2007: Under the Spotlight: EU Mobile Roaming Tariffs Down 60% on New EU Rules).
• EU Paranoia: In the convoluted world of EU politics, Reding's plan to rejig the pricing structure for telecoms services is not sacrosanct. Operators accused her of riding on a wave of populism to get the mobile roaming cuts approved, but in this case, operators have a bigger chance of using public support to either defeat or water down her plans. For a start, charging customers to receive calls may sound innocuous if overall prices fall, but to prepaid mobile users—especially pensioners—who hardly make any calls on their mobiles, the very idea of charging them for received calls is bound to trigger a public outcry. At a time when the Irish have dished out another anti-EU message, nationalistic sentiments, trumpeted by the media, can immediately alter the message from "cheaper mobile calls" to "EU targets pensioners". If in doubt about the plausibility of such a scenario, then look no further than how the EU's suggestion to harmonise spectrum licensing across the region in 2006 turned up in the Times newspaper as "3G Billions to Go to EU". Today, the idea of centralised spectrum licensing has almost been abandoned (see Europe: 14 November 2007: Dissecting the EU's New Telecoms Reform Proposal, Europe: 22 March 2007: The EU's New Regulatory Framework; Benefits, Opportunities and Risks for Telcos and Europe: 30 June 2006: New EU Telecoms Rules Arouse Mixed Feelings).