Abstract:
International roaming is a
major technical achievement of the GSM standard. Initially users were impressed
by the technical facility that a mobile phone would work initially across
the European Union (EU) and in many other countries, and with a tri-band
phone, in North America. Estimates of the market size at the end of 1999
were in the range of US$ 1,000 million, with continuing rapid growth. However,
users quickly realised that the costs of international roaming were far
higher than could be justified. At a time when fixed telecommunications
costs and prices were falling, the prices for mobile roaming were spiralling
out of control. The response from user organizations has been to withdraw
phones, to forbid their use abroad and to encourage alternatives, such
as phone-cards and visits to local offices. A series of surveys by INTUG
in 1999 and 2000 gathered comparative data on international roaming charges
in Europe. The results showed price variances of two to ten times for the
same or a similar call. This data has attracted the interest of the Competition
Directorate-General of the European Commission and a formal investigation
has been initiated. A decision is expected in late-2000, which could have
influence outside the EU, since the principles of competition law, and
the terms of international roaming agreements are similar around the world.
The indications are that the complexity of the charges, the backroom negotiations
and other factors demonstrate that this is very far from being a competitive
market. As the GSM Association begins to create a Global Roaming Forum
to prepare for 3G (UMTS) roaming, it is clear that a more open and competitive
regime is essential if the prices are to be driven down to reasonable levels.
That in turn is necessary if we are to see the innovations in uses necessary
for the next stage of the development of the mobile telecommunications
industry and mobile-Internet convergence.
Keywords: Mobile, GSM, 3G Mobile, roaming,
INTUG, pricing
Introduction
Since the late 1990s users of mobile
telecommunications have been concerned by the apparently arbitrary and
invariably complicated charges for international roaming. GSM operators
make little effort to inform their customers of the charges they will incur
when abroad. Checking the accuracy of bills from published information
ranges from the difficult to the impossible. The charges seem to have no
relationship to the underlying costs, to best practice or to other telecommunications
charges. Coverage is also incomplete, with problems moving from the GSM
networks to others, notably in the USA, Japan, South Korea and parts of
South America.
The International Telecommunications
Users Group (INTUG) comprises national associations of telecommunications
users, large corporate users and individuals interested in telecommunications
such as academics, consultants and lawyers. One its activities has been
to undertake surveys of charges for the use of telecommunications services,
such as the cost of international versus national leased lines and more
recently in broadband local access.2 In late 1998 INTUG began
to examine international roaming prices and then undertook formal surveys
in 1999 and 2000.
GSM roaming services were originally
and remain today very attractive to business users. This emulated the success
and the attractiveness of roaming on the earlier Nordic Mobile Telephone
(NMT) system used in Scandinavia. Business subscribers bought mobile telephones
expecting to use this feature and it has become part of everyday business
life first in Europe and then beyond. Today, there is a growing market
for consumer roaming, including pre-paid cardholders.
National Regulatory Authorities (NRAs)
however have paid little attention to roaming users, either their own residents
when they are in foreign countries or foreign subscribers visiting country
of the regulator. In some cases it may not be their explicit responsibility,
in others over-pricing of roaming services may be seen as a necessary and
rather obscure evil, while operators build up their businesses. One option
available to them is to address the worst cases on a bilateral basis between
NRAs.
Competition has been very limited.
Countries have often been slow to license second, third and fourth operators.
The operators often create an appearance of rivalry in the high street,
but with little real competition behind it. One potential class of competitor,
the Mobile Virtual Network Operator (MVNO), has made slow progress. Sense
Communications was so long delayed in Norway that it failed. In the United
Kingdom, OFTEL took a decision to wait, which unfortunately was used by
other regulators as an excuse for procrastination.3 Nonetheless,
there are now two MVNOs in the UK. However, they are really joint ventures:
One-2-One with Virgin, and Orange with Energis, targeting consumers and
business users respectively.
GSM Roaming now extends from Greenland,
by way of Europe, Africa, Asia and across the Pacific to South America
spanning more than 120 countries and two or three times that many networks.
The new GSM Global Roaming Forum (GGRF) brings together networks using
different technologies, including CDMA and looking to third generation
technologies.4 In doing so it raises many complicated issues
concerning contracts, tariffs, regulation and privacy.
The
technicalities of GSM roaming
A GSM telephone will automatically
detect the various networks available when it is switched on. In the home
country it will ignore other networks and connect with the operator, which
provided the SIM card. National roaming is used while one operator has
not completed its national coverage. This will also happen with UMTS customers
roaming on GSM networks until the completion of UMTS networks.
Upon entering a foreign country the
GSM handset detects the available networks. This usually happens automatically
with the telephone displaying prominently the name of the new network.
The automatic selection can be checked by the user and changed to any of
the available and permitted networks. A permitted network is one with which
the user's home operator has a roaming agreement. A preferred network is
usually a corporate partner. Each time the phone is switched off or loses
its signal it will automatically reconnect. It will disregard any previous
preferences unless the user sets the phone to manual selection of networks.
Unfortunately, most users do not know
how to change networks. Moreover, given the complexities of the tariffs
(see below), they are highly unlikely to know which network they should
select for a particular type of call and a specific time of day.
The vast majority of GSM networks use
a Calling Party Pays (CPP) system. However, when roaming in another country
the GSM user also incurs costs for incoming calls, to cover the cost of
an international call from the home country to the roaming country. In
a few cases it is cheaper for the person being called to refuse the call
and to call back, because the charge to the roamer is greater for an incoming
call than for a roaming call back to the person calling. To make this saving
requires a detailed knowledge of the charges and also for the number of
the incoming call be displayed on the handset.
With the use of a dual band telephone,
roaming can be on both the 900 or 1800 MHz networks. Roaming can be achieved
in the USA, but the use there of a variety of competing technologies presents
special difficulties. Although the initially complicated arrangements are
being simplified, it can require a special and more expensive tri-band
handset for use on the 1900 MHz band or the hiring of a local phone into
which is placed the user's GSM SIM card. At present there are no solutions
for GSM subscribers wanting to roam in Japan and South Korea.
The
industry agreements behind GSM roaming
GSM roaming was made possible by the
Memorandum of Understanding (MoU) signed in 1987.5 The European
Union supported the creation of the MoU, both to ensure a common standard
across the fifteen member states and to encourage trans-European networks.6
The previously fragmented standards and markets had made it difficult for
European manufacturers to sell their mobile telecommunications systems
to other countries. The success for Nokia, Ericsson and other manufacturers
has been considerable. The standards for GSM have been developed and maintained
by the European Telecommunications Standards Institute, but transferred
recently to the 3GPP.7
In order to provide roaming services,
the various GSM operators have entered into roaming agreements negotiated
commercially, on a case-by-case basis by the pair of operators concerned.
A few brokers negotiate such contracts on behalf of operators, for example,
Comfone, Mach and Roameo.8
The key agreements to facilitate international
roaming for GSM operators are the Standard Terms for International Roaming
Agreement (STIRA) and, more recently, the Inter-Operator Tariff (IOT).
Use of the IOT is facilitated by the Transfer Accounting Protocol version
3 (TAP3) which became available to operators in July 2000, after several
months delay.
In some respects the goals of the GSM
Association in creating these agreements are entirely admirable, seeking
to simplify arrangements between operators. This is entirely understandable
given that there are now thousands of such agreements. Any substantial
operator is likely to have up to two hundred such contracts.
STIRA simplifies the negotiation of
roaming agreements by providing a framework and tariffing principles. As
such it provides economic and technical benefits. The problem is that there
are also very negative effects. By using a retail-plus pricing model, the
users end up bearing very high charges. The operator providing the roaming
service charges a certain fee, usually a quite expensive tariff perhaps
with a further profit margin added. The home operator then adds a mark-up
to this charge by between 10 and 25 per cent. Both operators make substantial
profits and neither has an incentive to reduce the prices or the profit
margins.
Given that the structure of the tariff
is determined by the roamed operator it can be quite alien to the visitor.
A TeleDanmark Mobile customer, accustomed to billing in one second units,
might be surprised to discover that KPN Mobiel (Netherlands) bills by the
minute, which can make a critical difference on short calls. A TeleNor
customer, understanding the "peak" period to be from 09:00 to 18:00, would
be surprised to find in the UK roaming on Vodafone that it is from 06:00
to 20:00, while French operators additionally designate Saturday mornings
as peak times. Where a large operator might be expected to have negotiated
a discounted price, this seems to be missing from the market.
The introduction of the IOT allegedly
provided for much greater flexibility in the charges to individual operators.
However, it remains too early to know if this is the effect in practice.
To become effective it will require operators to use TAP3.
In some respects IOT/TAP3 seems a misguided
approach, since what it seeks to do is improve the efficiency of transmission
of information between operators. As such it at least supports and even
encourages complexity. The catch is that no mechanism has been devised
to help the roaming user first discover and then comprehend the complexity
of the tariffs. It would be much easier if the handset could pick the cheapest
option or if the tariff was set to a simple flat fee. There is no reason
why a user could not just buy unit 100 minutes of roaming for use across
the European Union. Given that handsets select roaming operators in a relatively
predictably way, it should be possible to arrive at flat fees using a weighted
average of operator tariffs in a foreign country.
One of the peculiarities of the GSM
roaming market is that only licence holders are allowed to enter into roaming
agreements. A result of this seems to be an enhanced level of interest
in GSM licences in places such as Iceland and Lichtenstein. It does not
seem to matter where you have a licence or even if you operate a real network.
There would appear to be no technical reason why other operators, given
certain systems, could not engage in roaming. This form of discrimination
severely limits competition in the market and may not comply with competition
law.
European Commission sectoral investigation
Some preliminary results from the INTUG
Roaming Charges Survey were given at a mobile telephony conference in March
1999. Some of the issues raised by this study were published by Communications
Week International on 15 March 1999. They were also picked up in a
study for the European Commission by Analysys/Squire Sanders and Dempsey.9
The final version of the INTUG Survey was published in November 1999.10
The March conference had been attended by officials from the European Commission
and they evidently took an interest in the topic. A second survey was published
in September 2000.
The Competition Directorate General
of the European Union launched an investigation into the telecommunications
sector on 27 July 1999, covering markets for leased lines, local access
and GSM international roaming charges:
The Commission has received
a number of complaints that roaming charges continue to be extremely high,
as well as complaints concerning collusion on roaming rates, and refusal
to deal at national and international level. In November 1999, the International
Telecommunications Users Association (INTUG) completed a study comparing
roaming retail tariffs with retail tariffs for mobile calls without roaming.
The INTUG study indicates that for mobile consumers the difference in price
between roamed and non-roamed international mobile calls to the same destination
within the EU can be up to 500%. There appears to be no convincing technical
explanation for such differentials at retail level, which suggests that
the underlying wholesale markets are not competitive either.11
Work by the Commission began when questionnaires
were sent to operators and national competition authorities in January
2000.12 Both in November 1999 and February 2000 there was press
coverage of the results of the ITUG Survey. The outcome of the Commission
inquiry is now expected in late 2000.
All negotiations for roaming agreements,
MoU, STIRA, IOT and the associated practices within the European Union
fall under the very strict terms of Articles 81, 82 and 86 of the Treaty
of Amsterdam (textually unchanged from the original Treaty of Rome). These
outlaw cartels and empower the European Commission to consider, to approve
(with or without undertakings) or to proscribe "concentrations". They also
oblige the Commission and the Member States to take extreme care when granting
special rights. They have to ensure that operators cannot use their GSM
licences as a lever in other markets or to determine market share or to
fix prices or to impose unrelated contract terms. It would seem, prima
facie, that the agreements and practices associated with roaming are in
breach of competition law.
Similar anti-trust legislation is in
force in many countries and competition authorities should look at the
matter. The Federal Communications Commission, the US Department of Justice
and the US Trade Representative are one such group. They are noted for
their aggression where they believe American businesses are being disadvantaged
or US consumers, even if only when travelling abroad, are being "ripped
off". Moreover, US operators must comply with Truth in Billing in respect
of their charges for roaming.
If there had been any doubt about the
lack of competition in the market for international mobile services, this
was removed by the poor response to a Request for Information (RfI) for
pan-European roaming services from the Wireless SIG of the European VPN
Users Association (EVUA).13 This was an attempt to solicit interest
from suppliers in providing borderless services to a range of very large
corporate customers. It was estimated that they owned around three-quarters
of a million handsets and were spending around two billion Euro per year
on mobile telecommunications. The results were initially disappointing,
with few players able to make any substantial offering either in terms
of coverage or savings. Eventually, offers were forthcoming including those
from Mint Telecom, IMC-Worldcell, RSL and GTS Group.14 The major
operators, such as Vodafone and the France Telecom Group (including Global
One and Orange) are, at this time, remarkably reluctant to make available
the necessary services, discounts and technical facilities. It seems there
was reluctance to break away or be seen to be first to break away from
the established practices.
The 1999 Review
On 12 July 2000 the European
Commission launched its regulatory package of five directives, one regulation
and a decision. The process leading up to this had involved many published
studies and a sequence of consultation exercises. It was all commendably
open and will continue through the remainder of 2000 and into 2001 under
the co-determination and conciliation procedures of the Treaty of Amsterdam.
There were preliminary debates in the
European Parliament and in June 2000 a Report on the 1999 Communications
Review drafted by Wim van Velzen, MEP, was adopted. This identified the
high charges for international roaming as a subject for concern:
… the high roaming prices
and the higher prices for calls from the fixed network to the mobile network
than from the mobile network to the fixed and than calls from the mobile
network to the mobile network are clear examples of market imperfections;
the Commission should consider possible ways of lowering those prices to
acceptable and transparent levels; in so doing, however, the Commission
should, if at all possible, avoid regulatory intervention in the mobile
communications market, which has grown freely;15
As part of the debate, ECTA and INTUG
organised a seminar in the Parliament on the future regulation of mobile
telecommunications.16
One of the key changes being made concerns
Significant Market Power (SMP), the threshold used to decide which operators
are to be subject to more stringent ex ante regulation.17
The existing definition is a market
share of twenty-five per cent, but this will be moved to a competition
law definition of dominance. Many NRAs have used regulation of operators
with SMP to open markets and to improve the provision of services. Users
and alternative carriers have had good reason to be thankful for regulation
based on SMP. However, the central issue is not SMP itself, but rather
the transition to a competitive market.
Using the competition law criterion
for dominance in order to impose ex-ante regulation is not necessarily
a step towards stronger reliance on competition law. It could prolong the
transition to full reliance on competition law, and may impede the operation
of competition law in the sector. There seems to be confusion between the
application of competition law to the sector and the inappropriate use
of certain competition law terminology to create new regulation. In competition
law dominance per se is not a problem, it only becomes an issue
where there is abuse. Imposing ex ante obligations on operators
found to be dominant is not applying competition law, it is just another
name for regulation. The real test for ex ante regulation should
be whether there is effective competition, which requires an examination
of each market. If the level of competition is unacceptable and if it is
due to a market failure or the behaviour of the players, that can justify
administrative regulation of the operators in the market. Operators would
continue to be bound by competition law in terms of Articles 81, 82 and
86 of the Treaty.
One procedural problem arises, since
a new definition would be open to legal challenge, which could take several
years to resolve. During that time NRAs would be effectively impotent in
the face of SMP operators. This is something which many users and smaller
operators consider to be too horrible to contemplate. Uncertainty is of
benefit only to established players who can pay for and can sit out the
legal proceedings. It is to the enormous disadvantage of new or potential
entrants, who will be unable to enter the market and may go bankrupt waiting
to enter the market.
A central question in the regulation
of telecommunications is the regulatory regime for mobile operators. A
very strong case can be made that mobile operators demonstrate "joint dominance"
in terms of Article 82 of the Treaty. However, there have been no cases
brought against telecommunications operators and until the courts have
ruled on this matter it cannot be certain. An analysis of joint dominance
is given by the Commission in its Notice on the Application of the Competition
Rules to Access Agreements in the Telecommunications Sector: framework,
relevant markets and principles.18
The proposed Directive on Universal
Service and Users' Rights contains a requirement for mobile number portability
in all member states. At present this is available only in some and is
being made available in others, but very slowly. Mobile number portability
is a prerequisite for competition in the mobile telecommunications market.
Without this users are locked into their existing suppliers and can change
operator only with considerable disruption and expense.
It also imposes the contractual right
to "up-to-date information on all applicable tariffs". This will require
operators to make available detailed information about roaming charges
in order that their customer can manage their use and confirm the accuracy
of their bills.
Roaming prices
The data for this survey were gathered
and analysed by INTUG Europe directly through browsing the web sites of
the GSM operators and through telephone calls made to customer service
centres. The two largest GSM operators were selected in each of the member
states of the European Union, with the exception of Luxembourg and the
addition of Norway. Norway is a member of the European Economic Area and
falls under identical competition law to the European Union, through that
treaty.
The model call selected was of 2 minutes
and 15 seconds. The cost was calculated in Euro, excluding VAT. Where different
charging schedules existed, the business subscription was used. Pairs of
calls were compared, those from country A to country B looking at the charges
to a domestic subscriber in country A and a visiting subscriber from country
B. In order to calculate the cost of this call, the following data were
gathered:
call set-up charge (if any)
call charge per minute at peak time
times when peak charges apply
unit of time used for charges
It is often difficult to obtain information
on roaming prices, as these are not always provided on web sites.19
Enquiries were made by electronic mail messages, telephone calls and faxes
to customer care numbers.
Operators do not seem to act in the
spirit of customer care and may breach of a number of European Union directives,
including those on Unfair Contract Terms and Consumer Protection. The Proximus
web site contains one of the most telling and severe of warnings.20
When downloaded in July 2000 it provided data from November 1999 with the
following warning (also available in French and in Flemish):
The version of the brochure
that you can download here, was published in November 1999. The prices
quoted in the brochure are merely given as information and depend on the
foreign networks as well as on the current exchange rates. Belgacom Mobile
N.V./S.A. can in no way be held accountable for any changes or discrepancies.
Belgacom Mobile N.V./S.A. can not guarantee the availability of services
offered abroad. Foreign operators may decide to change them without prior
notice.
For more information about calling
to and from abroad, please refer to our ProxiWorld page.
Given that Proximus customers have no
access to information on foreign operators’ charges it is hard to know
what they are expected to do. The customer has a contract only with Proximus
and can reasonably expect Proximus to comply with European and Belgian
telecommunications and consumer protection legislation. Certainly Proximus
will have no hesitation in billing the customer for any roaming calls.
It is not at all clear that this sort of disclaimer is fair or reasonable.
However, Proximus is not alone in this.
Most operators disclaim some measure of responsibility, especially against
currency fluctuations and changes of tariffs by other operators.
Another potential source of information
for the user is the foreign operator. Given that the home operator adds
a percentage to the IOT it is impossible for the foreign operator to tell
the visiting roamer what the charges will be. In some cases the mark-up
varies according to the nature of the contract and tariff with the home
operator. Consequently, the only realistic source of information has to
be the home operator.
In the case of the two Greek operators,
Panafon and TeleSTET, neither provides information for customers. Their
respective web sites describe roaming but offer no roaming prices. Telephone
calls to their customer care numbers received the answer that they merely
added a charge to the amount levied by the foreign operator, something
about which they were ignorant. However, they could provide the prices
their networks charged to visiting foreigners, but without the mark-up
that the home network would add. Neither Telecom Italia Mobile nor Telecel
(Portugal) provided roaming information.
Without an accurate tariff it is difficult
to see how a customer could verify or dispute a telephone bill. To be told
that a charge was what a foreign operator asserted was the cost, plus a
mark-up, is insufficient. Clearly this raises questions of compliance with
national legislation on pricing information and on accuracy of billing.
There are two obvious approaches to
pricing which are replication of charges in the roaming country and flat
pricing.
The data for calls between Denmark
and Ireland are given below (see tables 1 and 2). Since 1999 the roaming
prices have risen and become much more closely aligned. There is now little
variation for a Danish subscriber in Ireland in the four possible combinations.
The mark-up over the cost for the Irish subscriber is in the range 70 to
80 percent. Prices for Irish subscribers in Denmark have declined sharply.
Table 1 - Denmark and Ireland prices
in Euro (1999 in brackets)
Calling
to Denmark from Ireland |
EirCell |
Esat Digifone |
Danish
subscriber |
Sonofon |
2.14 (1.85) |
2.21 (2.11) |
TeleDanmark
Mobil |
2.14 (2.05) |
2.21 (2.12) |
Irish subscriber |
non-roaming |
1.25 (1.74) |
1.24 (1.57) |
Source: INTUG Europe
data.
Table 2 - Denmark and Ireland prices
in Euro (1999 in brackets)
Calling
to Ireland from Denmark |
Sonofon |
TeleDanmark
Mobil |
Irish
subscriber |
EirCell |
1.95 (2.80) |
1.36 (2.90) |
Esat Digifone |
1.02 (2.20) |
0.87 (1.96) |
Danish subscriber |
non-roaming |
n/a (1.42) |
0.93 (1.37) |
Source: INTUG Europe
data.
The surcharge of over 100 per cent
seen in 1999 has almost disappeared in the case of Esat Digifone customers,
though Eircell customers are still paying a surcharge of forty per cent.
This seems to be moving in the correct direction and reflects the sharp
drop in international call prices in Denmark.
There are a number of plausible factors
which would explain variations in costs:
marketing strategies of operators
costs of access to international circuits
volume of traffic
ease of negotiating roaming contracts
comparative economic costs (labour,
capital, etc)
international exchange rates
licence fees (especially initial charges)
Nonetheless, the variations in roaming
charges are so considerable as to require further study and explanation. |