EMMAs

Monopoly Money

David Murphy

John Strand, CEO of Strand Consult, argues that mobile operators should thank the EU for its intervention on roaming charges

John Strand Strand Consult In the media and in the EU, a lot is said about the intervention on roaming taking place. It will cost the industry billions of Euros, seems to be the consensus. At Strand Consult, we believe this approach will be costly in the short run, but in the long run, its probably the best thing that has happened to the operators in years, and the shareholders can start to rejoice.
One can view the intervention from many different angles: for its significance for the mobile industry; for innovation within the mobile universe; or for the many companies who develop, market and sell different communications solutions to the industry The mobile operators are not the only companies making a living selling communication cross-borders, far off. The EU just has not realized that.
One of our old heroes once said: It is every companys damn duty to try to establish a monopoly! Some do this by developing products the customers are crazy for, others by being in the right place at the right time with the right product, others again do it by consolidating companies, or taking control of the supply chain.
When the EU took its decision to cap roaming charges, it was in fact helping the mobile industry in creating a monopoly on communication across borders, and a situation that will make it harder for alternative communication solution providers.

Cheap telephony
The fact is that is has always been expensive to call across borders. The liberalisation of the telecommunications market made it possible for other providers to offer cheap international telephony, circumventing the old monopolies. With the invention of the Internet and Skype, suddenly new ways of communication had arisen, and prices of international traffic dropped significantly. Simply put, competition, and the high prices charged by the old monopolies, created a sub-industry that also impacted the prices downwards. If regulation on international calls had taken place in those times, one might ask whether a company such as Skype or the many other IP companies or international telephony providers would have had arisen.
Whats going to happen now in the mobile market is simply that the prices of roaming falls, the politicians are proud of their efforts, and the many companies in the communications industry offering alternative telephony solutions or offering cheaper prices on roaming will have a hard time making a living. The venture capitalists will say that companies in this area are not as interesting as they were before, and customers will have a hard time seeing any benefit in using alternative communications solutions across borders. So the EU has created a foundation for a monopoly for the mobile operators. Not only do they offer roaming, but now also, competitive prices.
Normally it would be expensive and very hard work to create a monopoly, but in this instance, it is almost free for the operators. The low prices will mean growth in traffic as customers will change their attitude regarding the use of their mobile phone abroad. We have seen this before in Denmark, Sweden and Norway, when falling prices quickly were compensated by increased traffic and turnover.

Natural competition
What the EU has done is a prime example of the fact that regulation of a competitive market can be dangerous. When politicians regulate a competitive market such as the mobile market, they influence the natural competition which exists in the market, so that the market, so to speak, gets out of balance. In the next 18 - 24 months, we will see the hard evidence of the political systems lack of understanding of price, regulating and the way the telco industry works. This will kill innovation at the same time as creating a monopoly for the mobile operators.
A lot of people say that roaming is a problem, but it is not only a EU problem, but one that affects all countries, especially the ones with large numbers of tourists. Historically, we know that the mobile operators first competed on cheap mobile phones, then it was cheap national traffic, then cheap SMS, and now, there is a lot focus on cheap regional traffic. Roaming should be next in line, and actually already is in a number of countries.
Our conclusion is that the EU, with Viviane Redding as Commissioner, knew that public recognition and votes lie in getting the customers cheap roaming here and now! However, either they forgot to tell the end users about the consequences for competition and innovation in the long run, or they simply dont know what these consequences are. The EU has sent the biggest present to the European mobile industry they could have wished for - the foundation for a monopoly for communication across borders.

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