Operator Body Responds to EU Roaming Laws

The mobile network operators trade body, the GSM Association (GSMA),  has submitted its response to the European Commissions public consultation on the functioning and the effects of the EU Roaming Regulation, which came into force on 30 June 2007. The EC launched the consultation on 7 May to satisfy its requirement to report to the European Parliament and the Council in 2008 about the functioning of the new roaming rules and their effects. Today is the deadline for submissions.
In its submission, the GSMA concludes that Europes mobile industry is cutting back spending on new networks and services as a growing regulatory burden from the European Union puts profitability under pressure. To justify the imposition of retail price caps, the European Commission has claimed that mobile operators are making excessive profits, but according to figures supplied in confidence by mobile operators to the GSMA, the European mobile industrys return on capital employed (ROCE) was just 9% in 2006, compared with more than 20% in software, pharmaceuticals and several other sectors, according to management management consultancy, A.T. Kearney.
In its response to the consultation, the GSMA warns that European mobile operators, on average, are only just covering their weighted cost of capital, and says some of them are making an economic loss. A.T. Kearney estimates that ROCE for the mobile industry in 2007 was equal to or slightly lower than the 2006 figure.
The European Commission predicted that the introduction of regulated price caps on voice roaming calls last summer would lead to a major increase in usage, thereby offsetting possible revenue losses of operators. Yet A.T. Kearney calculates that, according to network operator data, voice roaming call volumes have increased by only 11% year-on-year to July 2008 while operators voice roaming revenues have decreased by 26%.
Historically, one of the leading investors in Europe, the EU mobile industrys capital spending has slipped from 13% of revenue in 2005, to 12% in 2006, and 11% in 2007. However, says A.T. Kearney, heavy capital investment is needed to ensure the widespread availability of advanced 3G networks, which enable mobile users to access the Internet and other multimedia services at broadband speeds. It notes that while the mobile industrys technology roadmap envisages further dramatic improvements in network performance and capacity, the speed of deployment of new networks may be constrained by the mobile industrys relatively low level of profitability.
Europes mobile industry is in the midst of another major investment cycle to deploy new services, such as mobile broadband, video downloads, mobile television and mobile email, which enhance Europeans daily lives and the economic competitiveness of the continent, says Tom Phillips, the GSMAs Chief Government & Regulatory Affairs Officer. However, it is clear that the high level of investment required to provide these services across Europe wont happen if regulators continue to distort the market by setting prices.
In contrast to rising prices in other sectors, the average price of mobile services is falling rapidly, the GSMA says. In the EU25, domestic mobile voice prices fell by about 13% per annum from 2004 to 2007. Moreover, the average price of data roaming services in the EU fell by 25% in the 12 months to April 2008, while the average price of SMS roaming services fell by 18% in the same period. Recent announcements by individual operators suggest average prices will continue to fall and the GSMA believes there is no need for the European Commission to also introduce price caps on these services.
The Commission built its case for roaming regulation on two flawed arguments, says Mark Page, a Partner at A.T. Kearney. Sharp price cuts have not been offset by a corresponding increase in the volumes of calls; and the mobile industry does not earn exceptionally high profits, which could offer a buffer against the loss of revenues. These are the facts to counter the Commissions assertions and anecdotes. We can only hope that they look at the full body of evidence as they consider the future of the roaming regulation.
A full copy of the GSMAs response to the European Commissions public consultation on the voice roaming regulation, will be available later today here.

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