EU Caps Mobile Phone Roaming Charges

As a general rule, the free market is the best way to establish prices for goods and services. The more a market represents the textbook ideal of a market, the less need there is for government intervention. However, when a flawed market fails to deliver, government action is appropriate. So, the telecoms screaming about the recent decision from the European Parliament to cap roaming charges inside the EU are being disingenuous at best. They don’t operate in a free market to begin with, and their roaming charges actually harmed other sectors of the European economy.

Roaming charges are those extra fees Americans no longer pay to make a cell phone call from one end of the US to the other. In the EU, Jan Sliva of the Associated Press reported, “A four-minute call to Kehl, a German town across the river from Strasbourg, would cost a traveler $5.38 although the distance is just several miles. A similar call made within France over a much larger distance could cost just a few cents. A Maltese calling home from Latvia can end up paying as much as $15.19 for a four-minute conversation.” European telecoms make anywhere from 10-18% of their revenue from this type of charge.

The EU Parliament decided that was excessive. Starting this summer, the retail roaming fee cap will be €0.49 (US$0.66) per minute for making a call when abroad and €0.24 (US $0.33) per minute for receiving one, plus value-added tax. By 2009, these caps will drop farther, to €0.43 (US$0.58) for making calls abroad and €0.19 (US$0.26) for receiving them. The caps sunset after that, and unless the EU parliament decides to extend the rules, by 2010, the telecoms can charge whatever they like again.

David Pringle, spokesman for the GSM Association of Europe’s mobile phone operators, made the usual industry noises, “These price caps leave very little room for competition, for innovation, they will harm this market. Also, it’ll be difficult to implement the changes in the time frame they’re envisioning.” Markets require many participants, a homogeneous product, low barriers to entry and full disclosure of information throughout the market. The European market for mobile phones isn’t even close to that, and it never can be. Only a few providers have government licenses; the airwaves can’t carry an unlimited number of carriers because the spectrum available is finite. Barriers to entry are huge because cell phone towers don’t cover more than a few square kilometers so one must put up a huge number at no small cost. And various plans and handsets result in differentiated products. Full disclosure is a problem for every market.

On the positive side, some analysts believe that the telecoms will wind up richer as more people make more calls since the price will be lower (roaming charges may inhibit maximizatin of revenues through optimum pricing). Even if they don’t recoup their full revenues, Europe as a whole will be better off because communications is a basic of the modern economy. When its price drops, it acts as an accelerant to the rest of the economy; it would be just the reverse of rising gasoline prices, which slow economic activity. What will be interesting is to see whether 2010 brings a hike in roaming costs, or if the European telecoms will discover what their American counterparts did, that roaming charges are counter-productive to their own cause.

© Copyright 2007 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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