Calls set to be cheaper – but at what cost?

Mobile operators are in for a tough ride next year. Their days of raking in fat profits from sitting-duck consumers are numbered. New rules aimed at cutting the cost of making and receiving calls from abroad look set to come into force next summer.

The European Commission’s plans received a thunderous round of applause from consumer groups when announced in July. Furious operators, however, claim that the blunt measures will distort competition and harm European competitiveness.

When European Information Society Commissioner Viviane Reding turned her attention to the sector two years ago, operators hastened to lower charges. But, their efforts were in vain. Proposals announced in July are now expected to come into force at the tail-end of the German presidency next year.

Under new rules, which will initially place caps on the wholesale charges that operators pay each other, mobile companies will be granted a six-month period of grace before caps limiting charges on calls made and received abroad to 30% above domestic tariffs are introduced.

Ultimately, proposals will save consumers €5 billion every year, says the Commission.

But, Reding’s heavy handed intervention, says industry, will ultimately harm the consumer by stifling innovation. Specifically tailored tariff packages appealing to different types of customers, an important feature of the mobile market will no longer be possible, they say. "This is a debate about how we deliver value to customer," says Jon Earl, spokesperson for operator Vodafone. "We feel that the Commission has got the ‘how’ fundamentally wrong.

"We would argue that many new services that have come out of the market have come from competitiveness. That sort of innovation will have to stop under the Commission’s proposals. The retail rate is not going to provide the flexible approach a functioning market needs."

Operators, represented by the GSM Association, claim that the average price for making and receiving calls when roaming in the EU has fallen by 22% since 2005, a drop that has apparently been achieved within a healthily functioning market. Detractors argue, however, that this apparent goodwill on the part of operators, motivated solely by the need to dodge regulation, was ultimately insufficient. They also point to a lack of transparency in price setting. "At current prices roaming is for the birds," says Jim Murray, director of consumer group BEUC.

Reding was in a buoyant mood last week after apparent confirmation from EU citizens that she had made the right move. The unsurprising results of a Eurobarometer survey, showing that 70% of mobile phone users agreed with her decision to ensure that roaming tariffs remain comparable with home rates, inflamed mobile operators further.

Mobile operators know that they have no place to hide. Their efforts to lobby the European Parliament seem doomed to failure. But Reding will have to be vigilant. Should her controversial measures really make a dent in EU competitiveness, she will face a backlash, not only from outside, but also from within the Commission. Her proposals were pushed through despite opposition from certain colleagues, most notably Industry Commissioner Günter Verheugen and Trade Commissioner Peter Mandelson. If Reding does trip up, as certain parties are only too keen to predict, the results could be extremely ugly.

Mobile operators are in for a tough ride next year. Their days of raking in fat profits from sitting-duck consumers are numbered. New rules aimed at cutting the cost of making and receiving calls from abroad look set to come into force next summer.