European Telecoms, Still Arguing With The Likes Of Google And Yahoo That Don’t Want To Share Their Mobile Search Pie, Now Have To Fight The EU That Wants Big Decreases In Cross-Border Text Charges

Philip Stone February 20, 2008

The message that telecoms and vendors wanted people to take home from the Mobile World Congress last week was that it won’t be too long before every shirt pocket or purse will soon by carrying a very smart phone. But along came EU Telecoms Commissioner Mrs. Viviane Reding on the first day and spoiled the party by telling EU telecoms that they need to greatly reduce international text roaming charges by July 1, or she’ll do it for them.

And the atmosphere didn’t seem too friendly. Mrs. Reding, whose full title is EU Commissioner for Information Society and Media, met with telecom CEOs for breakfast, she appeared on a panel right afterwards where she thought she would have a chance to tell people of what she wanted done, but the opportunity didn’t arise, so after the panel, on a stairwell, she held an impromptu news conference to let everyone know she laid down the law.

Sticker shock is a pretty good description to describe Europeans who travel across borders, send text messages, and then see the cost of those messages once the bill arrives. They are far, far higher than the cost of a domestic text message, and with the EU actively wanting to pull down frontiers this is a red flag to the EU bull.

Mrs. Reding is already a European consumer heroine when last year she got the roaming charges for mobile voice phone calls from one EU country to another down by some 70%, and now she has set her aim on data transmissions.

“I’ve had a meeting this morning with the CEOs of mobile operators and I have made my position very clear,” she told journalists. “Mobile operators need to produce credible price reductions and benchmarking for data roaming by July 1.” She warned that on that day there would be some “stock taking” and she warned that if she doesn’t like what the industry had done voluntarily – some telecoms have been bringing those prices down but not nearly as much as she wants -- then “I will have no choice than to propose regulatory intervention again.”

For the telecoms this was the red flag to their bull. They say they are still recouping the costs of the networks they have built, and while it’s great that Yahoo, Microsoft, Google and the like are introducing new mobile services including search, it’s still questionable how the telecoms will share in those financial pies. The telecoms believe they should get a percentage of the revenues the search engines get from the use of  their networks and the search engines say there should just be a flat charge  for mobile search and other digital functions, just as happens with ISPs who don’t get any share of search revenue..

So trying to get that straightened out while Mrs. Reding is also on the warpath is not exactly what the industry was looking for and the mobile operators were not amused. They hastily called their own news conference after Mrs. Reding’s and said, “As with intervention on retail voice roaming charges, we don’t think price regulation on retail data roaming charges is right or beneficial. We will resist, through reasoned argument, any attempt at retail price regulation. We should allow competition to do its work.”

And Vodafone’s Arin Sarin, thought to be Europe’s highest paid CEO, said he told Mrs. Reding at the breakfast that he opposed regulation of consumer prices like she did last year for voice transmissions.  “We have 120 million customers here in Europe," he told her. "Our industry is very competitive and prices are falling 10pc-20pc a year.” She does not believe that is not nearly enough reduction, and in the past she has said bluntly, “Industry claims they don’t need regulation. I say get it done.”

Although she doesn’t use the language she obviously believes that cross-border text roaming charges are a rip-off of the highest order. The cost of a text message per megabyte within one’s own country is around 1 Euro cent, but step outside the border and send that same message home and the cost is around €5 per megabyte. So while there is an understanding that telecoms need to recoup their investments those kinds of numbers the EU commissioner finds wholly unacceptable in what she believes is now a mature market.

What will she accept? The thinking is at least a 50% reduction although don’t forget she got 70% on voice. She says she knows of cases where vendors are charging €7 for an international message that costs just 25 Euro centimes to deliver, and she wants that stopped. “The price for SMS roaming must come close to the price of the marginal cost of sending text across neighboring markets,” she said, making clear she doesn’t think it should be much higher than for a domestic SMS message.

She recognizes that data roaming (as opposed to text messaging) is a somewhat “young and developing market” but she has told the industry that consumers need to be told how much they are spending for data roaming outside of their domestic country, that the industry should develop a pan-European data package that is priced about the same across the 27 EU countries, and she said there needs to be huge reductions in the wholesale price charged by the big mobile operators.

She said it was the wholesale prices being charged that were much of the problem. She claimed some operators were charging on a wholesale basis €7 Euros per megabit, and yet she noted three operators recently agreed a wholesale price of 25 European centimes per megabit. She said that deal alone shows how overpriced data charges are at present.

What relationship should the retail price have to the wholesale price?  "In competitive industries, it is not appropriate for a regulator to be talking about retail price regulation,” Vodaphone’s Sarin said. “You do that where markets don't work and she hasn't presented any evidence that shows markets are not working," he added.

He thought it was fine to regulate roaming wholesale prices between phone companies, but he was adamantly opposed to regulation at the retail level. In other words let the phone companies agree on very low charges between themselves and leave them free to charge their customers through the roof at the retail level.

What was supposed to be the big story coming out of the Barcelona meeting was Google’s new Android software platform for mobile devices that is an operating system with middleware and key applications including integrated Web browsing, instant messaging, e-mail and video, all by using just one button.

Yahoo meanwhile has launched its OneConnect, a tool that provides easier access to messaging, email and social network contacts. It already has 29 global partnerships and announced in Barcelona an exclusive contract with T-Mobile for its European customers.

And Microsoft has thrown its hat into the mobile ring in a big way, allegedly shelling out around $500 million to buy Silicon Valley company Danger that makes the Sidekick application popular with US youth. Microsoft will most likely leverage its Live Search, Mail, and Messenger services onto the Danger platform and compete with Android.

The problem for mobile phone operators that have been calling the financial shots until now is that with such systems as Android the consumer will very much be in control of what he wants his phone to do. Experience has already shown consumers don’t like to pay every time they use a device – they want flat fees for calls, texting and  Internet access, and the days of the telecom charging for each usage are near over.

In all there are some 30-40 operating systems being promoted for mobile phones, and the telecoms would like to see the market whittle this down to around five or six. But what they still don’t see yet, is how they will get rich as the operating system vendors surely will.