Christian Engström, Pirat

22 november 2011

Data Roaming: Dear Former State Monopolies,

Filed under: English,informationspolitik,Roaming — Christian Engström @ 18:13

The mobile operators that are former state monopolies are opposed to meaningful caps on data roaming prices

Last week I met with lobbyists from Telekom Austria, on the subject of data roaming. Everybody agrees that today’s roaming charges of around 3000 euro per gigabyte are unreasonable and are hurting the single market.

The Commission wants to introduce a retail price cap of 900 euro per GB from the first of July 2012, combined with a wholesale price cap of 300 euro per GB.

I am instead proposing at retail cap of 20 euro per GB, and a wholesale price cap of 10 euro per GB by the same date. This would bring data roaming surcharges in line with the domestic price for using your smartphone or laptop to access wireless Internet.

When I met with the lobbyists from Telekom Austria, they made clear that they agree with the Commission, and think that a 300 euro per GB wholesale price cap is reasonable. I explained why I think the price cap should be 30 times lower, at 10 euro per GB.

I base my suggestion on the fact that the production cost for 1 GB of mobile data transfer is about 1 euro or less. I have several public sources to back up this estimate of the production cost, which makes a 10 euro per GB wholesale cap more than reasonable.

I promised that I would come back to the lobbyists with references. Here is my reply:

Dear Telekom Austria,

It was a pleasure meeting you in my office in the European Parliament in Strasbourg last week, to discuss the Roaming III Regulation proposed by the Commission, and in particular price caps for data roaming.

As you remember, we also met at the breakfast in the European Parliament in Brussels the week before that, when a representative from your company made a presentation of your views on the regulation of data roaming.

Since your company’s position is shared by all or most of the former state monopoly telecoms that are now the dominating players in their respective home markets, such as Telefónica and Deutsche Telekom, I have published this letter on my blog in addition to sending it to you.

On both occasions we met, you made clear that you support the Commission’s proposal to set the price caps at 900 euro per GB retail for consumers, and 300 euro per GB wholesale between telecom operators from July 1, 2012.

When we met, I promised to come back to you with references showing that the production cost for 1 GB of mobile data transfer is less than 1 euro, which would make a wholesale cap of 10 euro per GB more reasonable.

Here are the references I promised (with emphasis added by me):

  • Ericsson: The head of R&D at Ericsson, Håkan Eriksson, in an article published in August, 2010 in Swedish technology journal Ny Teknik:

    ”To produce 1 GB of mobile data transfer costs about 1 dollar, and a client with a smartphone uses about half a GB per month”

  • Nokia Siemens: White paper Mobile broadband with HSPA and LTE – capacity and cost aspects (May 2010), page 8:

    ”The cost of delivering a GB of data is highly dependent on the network utilization. If total data use is high, either due to a high number of subscribers or to high use per subscriber, the cost per GB can be below 1 EUR. Figure 8 shows that a cost of less than 1 EUR can be obtained with 40% mobile broadband penetration and 2 GB/sub/month.”

  • Plum Consulting: The study The open internet – a platform for growth(October 2011), page 19:

    ”Ericsson, Nokia Siemens Networks and “3” in the UK have published estimates of the costs of carrying additional traffic on mobile networks (considered in Appendix B). Forward-looking estimates which take account of the transition to LTE, additional spectrum and traffic and subscriber growth (which improves overall network utilisation) put the cost to the mobile network operators at under €1 per GB. WiFi and femtocells may also offer low cost options in terms of traffic offload.

    Mobile network incremental data traffic costs are therefore substantially greater than those for fixed networks, but well below existing smartphone data tariffs of around €10 per GB. Data traffic growth not only appears profitable, but may contribute to lower average costs per GB carried.”

  • Swedish National Regulating Authority PTS (Post- och Telestyrelsen) has published a very comprehensive overview of the Swedish telecom market in 2010 (in Swedish). On page 35 they say that the total revenues for mobile data transfer in Sweden in 2010 were 4.2 billion SEK, and on page 27 they say that the total volume of mobile data transfer was 53,100 TB, i.e.: 53.1 million GB. Dividing these two numbers gives an average income for the Swedish mobile operators of 80 SEK per GB, which is about 9 euro per GB.

I hope these references are helpful to you in understanding why I think that 20 euro per GB retail, and 10 euro per GB wholesale, would be quite reasonable price caps from July 1, 2012.

I repeat the link to my earlier blog post Proposing a 10 Euro Per GB Cap On Data Roaming for your convenience.

I look forward to your comments in due course.

Best regards,

Christian Engström, MEP
Piratpartiet

9 kommentarer

  1. I guess I’m still annoyed that common sense people should have to defend their positions. Because common sense would mean the same prince for mobile data internationally as the offers operators give for domestic mobile data. The price variations can’t be that large from a western country to another.

    Was there anything in what the lobbyists said that would indicate exactly why they think it’s reasonable to have an order of magnitude higher prices for roaming?

    Kommentar av Johan Tjäder — 22 november 2011 @ 21:17

  2. Bra! På dom!

    Kommentar av Harry Haller (@stappvargen) — 22 november 2011 @ 22:33

  3. ”Was there anything in what the lobbyists said that would indicate exactly why they think it’s reasonable to have an order of magnitude higher prices for roaming?”

    ”…and think that a 300 euro per GB wholesale price cap is reasonable.”

    I think that’s it, basically. as is telecom companies can make whatever they want out of roaming. With a 10 €/GB cap they’ll just make 900% pure profit. No wonder they want a hard cap to be around 30 times that. From their own sales perspective this is no doubt very reasonable as a limit.

    Kommentar av Scary Devil Monastery — 23 november 2011 @ 16:43

  4. I think it would be better to propose, that the price for data roaming must not exceed the price of domestic mobile data.

    Kommentar av Anonym — 24 november 2011 @ 13:28

  5. @Anonym (#4)

    It’s not a good thing to force the same price for domestic mobile data, because that would only lead to increased domestic prices.

    Neither does it correlate to the cost, since an operator is not always in control of the price for roaming. In severe cases, the operator would simply not sign any roaming deals with less important countries.

    International roaming costs more, but not that much…

    Kommentar av Johan Tjäder — 24 november 2011 @ 15:14

  6. As Johan Tjäder is hinting at – a ”fair price” can only be estimated as the fee for what any provider would actually consider offer roaming for. One mustn’t also forget that the exorbitant prices for the acquisition of licenses somehow implied future exorbitant roaming fees. Changing the terms of those auctions ”a posteriori” is not a good idea.

    That said, I think the auctions were not so sensible a frequency-allocating measure at they seemed at the time. With cognitive radio coming up, more non-proprietary frequency allocations would have been more economically efficient as well as more desirable from a civic participation and trust-building point of view.

    But this far down the already taken proprietary road I think pushing prices down to be in line with average marginal production costs would quite possibly lead to no service at all in many areas.

    Kommentar av viktualiebroder — 29 november 2011 @ 13:24

  7. Dear Mr Engström,

    Although we might have different views on price caps for data roaming, it was also for us a pleasure to meet with you.
    We want to thank you for providing us with references on production costs for delivering data over mobile networks. Since you addressed us directly in your blog, we have taken the opportunity to look at your sources and, on this basis, address your estimation of the alleged production costs of less than 1 Euro per GB in a more informed way.

    We have sent you an email which we will also publish in the Public Policy Section of our website, inviting you and your colleagues to look at our interpretation. Please find the link below:

    http://www.telekomaustria.com/group/public-policy/international_roaming.php

    Kind regards
    The Telekom Austria Group Public Policy team

    Kommentar av The Telekom Austria Group Public Policy Team — 7 december 2011 @ 14:59

  8. @The Telekom Austria Group Public Policy Team (#7)

    It is important to remember that the Germany UMTS licenses were auctioned off to the highest bidder. I think that it was a very bad policy actually because of the enormous drain of money that hit the mobile market – essentially leading to a delay in UMTS rollout. However, calculating a license cost per gigabyte is cumbersome, because it totally depends on the volume consumption which in its turn is dependent on your domestic pricing policy.

    Now, assuming your statement on daily usage for smartphone users are 3 to 6 MB is correct, I think you’ve got to seriously rethink your offering. Clearly a smartphone user which uses that little volume has not really bought the idea of mobility and is therefore under-using both her phone and your network. Simply loading the first page of the Swedish newspaper http://www.aftonbladet.se causes a transfer of 2,3 MB. So with the proposed price caps of 0,9 €/MB that page would cost 2 € which is more expensive than a full paper copy of Aftonbladet.

    Downloading the full version of Aftonbladet in their own iPad service comes down to 87 MB (edition of Sunday Dec 11). Clearly it’s not meaningful to pay 2 € for a digital copy of the paper and 78 € for mobile transfer costs. There will simply be no business with that kind of pricing strategy.

    Downloading one page of maps in the iPhone Google Maps app amounts to 1,1 MB. When navigating you have to get a lot of pages. If you’re going to have to pay 1 € for each map page, then there will simply not be any navigating done.

    All other services that the smartphone enables, gets ridiculously expensive with a suggested 900 €/GB rate.

    If everyone (even domestic customers) were to pay 900 €/GB given the current data volume consumption, German operators would make a staggering 89 Bn € a year. More than the entire license cost of 50,8 Bn €. Clearly, roaming users are overcharged.

    Going back to your first example. Once again if assuming our estimates of the number of users are correct, then there are 18,8 million users that can cover the license fee. That amounts to an addition on a yearly flat rate of 154 €. I think already at this level it’s a good business. And smartphone penetration is increasing adding more subscribers to share the cost.

    Then returning to your claim of marginal cost not being the right benchmark. Of course it is. The licensing costs are not dependent on the data volume. Only the size of your network is. Increased roaming would mean a need to expand the network – that’s true. However, that withers away when put beside the expected expansion of your home market. 18,8 million users in Germany is simply to low. That number is going to be doubled soon. Roaming users is not your big concern. Your expansion of the home market is. Roaming users is only a fraction on the top – and that’s a margin in every sense of the word.

    So I don’t think you have made your case for a 900 €/GB roaming price cap. That’s simply not a sensible solution as it does not encourage mobile phone usage.

    Kommentar av Johan Tjäder — 12 december 2011 @ 2:24

  9. [...] Det är en avsevärd förbättring, men fortfarande en orimlig kostnad med tanke på att det kostar omkring 10 kronor att producera en gigabytes [...]

    Pingback av Den första juli blir roamingpriserna bättre, men inte tillräckligt bra | Anna Troberg — 26 juni 2012 @ 9:19


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