Abstract
The European Commission's proposal to build a single market for electronic communications will require a significant reform of the European telecommunications sector. The two most contentious elements of the proposed legislation are the abolition of roaming surcharges and the measures to guarantee network neutrality. The proposal seems to offer substantial benefits, particularly to young Europeans, in terms of communications, connectivity and mobility, as well as with regard to increased job opportunities, especially in the growing Internet economy. Nonetheless, a considerable obstacle to the creation of a genuine telecoms single market is the existing regulatory fragmentation into 28 separate national telecommunications markets, as well as the unattractive investment climate for network operators.
Introduction
It comes as no surprise that with the rapid developments in technology young people today immerse themselves in digital technology from an early age. It is common to see European teenagers handling brand new smartphones through which they browse the Internet and instantly communicate and interact with their friends, family and other acquaintances. It is, in fact, estimated that between October 2011 and October 2012 alone the number of Europeans using smartphones increased by 35%, from 97.7 million to a staggering 131.5 million (ComScore 2012). In terms of mobile data volume, Cisco (2013) reports that global traffic has reached 1,578 PB annually and is expected to rise to 11,157 PB by 2017, a volume which can be equated to approximately 3.5 trillion .mp3 files or 5.6 billion hours of streaming HD video.
These figures impressively illustrate the growth of mobile communications to date, yet more importantly they provide a glimpse of a future in which mobile devices could become the epicentre of our personal and professional interactions. For Europe's adolescent digital generation it is consequently important that mobile infrastructure not just permits fast, reliable and affordable connectivity, but also that borders between countries in the European Union are broken down to allow for cross-border communications and mobility. The main hindrances in this respect are roaming fees on calls, text messages and data downloads, the latter constituting a major cause of unexpectedly high mobile phone bills for consumers travelling abroad. Similarly, restrictions on voice over Internet protocol (VoIP) and peer-to-peer (P2P) services, such as Skype, Viber and Rebtel, which have been implemented by some telecoms operators, have sparked concerns about discriminatory practices which limit consumers’ alleged rights to open Internet access. The European Commission's recent adoption of the proposal to create a single market for electronic communications and to achieve a ‘Connected Continent’ seems at first sight to provide a step in the right direction in tackling these issues.
The telecoms single market proposal
In short, the proposal focuses on reforming the telecoms market by removing regulatory barriers to the authorisation needed for operators to access foreign markets and by harmonising the differing processes in the allocation of the radio spectrum, the natural resource that supports wireless connections. Moreover, it aims to strengthen consumer protection and rights, including measures to progressively eliminate roaming surcharges and to guarantee access to an open Internet (European Commission 2013).
Of these points the last one has grabbed the most headlines in the media as the elimination of roaming surcharges would have a direct and significantly beneficial impact on consumers, but would also seriously reduce profit margins according to statements by the telecoms industry. As a result, the Commission has now found itself in a difficult and important debate with European telecoms operators who, though benefiting from the proposed harmonisation and deregulation, strongly oppose the elimination of roaming surcharges as well as the measures aimed at promoting network neutrality.
The end of roaming surcharges
With regard to roaming surcharges, the first step, to be taken in 2014 if the proposal is adopted in its current form, is to remove the charges for incoming calls in the EU. Operators will be encouraged to offer ‘roam like at home’ deals at no extra cost. If operators refuse to offer these deals, customers will be able to choose a domestic price plan in the country of destination without having to buy a new SIM card and have a second bill. In exchange, the Commission has promised lighter regulation of operators, but this is evidently not regarded by the latter as acceptable compensation for the loss in revenue caused by the removal of roaming surcharges. While acknowledging the potentially positive effects of some features of the package, notably regarding spectrum and harmonisation, the GSM Association (GSMA), which represents mobile operators worldwide, has strongly opposed the further regulation and planned elimination of roaming surcharges (GSMA 2013a; Hibberd 2013). Similarly, the Financial Times cites a study commissioned by the European Telecommunications Network Operators’ Association (ETNO), a lobby group representing the major European network operators, which determined that the end of roaming surcharges would lead to a revenue loss among mobile operators of up to seven billion euros by 2020 (Fontanella-Khan and Thomas 2013).
In this regard, it is, however, important to ask whether mobile operators have not been exploiting consumers by charging exorbitant roaming fees which are not justified by the underlying costs. If this is the case then the estimated loss in revenues cited by ETNO does not represent a convincing argument against the abolition of roaming surcharges. The Body of European Regulators for Electronic Communications (BEREC) estimates that the EU weighted average for mobile termination rates, the wholesale tariffs that mobile operators apply for accessing their networks, constitutes 1.8979 euro cents per minute (BEREC 2013).
From a cost-based perspective which leaves room for an appropriate profit margin, there therefore seems to be little justification for operators to charge their customers roaming fees, even at the current regulated levels of €0.24 for outgoing calls and €0.07 for incoming calls (European Commission 2012). It can, consequently, be safely asserted that before the EU decided to start regulating roaming surcharges in 2007 customers were being seriously exploited as they were often charged between €1.00 and €1.50 per minute, and in some cases up to €3.00 per minute, in roaming charges (European Commission 2006).
Moreover, consumers often faced the risk of incurring enormous bills when their mobile devices’ data roaming was turned on while travelling abroad. Today, safety nets have been put in place to protect consumers from incurring excessive costs (i.e. more than €50) while using their mobiles abroad, but it remains an issue that needs to be resolved completely. Even though significant consumer-friendly policies have been implemented since 2007, it can be concluded that roaming surcharges still present a significant hindrance to communications and connectivity, and by extension mobility, within the EU.
The guarantee of network neutrality
Essentially, the principle of network neutrality prohibits discriminatory practices through which Internet service providers intentionally restrict their customers’ access to web content. The reasoning behind such activities is simple: some operators feel threatened by the surge in online services which directly compete with their existing business models and have in some cases blocked or throttled P2P or VoIP services. BEREC reports that 41 out of 115 operators restrict P2P and 28 restrict VoIP services on mobile networks (BEREC 2012). It estimates that each of these types of restrictions affects at least 20% of subscribers. It can, however, be assumed that restrictions are far more widespread than these numbers indicate, since BEREC relied on the potentially biased responses of European operators to evaluate the extent of implemented restrictions.
The drastic increase in the popularity of VoIP is exemplified by the more than one hundred million downloads of Skype's iOS and Android apps as of November 2012 (TeleGeography 2013). This leads to the conclusion that more and more people are relying on VoIP services to communicate when travelling abroad, which lends an increased sense of urgency to the need to remove restrictions to the access to these services. Not only do these actions by operators to some extent constitute unfair competition, but more importantly they represent a limitation on communications, especially among cash-strapped young European students. The Commission's proposed regulation, which would oblige providers to offer their customers unrestricted access to all Internet content, including applications and services, is therefore an essential step towards guaranteeing consumers’ basic rights to network neutrality.
Assessing the threats and opportunities
The current status quo of the European telecommunications sector is worrying. Not only does the fragmentation into 28 national markets negatively affect communications, connectivity and mobility within the EU, but, in a more far-reaching effect, it does not provide a reliable infrastructure for the growing Information and Communications Technology (ICT) economy and related sectors. A telecoms single market and the ‘Connected Continent’ could provide increased job opportunities, for example, in the quickly expanding app industry, particularly for young Europeans facing a high risk of unemployment. It could also assist in the removal of some of the barriers that young entrepreneurs face when starting a business.
As ETNO's Annual Economic Report 2012 shows, investments in the EU telecoms sector have been insufficient, leaving the EU currently trailing behind the US and parts of Asia in the quality of its networks. This is most apparent when examining the 4G roll-out in Europe, where less than 2% of connections are on 4G networks, compared to 19% in the US (GSMA 2013b). The advantages of 4G for consumers are higher download speeds, faster connection times and less round-trip latency, that is, the length of delay in receiving a response when sending a data packet. Higher quality networks, however, do not exclusively benefit consumers and by extension the telecoms sector, but also the economy at large. Apart from benefiting communications and connectivity-reliant businesses, fast broadband networks in combination with cloud computing and other advanced technologies can foster entrepreneurial activities and innovation. In order for individuals and businesses alike to be able to benefit from the Commission's proposal, not only is it necessary to increase consumer rights and ensure fair prices, but it is equally important that network operators are provided with more incentives to invest in their networks.
A significant obstacle to increased investment is the existing process of radio spectrum assignment and the application of timing conditions, which take place on a national level. With operators spending billions of euros in national auctions for bandwidth, but more importantly facing significant disparities in the auction and authorisation processes in the different Member States, it comes as no surprise that network operators feel disinclined to increase their investments in Europe. The Commission's proposal addresses these issues by promising mobile operators predictable assignment conditions and coordinated time frames for accessing the spectrum. It does not, however, intend to reduce the authority of Member States in assigning the spectrum. And for good reason: the proposal requires the approval of the European Council which represents the Member States’ governments, and they are unlikely to accept any curb in their sovereignty over what is widely considered a national resource. Therefore, the Commission refrained from proposing more radical reforms in this context in order to increase the chances of success in pushing through the legislation. Even those reforms that have been put forward with regard to spectrum could potentially be dropped or altered according to the preferences of the Council in the current negotiations. Consequently, it remains questionable whether a genuine telecoms single market can be created in the absence of a single empowered EU regulator.
In light of these problems, it is important to find other measures to incentivise network operators to increase their investments in European networks. A possibility that has been suggested is to slightly increase domestic tariffs when ending roaming surcharges in order to offset the cited losses in revenue. Even though customers would incur marginally higher bills, the benefits of an end to roaming surcharges, as well as improved networks, hinging on the operators’ willingness to invest this cash surplus in European networks, could be viewed as more than compensation for this. This assumption is based on the emphasis on a marginal rather than substantial increase in domestic tariffs. In this context, it is also important to mention that EU consumers pay significantly less on average for mobile broadband than, for example, US consumers (GSMA 2013b). Nonetheless, this measure alone will not be sufficient to boost investment, especially if the regulatory obstacles caused by the fragmentation into 28 national telecommunications markets continue.
Conclusion
The Commission's proposal to create a single market for electronic communications and to build a ‘Connected Continent’ represents an opportunity, particularly for young Europeans, to take advantage of cheaper means of communication as well as a generally improved digital infrastructure. Not only would this facilitate communications, connectivity and mobility both on a personal and professional level, but it could also allow Europe's youth to benefit from EU-wide employment opportunities in the Internet economy and better enable them to start their own businesses.
Nonetheless, caution needs to be exercised so as not to overestimate the potential benefits of the proposed legislation. Network operators have found the European telecommunications sector to be unattractive for investment, which has harmed inter alia the roll-out of 4G. A major obstacle remains the regulatory fragmentation of the European telecoms market, most notably with regard to spectrum, which is unlikely to experience any significant reform due to the European governments’ resistance to giving up their sovereignty.
In conclusion, it is improbable that the draft legislation will be adopted before the European Parliament election in May 2014, as Member States, on the one hand, oppose the proposed spectrum reforms, and telecoms operators, on the other, are strongly resistant to the elimination of roaming charges. The prospects of achieving a genuine single market for telecommunications are rather bleak considering the Member States’ staunch refusal to transfer regulatory powers to the EU in relation to radio spectrum. The disappearance of roaming fees, however, is more realistic, as telecoms operators facing increased EU regulation might decide to proactively offer specialised international plans with no roaming surcharges in order to gain a first-mover advantage and stay a step ahead of the competition. Nonetheless, even though roaming surcharges are likely to disappear, questions remain about how to develop European networks so as to meet the needs of a growing Internet-based economy.
Footnotes