EUROPEAN COMMISSION Brussels, 15.6.2016 SWD(2016) 200 final COMMISSION STAFF WORKING DOCUMENT Accompanying the document Report from the Commission to the European Parliament and the Council on the review of the wholesale roaming market {COM(2016) 398 final}



COMMISSION STAFF WORKING DOCUMENT Accompanying the document Report from the Commission to the European Parliament and the Council on the review of the wholesale roaming market Table of Contents Table of Figures Table of Tables List of Acronyms 1. Introduction 2. The Commission's approach to the review of national wholesale markets and its legislative proposal 2.1. Information and data gathering on wholesale and retail roaming markets 2.2. Analysis of the data 2.3. External study to estimate the costs of providing wholesale roaming services 2.4. Public consultation 2.5. BEREC input 2.6. Commission's inter-service group 2.7. The report on national wholesale roaming markets (this report) 2.8. Impact assessment for the Commission's legislative proposal

3. Overview of the EU Roaming Regulations and market developments (2007-2015) 3.1. Evolution of the EU Roaming Regulations (2007-2015) 3.2. Evolution of wholesale and retail roaming prices (2007-2015) 3.2.1. Retail roaming prices 3.2.2. Wholesale roaming prices 3.3. Evolution of roaming traffic in Europe 4. Competition developments in retail roaming markets 4.1. Description of the Commission's approach 4.1.1. Literature review 4.1.2. Questionnaires to operators and analysis of the data 4.2. Market failures in retail roaming markets 4.2.1. Imperfect substitutes at the retail level 4.2.2. Lack of tariff transparency and bill shock 4.2.3. Inelastic demand for roaming services for a significant proportion of the customer base 4.3. Domestic price level and consumption pattern 4.4. A comparison of retail roaming and domestic traffic 4.5. Retail roaming offers 4.6. Current technological developments as potential substitutes to roaming 4.7. Conclusion 5. Assessment of the cost of providing wholesale roaming services in the EEA

5.1. Introduction 5.2. Description of the Commission's approach 5.2.1. Questionnaires to NRAs and operators 5.2.2. External study to estimate wholesale roaming costs 5.2.2.1. The call for tenders 5.2.2.2. The objectives of the study 5.2.2.3. Consultation with NRAs and mobile operators 5.3. Previous estimates of wholesale roaming costs 5.4. The TERA Consultants cost model 5.4.1. The approach followed by TERA Consultants 5.4.2. High level assumptions in TERA's cost model 5.4.2.1. The choice of cost standard 5.4.2.2. The approach to cost modelling 5.4.2.3. Estimation of network costs 5.4.2.4. Roaming-specific costs 5.4.2.5. Impact of seasonality 5.4.2.6. Total estimated wholesale roaming costs 5.5. Termination rates 5.6. Transit costs 5.7. Comparison of the voice cost estimates derived from TERA's study against an alternative approach based on national mobile termination rates

5.8. Cost estimates for SMS services 5.9. Conclusion on the costs of wholesale roaming services 6. Degree of competition in wholesale roaming markets 6.1. Description of the Commission's approach 6.1.1. Literature review and previous studies 6.1.2. Questionnaire to operators and analysis of the data 6.1.3. Public consultation 6.2. Market failures in wholesale roaming markets 6.2.1. Natural oligopoly structure, which fosters low intensity of competition 6.2.2. Imperfect wholesale roaming substitutes 6.2.3. Double marginalisation and difficulties in coordination 6.2.4. Bilateral nature of wholesale roaming agreements 6.2.5. Exclusion of MVNOs from wholesale roaming markets 6.3. Overview of wholesale roaming agreements 6.3.1. Standard Roaming Agreements and roaming discount agreements 6.3.2. Bilateral and unilateral roaming agreements 6.3.3. Number of roaming agreements in each destination country 6.3.4. Pricing models 6.3.5. Permanent roaming 6.3.6. Machine-to-Machine communications (M2M)

6.4. Description of the wholesale roaming market in the EU 6.4.1. Wholesale roaming traffic flows between Member States 6.4.2. Wholesale roaming traffic compared to retail domestic traffic 6.4.3. Wholesale roaming payments and revenues balance 6.4.4. Wholesale roaming prices in the EU 6.5. Degree of competition in national wholesale roaming markets 6.5.1. Operators' views of the functioning of the national wholesale roaming markets 6.5.2. Operators' views about the ability of the current functioning of national wholesale roaming markets to enable RLAH in the EU 6.5.3. MVNOs' views of the functioning of the national wholesale roaming markets 6.5.4. Wholesale roaming prices vs wholesale and retail domestic prices and underlying costs 6.5.5. Presence of pan-European mobile operators 6.5.6. Inside vs outside group roaming 6.5.6.1. Steering roaming traffic inside the group 6.5.6.2. Inside vs outside group wholesale roaming prices 6.5.7. Competitive situation of operators with limited geographic scope 6.6. Conclusions 7. RLAH in 2017 8. Conclusions BIBLIOGRAPHY ANNEX 1: Existing 'Roam-Like-At-Home' (RLAH) offers

ANNEX 2: Wholesale roaming price paid and received ANNEX 3: Roaming traffic flows between countries



Table of Figures Figure 1 - EEA average retail price per minute for intra-EEA roaming voice calls made Figure 2 - EEA average retail price for intra-EEA outgoing SMS Figure 3 - EEA average retail price per MB Figure 4 - EEA average price per minute for wholesale non-group roaming voice calls Figure 5 - Average wholesale price per intra-EEA roaming SMS: charges to non-group companies Figure 6 - Average wholesale data price per MB (prepaid+postpaid), EEA average Figure 7 - Roaming traffic index: intra-EEA outgoing calls (Q3 2008=100) Figure 8 - Retail SMS sent traffic index (Q3 2008=100) Figure 9 - Retail roaming data traffic index: (Q3 2008 = 100) Figure 10 - Intra-EEA retail roaming revenues as % of total retail revenues (x-axis) Figure 11 - Intra-EEA retail roaming traffic as % of total retail traffic (outgoing minutes) Figure 12 - Intra-EEA retail roaming consumption as % of total retail consumption (outgoing SMS) Figure 13 - Intra-EEA retail roaming consumption as % of total retail consumption (data) Figure 14 - Intra-EEA retail roaming revenues and volumes as % of total retail revenues and volumes (y-axis) by country, 2014 Figure 15. Steps in the estimation of costs in the TERA cost model

Figure 16: Re-allocation of costs not recovered through voice and SMS termination Figure 17: Example of re-balancing of costs with effective mobile termination rates Figure 18: TERA's cost estimates for voice origination after re-balancing for national MTRs under Scenario B (€c/min) Figure 19: TERA's cost estimates for data services (€c/MB) Figure 20: Comparison of TERA's voice origination costs against retail unit voice prices (€c/min) Figure 21: Comparison of TERA's data costs against retail unit data prices (€c/MB) Figure 22: Mark-ups on voice services for roaming-specific costs (€c/min) Figure 23: Mark-ups on data services for roaming-specific costs (€c/MB) Figure 24: Mark-ups on voice services for seasonality (€c/min) Figure 25: Total estimated wholesale roaming unit costs for voice origination (€c/min) Figure 26: Total estimated wholesale roaming unit costs for data services (€c/MB) Figure 27: Fixed termination rates applicable in MS (S2 2015) – BU-LRIC rates in blue (€c/min) Figure 28: Mobile termination rates applicable in MS (S2 2015) – BU-LRIC rates in blue (€c/min) Figure 29: Total estimated costs of wholesale roaming voice origination including the termination rate and transit costs (€c/min) Figure 30: Total estimated costs of wholesale roaming data services including transit costs (€c/MB) Figure 31: Comparison between the TERA-based estimated cost for wholesale roaming voice,an alternative approach to estimating costs for wholesale roaming voice, average wholesale roaming market price for unbalanced traffic (€c/min) Figure 32: Current wholesale roaming prices for SMS in MS (€c/SMS) Figure 33 – Intra-EEA wholesale roaming (inbound) revenue as % of retail domestic revenue all services (x-axis) Figure 34 – Intra-EEA wholesale roaming (inbound) traffic as % of retail domestic traffic (x-axis) (outgoing voice) Figure 35 – Intra-EEA wholesale roaming (inbound) traffic as % of retail domestic traffic (outgoing SMS)

Figure 36 – Intra-EEA wholesale roaming (inbound) traffic as % of retail domestic traffic (x-axis) (data) Figure 37 – Intra-EEA wholesale roaming (inbound) revenues and traffic as % of retail domestic revenues and traffic (y-axis), 2014 Figure 38 - Total intra-EEA wholesale roaming balance (revenues minus payments) as a % of total retail domestic revenues (x-axis), all services included Figure 39 - Total intra-EEA wholesale roaming balance (revenues minus payments) as a % of total retail domestic revenues (y-axis), all services included, per country Figure 40 - Average wholesale roaming prices for balanced and unbalanced traffic (inbound and outbound): voice services (2015) Figure 41 - Average wholesale roaming prices for balanced and unbalanced traffic (inbound and outbound): SMS services (2015) Figure 42 - Average wholesale roaming prices for balanced and unbalanced traffic (inbound and outbound): data services (2015) Figure 43 – Ratio inside group over outside group roaming volumes per operator and destination country (voice - outbound roaming traffic) Figure 44 - Ratio inside group over outside group roaming volumes per operator and destination country (SMS - outbound roaming traffic) Figure 45 - Ratio inside group over outside group roaming volumes per operator and destination country (data - outbound roaming traffic) Figure 46 – Ratio between inside group and outside group wholesale roaming unit prices per operator and destination country (voice - outbound roaming traffic) Figure 47 - Ratio between inside group and outside group wholesale roaming unit prices per operator and destination country (SMS - outbound roaming traffic) Figure 48 Ratio between inside group and outside group wholesale roaming unit prices per operator and destination country (data - outbound roaming traffic) Figure 49 – Average wholesale roaming price for unbalanced traffic vs operator size (voice - outbound traffic) Figure 50 – Average wholesale roaming price for unbalanced traffic vs operator size (SMS - outbound traffic) Figure 51 – Average wholesale roaming price for unbalanced traffic vs operator size (data - outbound traffic) Figure 52 - Difference between effective unit prices (payments/volumes) paid and received (data - outside group traffic) Figure 53 - Difference between effective unit prices paid and received (voice - outside group traffic) Figure 54 - Difference between effective unit prices paid and received (SMS - outside group traffic)





Table of Tables Table 1 - Regulatory measures introduced by the Roaming Regulations (2007-2016) Table 2: When travelling to another EU country, you generally... Table 3 - BEREC's estimations for upper bound, average and lower bound of wholesale costs for wholesale roaming services (2010) Table 4 - BEREC's estimations wholesale costs for wholesale roaming services (2012) Table 5: Allowances included in the baskets of the study considered to estimate retail prices Table 6: Country VAT rates used to derive domestic retail prices excluding VAT Table 7: Country retail prices using the relative prices of wholesale roaming prices Table 8: Roaming-specific costs estimated by TERA Table 9: Termination rate to be considered within the cost of originating a mobile roaming call (€c/min) Table 10: Wholesale roaming services' cost estimates in each of the 29 countries considered in TERA Consultants' cost model Table 11 - Inbound/Outbound ratio for roaming services: voice, data and SMS (in green values above 150%, in blue values below 75%) Table 12 - Presence of pan-European mobile operators Table 13 - RLAH offers per country (add-ons are excluded), September 2015 Table 14 - Roaming voice traffic flow between countries in the second semester of 2014



List of Acronyms ARPM - Average Revenue Per Minute ARRPU - Average Retail Revenue Per User

BEREC - Body of European Regulators in Electronic Communications DG CNECT - Directorate General for Communications Networks, Content & Technology EEA - European Economic Area EU - European Union EUR - Euro EUR/PPP - EUR/Purchasing Power Parity FUP - Fair Use Policy GB - Gigabyte GSM - Global System for Mobile communications GSMA - GSM Association HD - High Definition IA - Impact Assessment IMSI - International Mobile Subscriber Identity IOT - Internet of Things JRC - Joint Research Centre LBO - Local Break Out LTE - Long-Term Evolution MB - Megabyte MS - Member State MNO - Mobile Network Operator

MTR - Mobile Termination Rate MVNO - Mobile Virtual Network Operator MWC - Mobile World Congress M2M - Machine to Machine NRA - National Regulatory Authority OECD - Organisation for Economic Co-operation and Development OTT - Over-the-top VoIP - Voice over Internet Protocol Q1 - Quarter 1 Q2 – Quarter 2 Q3 - Quarter 3 Q4 - Quarter 4 RLAH - Roaming Like At Home SIM - Subscriber Identity Module SME - Small and medium-sized enterprises SMS - Short Message Service STIRA - Standard Terms for International Roaming Agreements US - United States VAT - Value-added tax VoIP - Voice over Internet Protocol

VoLTE - Voice over Long-Term Evolution Wi-Fi - Wireless Fidelity 3G - 3rd Generation 4G - 4th Generation €c - euro cent Countries BE - Kingdom of Belgium BG - Republic of Bulgaria CY- Cyprus CZ - Czech Republic DK - Kingdom of Denmark DE - Federal Republic of Germany EE - Republic of Estonia IE - Ireland EL - Hellenic Republic ES - Kingdom of Spain FR - French Republic HR - Republic of Croatia IS - Republic of Iceland

IT - Italian Republic LI - Principality of Liechtenstein LV - Republic of Latvia LT - Republic of Lithuania LU - Grand Duchy of Luxembourg HU - Hungary MT - Republic of Malta NL - Kingdom of the Netherlands NO - Kingdom of Norway AT - Republic of Austria PL - Republic of Poland PT - Portuguese Republic RO - Romania SI - Republic of Slovenia SK - Slovak Republic FI - Republic of Finland SE - Kingdom of Sweden UK - United Kingdom of Great Britain and Northern Ireland

1.Introduction In October 2015 the European Parliament and the Council adopted Regulation 2015/2120, which, inter alia, amended Regulation 531/2012 (hereinafter Roaming III Regulation) and entered into force on 29 November 2015. In this report, the Roaming III Regulation as amended by Regulation 531/2012 is called the Roaming Regulation or simply the Regulation.

The Regulation mandates the abolition of retail roaming surcharges in the EU from 15 June 2017 (the Roam Like At Home – RLAH – regime), subject to fair usage of roaming services and a sustainability clause. With the establishment of the obligation to charge retail roaming services at domestic prices (no more retail roaming surcharges) subject to a fair use of these services, Regulation EU 2015/2120 has substantially defined a new retail regulatory regime for regulated roaming services: the roam-like-at-home (RLAH) regime. However, while retail pricing of roaming and domestic services are aligned by regulation, the provision of retail roaming services does not use the same wholesale inputs as retail domestic services, in view of the fact that the provision of retail roaming service requires, by definition, the use of a different (visited) network. These wholesale roaming inputs are therefore to be bought in the market by the visiting operator. Wholesale roaming inputs include a number of costs specific to roaming (i.e. not incurred in providing domestic services), such as roaming operation and management costs, roaming financial and data clearing costs, roaming negotiation and contract management costs. In order to ensure that the retail roaming services can be provided at domestic retail prices, therefore, it is necessary that wholesale roaming inputs are available at a price that makes generally possible for the visiting (home) operators the provision of RLAH, eventually subject to fair use and without prejudice to the possibility to ask for a sustainability derogation in exceptional circumstances, while at the same time ensuring that visited operators can recover the costs of provision of these services. The Regulation therefore mandates the Commission to review the wholesale roaming market by 15 June 2016, with a view to assessing measures necessary to enable abolition of retail roaming surcharges by 15 June 2017. On the one hand, with regard to retail roaming regulation, the choice to establish a RLAH regime has been already taken by the co-legislators with Regulation 2120/2015; on the other hand the correct working of wholesale roaming market is a precondition for the achievement of the RLAH regime. Therefore the Commission has been entrusted with the specific task to review the wholesale roaming markets, rather than the evaluation of the functioning of the entire Roaming III Regulation. The review of roaming wholesale market was carried out with a view to analyse the degree of competition in national roaming markets, any observable risk of distortion of competition and investment incentives in domestic and visited markets in order to assess the measures necessary to enable the achievement of the objective established by the co-legislators, i.e. the abolition of retail roaming surcharges by 15 June 2017. This was done taking into account the need to ensure that the visited network operators are able to recover all costs of providing regulated wholesale roaming costs and the need to prevent permanent roaming or anomalous or abusive use of wholesale roaming (Article 19 of the Roaming Regulation). In line with this mandate, therefore, the aim of this report, together with its associated impact assessment, is not to review the entire functioning of the original Roaming III Regulation nor the RLAH obligation for which the wholesale review is actually a pre-condition, but is rather focused on the review of the wholesale roaming markets in the EU and to propose the most appropriate legislation at the wholesale level to ensure the success of the RLAH regime. In line with the mandate of the European Parliament and the Council set out in Article 19 of the Regulation, the focus of the Commission's assessment in this report is on: the developments in competition in the retail roaming markets (section 4); the costs of providing wholesale roaming services in the EU (section 5); and the degree of competition in national wholesale markets, including an assessment of the wholesale charges applied, the competitive situation of operators with limited geographic scope, the effects of commercial agreements on competition, as well as the ability of operators to take advantage of economies of scale (section 6). In addition, the Regulation mandates the Commission to have regard to specific criteria when assessing the most appropriate measures at the wholesale level to enable the abolition of retail roaming surcharges. The Commission has carefully considered the criteria set out by the European Parliament and Council in the Regulation in its impact assessment and legislative proposal accompanying this report, namely: the risks of distortion of competition and investment incentives in domestic and visited markets of any measure proposed for wholesale roaming markets; the need to ensure that visited network operators are able to recover all costs of providing regulated wholesale roaming services, including joint and common costs; and, the need to prevent permanent roaming or anomalous or abusive use of wholesale roaming access for purposes other than the provision of regulated roaming services to roaming providers' customers while the latter are periodically travelling within the Union. The remainder of this report is structured as follows: section 2 describes the overall methodology followed by the Commission in the review of national wholesale roaming markets; section 3 provides an overview of the EU Roaming Regulations to date and their impact on market developments; section 4 describes the competition developments in retail roaming markets across the EU to date; section 5 sets out the Commission's approach to assessing the costs of providing wholesale roaming services and a summary of the outcome of the Commission's assessment (more detail on this analysis can be found in the Final report of the study); section 6 assesses the degree of competition in national wholesale roaming markets; section 7 assesses the possible impact of the future retail RLAH obligation on competition on the wholesale roaming markets;

section 8 summarises the main conclusions of this report. 2.The Commission's approach to the review of national wholesale markets and its legislative proposal In this section the Commission's approach in reviewing national wholesale markets and its legislative proposal is described, in particular, as regards: Information and data gathering on wholesale and retail roaming markets Analysis of the data The external study commissioned by the Commission to assess the costs of providing wholesale roaming services Public consultation Body of European Regulators in Electronic Communications (BEREC) input Commission's inter-service group Report on national wholesale roaming markets (this report) Impact assessment of the Commission's legislative proposal 2.1.Information and data gathering on wholesale and retail roaming markets The first phase of the review process consisted in gathering quantitative and qualitative information about wholesale and retail markets in the EU. On 28 July 2015, the Commission sent an information request to BEREC specifying the data and information necessary to conduct the review of national wholesale roaming markets in accordance with the Regulation requirements. Following that request, BEREC, in collaboration with the Commission, sent two questionnaires to, respectively, mobile (virtual) network operators M(V)NOs and national regulatory authorities (NRAs) on 11 September 2015. These questionnaires aimed at collecting detailed data, facts and figures about the degree of competition in national wholesale markets, the level of wholesale roaming costs incurred by a visited operator, including relevant joint and common costs, any observable risks of distortions of competition and investment incentives in home and visited market, and the competition developments in the retail roaming markets. The questionnaire to NRAs also aimed at gathering information on the cost models and input data used by NRAs to estimate mobile network costs. Replies from operators and NRAs to these questionnaires were received in the course of September and October 2015. Some operators provided updated replies in November-December 2015 and early January 2016. Through this information gathering exercise, the Commission received quantitative and qualitative information from 135 operators and from the 28 EU NRAs plus the Norwegian NRA. In the remainder of this report to the information gathered from operators and NRAs is referred as the 'autumn 2015 data collection'. In the course of December 2015 and January 2016, the Commission complemented this data collection exercise with additional requests on the characteristics and inputs of NRAs' mobile termination rates cost models, for the purpose of developing a cost model to assess the costs of providing wholesale roaming services (a more detailed description of the external study commissioned by the Commission to TERA Consultants for this purpose is included in section 5.4 below). In addition to these formal information requests, the Commission has held informal meetings with NRAs and stakeholders since the start of the review in July 2015. The Commission's approach has been to consult openly with NRAs and BEREC on the analysis contained in this report and the conclusions of its legislative proposal (as further described in section 2.5 below). 2.2.Analysis of the data The analysis of the qualitative and quantitative data received on wholesale and retail roaming markets in the autumn 2015 data collection was conducted by DG CNECT and the Competence Centre on Microeconomic Evaluation (CC-ME) of the Joint Research Centre (JRC) from November 2015 to February 2016. DG CNECT has also relied on BEREC's analysis of this data carried out in parallel to the Commission's analysis (see section 2.5). 2.3.External study to estimate the costs of providing wholesale roaming services

The assessment of the level of costs incurred by visited network operators to offer wholesale roaming services provides, among other things, input for the analysis of the degree of market competition. To this end, the Commission ordered an external study to TERA Consultants. The study was conducted between October 2015 and March 2016. Building upon cost models used by NRAs for mobile networks, the contractor has developed a cost model to estimate the costs of providing wholesale roaming services by a generic European mobile network operator. The cost model was developed in close collaboration with the BEREC International Roaming Expert Working Group and NRAs. Anonymised data on wholesale roaming specific costs collected from operators in the autumn 2015 data collection described in section 2.1 above were used in the study to develop the cost model. In addition, BEREC updated its wholesale roaming costing methodology in December 2015 and the Commission used this assessment as an input to its external study to estimate the costs of providing wholesale roaming services. In addition, the Commission invited NRAs, operators and trade associations, as well as other interested stakeholders, to a workshop organised together with TERA Consultants on 28 January 2016 in Brussels to present the interim results of the TERA study and to obtain feedback on the study's cost model for wholesale roaming services. The feedback from stakeholders has been incorporated into the cost model developed by TERA Consultants. Finally, a reality check exercise was conducted in March 2016. During two weeks, NRAs were invited to run and test the cost model on their input data. 20 NRAs provided comments and further information, in particular input data, where they deemed relevant to improve the model. The model and the country input data used were then revised by TERA Consultants to take into account the feedback received from NRAs. The final version of the cost model developed by the contractor is described in more detail in Final report of the study. 2.4.Public consultation On 26 November 2015 the Commission launched a wide-ranging 12-week public consultation to gather views on the functioning of, and level of competition on, the wholesale roaming markets in the EU, on the need to regulate them in view of the abolition of retail roaming surcharges by 15 June 2017, on possible options for doing so, and on the possible risks associated with permanent roaming and the ways to address them. The public consultation was closed on 18 February 2016. The Commission received 92 responses to the online consultation from individual consumers, consumers' associations, mobile network operators (MNOs), mobile virtual network operators (MVNOs), NRAs and governments, as well as a couple of responses from other businesses from all over the EU and Norway. Among the 32 MNOs that replied to the public consultation, the 9 group operators which operate mobile networks in at least three Member States have responded to the public consultation at the group level (i.e. 1 reply per group). The responses to the public consultation are summarised in the relevant sections of the present report on wholesale roaming markets (sections 5.4.1, 6.5.1, 6.5.2 and 7) and of the Commission's impact assessment (section 7.1) accompanying the legislative proposal. The full analysis of the replies is available in Annex 2 of the Commission's impact assessment. 2.5.BEREC input The Commission has worked closely with BEREC in its review of the wholesale roaming market. BEREC provided information collected in autumn 2015 from operators and NRAs (as described in section 2.1 above) and contributed to the Commission's assessment of the costs of providing wholesale roaming services. On 29 February 2016, BEREC published its report on the wholesale roaming market which analysed the data and information collected from operators in autumn 2015. The Commission has relied on BEREC's report in the analysis contained in the present report. The present report also draws on data from the 16th International Roaming BEREC Benchmark Data Report published on 29 February 2016. 2.6. Commission's inter-service group In order to support the preparation and drafting of this report and the impact assessment, a Commission inter-service group was established. The following Commission services were invited to participate: Secretariat General, Legal Service, Competition, Internal Market, Industry, Entrepreneurship and SMEs, Justice and Consumers. The group met on a regular basis throughout the wholesale roaming review process. 2.7.The report on national wholesale roaming markets (this report) Based on the inputs received via the questionnaires, the external study and the public consultation, this report analyses the functioning of the wholesale and retail roaming markets and assesses whether these markets are working well for consumers. To this aim, the report has also relied on previous work on roaming markets done by the Commission and more generally. The overarching objective of this analysis is to determine whether it is necessary to further intervene in wholesale roaming markets in order to enable the provision of roaming services at domestic prices in the EU, within fair use limits, from 15 June 2017. 2.8.Impact assessment for the Commission's legislative proposal Following the conclusion in this report that further regulatory measures are needed in wholesale roaming markets to enable a sustainable provision of RLAH, the Commission's impact assessment accompanying the legislative proposal assesses which is the best regulatory option to intervene in wholesale roaming markets. 3.Overview of the EU Roaming Regulations and market developments (2007-2015) In this section the evolution of the EU Roaming Regulations and the associated market developments at the wholesale and retail level over the period 2007-2015 are briefly described. 3.1.Evolution of the EU Roaming Regulations (2007-2015)

Since the introduction of mobile phone services, European consumers have faced high roaming charges (compared to the charges paid for equivalent domestic services) when using their mobile phones while travelling abroad in other EU Member States. The 2003 EC Recommendation on relevant markets included the "wholesale national market for international roaming on public mobile networks" as one of the markets to be reviewed by NRAs. However, competition problems in international roaming markets were difficult to address using the regulatory tools provided by the 2002 EU Regulatory Framework, and none of the NRAs found any individual or joint-dominance justifying the regulation of this wholesale market. Unable to tackle the problem nationally, national telecoms regulators requested the EU to intervene to address the problem of excessive roaming prices within the EU. In order to tackle the problems in EU roaming markets, the Commission proposed three regulations that were adopted by the European Parliament and the Council in 2007, 2009 and 2012. The main regulatory measures introduced by the Commission's Roaming Regulations are summarised in Table 1 below. Roaming Regulation Period Voice (outgoing calls) SMS (outgoing SMS) Data Other Wholesale Retail Wholesale Retail Wholesale Retail 2007 August 2007- June 2010 Price cap Price cap Not regulated Not regulated Not regulated Not regulated Free of charge SMS on retail roaming prices 2009 July 2010 – June 2012 Lower cap Lower cap Price cap Price cap Price cap Maximum bill threshold (€50 by default) Free of charge SMS on retail roaming prices 2012 July 2012 – April 2016 Lower cap Lower cap Lower cap Lower cap Lower cap Price cap Structural measures to increase competition in the roaming market 2016 April 2016-June 2017 Unchanged Domestic price + wholesale cap (RLAH+) Unchanged Domestic price + wholesale cap (RLAH+) Unchanged Domestic price + wholesale cap (RLAH+) The first EU Roaming Regulation was introduced in 2007, it included the following regulatory measures: Voice services: wholesale and retail price caps; and Transparency measures: SMS informing about retail roaming prices when entering a visited country free of charge. The retail cap forced operators to respect the price caps by default (the so-called Eurotariff), but allowed them to offer alternative retail tariffs for those customers that voluntarily opted out of the Eurotariff. The aim was to protect consumers from excessive retail charges while at the same time allowing competition to develop in the form of alternative tariffs. This first regulation also included transparency measures to alert consumers of retail roaming charges and avoid bill shock. The first EU Roaming Regulation was reviewed in 2009. The second EU Roaming Regulation included the following regulatory measures: Voice services: lower wholesale and retail price caps; SMS services: wholesale and retail price caps introduced for the first time; Data services: wholesale price cap and maximum bill threshold introduced for the first time; and Continuation of transparency measures. The second EU Roaming Regulation lowered the wholesale and retail price caps on voice services to account for the reduction in the underlying costs of provision. In addition, it introduced for the first time wholesale and retail price caps for SMS services. Finally, it imposed a "safeguard cap" on data services at the wholesale level and a maximum bill threshold for data services. The latter was designed to protect consumers from "bill shock" by setting a maximum bill of €50 by default (that could be adjusted by the consumer). The third EU Roaming Regulation was adopted in June 2012, it included:

Voice services: lower wholesale and retail price caps; SMS services: lower wholesale and retail price caps; Data services: lower wholesale price cap and introduction of retail price caps; Continuation of transparency measures; Extension of maximum bill threshold to extra-EEA roaming; and Obligation to publish a wholesale access reference offer and meet all reasonable requests for wholesale roaming access; Introduction of structural measures to foster competition in the roaming market. Lastly, the fourth Regulation of 25 November 2015 includes the following measures: From 30 April 2016 to 14 June 2017: the surcharges on roaming services applicable in addition to domestic prices are capped by the last wholesale price caps set in the third Roaming Regulation; the charge on incoming calls while roaming is capped at the level of the weighted average of maximum MTRs across the EU; From 15 June 2017: RLAH, i.e. retail roaming services to be provided at domestic prices, subject to fair use policy and to a sustainability clause, both to be detailed in an implementing act to be adopted by the Commission before 15 December 2016; Adaptation of transparency measures to the RLAH regime; Commission mandated to conduct a wholesale roaming review and make appropriate proposals by 15 June 2016 to enable a sustainable RLAH regime in the EU. 3.2.Evolution of wholesale and retail roaming prices (2007-2015) The evidence on wholesale and retail roaming prices presented below shows that since the introduction of the roaming regulations in 2007, wholesale and retail roaming prices have steadily declined in line with the price caps introduced by these regulations. Below the impact of the roaming regulations on the evolution of wholesale and retail roaming prices since 2007 is described. 3.2.1.Retail roaming prices In the third quarter of 2015, the EEA average retail prices for intra-EEA roaming voice, SMS and data services were 13.1 €c/min, 5.2 €c/SMS and 5.9 €c/MB respectively (VAT excluded) below the regulated caps of 19 €c/min, 6 €c/SMS and 20 €c/MB.

Figure 1 to Figure 3 show the evolution of EEA average retail prices for intra-EEA roaming voice, SMS and data services over the period 2007-2015. Source: International roaming BEREC Benchmark Data Report April – September 2015, BoR(16)28, February 2016 Source: International roaming BEREC Benchmark Data Report April – September 2015, BoR(16)28, February 2016 Source: International roaming BEREC Benchmark Data Report April – September 2015, BoR(16)28, February 2016 The evidence presented above suggests that the evolution of retail prices for voice and SMS roaming services has been very closely aligned to the retail price caps set by the EU Roaming Regulations since 2007. In the case of data services, the difference between retail price caps and effective market prices has been significantly larger than for voice and SMS services. However, the evidence presented in Figure 3 shows that the three successive reductions observed in retail data roaming prices since 2007 were triggered by the introduction of retail wholesale data roaming caps in 2012 and its successive reductions in 2013 and 2014. Section 4 below assesses in more detail the reasons why effective retail roaming prices for data services are lower than retail caps to a greater extent than in the case of voice and SMS services. 3.2.2.Wholesale roaming prices In the third quarter of 2015, the EEA average wholesale prices for intra-EEA roaming voice, SMS and data services were 3.6 €c/min, 1.2 €c/SMS and 1.7 €c/MB respectively (VAT excluded), below the regulated caps of 5 €c/min, 2 €c/SMS and 5 €c/MB. Figure 4 to Figure 6 show the evolution of EEA average wholesale prices for intra-EEA roaming voice, SMS and data services over the period 2007-2015.

Source: International roaming BEREC Benchmark Data Report April – September 2015, BoR(16)28, February 2016 Source: International roaming BEREC Benchmark Data Report April – September 2015, BoR(16)28, February 2016 Source: International roaming BEREC Benchmark Data Report April – September 2015, BoR(16)28, February 2016 Similarly to the case of retail prices, the evidence presented above suggests that the evolution of wholesale prices for voice and SMS roaming services has been very closely aligned with the wholesale price caps set by the EU Roaming Regulations since 2007. In the case of wholesale prices for data, the market prices have been significantly lower than wholesale price caps over the period 2009-2014. While retail prices for data decreased in correspondence with entry into force of the reduction of caps, the decrease in wholesale prices for data also continued over each time period between two successive changes in cap level. However, the gap between market prices and wholesale caps has substantially decreased over time as wholesale price caps have been reduced. 3.3.Evolution of roaming traffic in Europe The evidence on roaming traffic described below shows that the decline in wholesale and retail roaming prices triggered by the roaming regulations since their introduction in 2007 have been accompanied by a steady increase in roaming traffic. The evolution of retail roaming traffic since 2008 is described below. Figure 7 to Figure 9 show the evolution of roaming traffic for voice, SMS and data since the first quarter of 2008.

Source: International roaming BEREC Benchmark Data Report April – September 2015, BoR(16)28, February 2016 Source: International roaming BEREC Benchmark Data Report April – September 2015, BoR(16)28, February 2016 Source: International roaming BEREC Benchmark Data Report April – September 2015, BoR(16)28, February 2016 There has been a significant increase in voice and SMS roaming traffic since 2008: on average traffic in the EEA has increased by 51% in the case of voice and 56% in the case of SMS sent between the third quarter of 2008 and the third quarter of 2015. This contrasts with the relatively lower growth observed in the EU for domestic traffic for these services. This shows that the decrease in retail roaming prices triggered by the successive roaming regulations has enabled an increase in consumers' use of roaming voice and SMS services in the EEA since 2008. The increase in roaming data traffic since 2008 has been even greater. Data roaming traffic in the EEA has increased by 796% between the third quarter of 2008 and the third quarter of 2015. While a significant share of this increase reflects the structural increase in mobile data usage also observed in domestic markets, the increase in roaming data traffic has been facilitated by the sharp reduction in retail roaming prices for data triggered by the roaming regulations over the last years. 4.Competition developments in retail roaming markets In this section the Commission reviews the developments in retail roaming markets observed in the last years. The remainder of the section is structured as follows: First, the Commission's approach to analysing developments in retail roaming markets is provided; Second, the market failures that have been traditionally associated with retail roaming markets are reviewed; Third, a comparison of retail roaming and domestic markets is presented; Fourth, the retail roaming offers that exist in EU telecoms markets, with a special focus on RLAH-type of offers, are described; Fifth, the technological developments and potential substitutes to roaming that have appeared in the last years are reported;

Finally, conclusions on the level of competition in retail roaming markets in the EU are drawn. 4.1.Description of the Commission's approach 4.1.1.Literature review The Commission has extensively reviewed economic analyses on roaming markets to inform its assessment of the functioning of these markets in the EEA. Where relevant, this report reflects on these analyses and confronts them with the data and information provided by EEA mobile operators during the autumn 2015 data collection. 4.1.2.Questionnaires to operators and analysis of the data The Commission requested information on competition developments in roaming markets in the EU through a questionnaire sent in September 2015 by the Commission and BEREC to M(V)NOs in all Member States. For the purpose of assessing competition developments in roaming markets in the EU, operators were requested to provide information on: (i) specific retail roaming costs, (ii) aggregated retail domestic and (intra-EU/extra-EU) roaming data consumption and revenues, (iii) RLAH-type of offers already marketed and their impact on demand for roaming services. The Commission's analysis relies on this information as well as BEREC's own assessment of competition developments in retail roaming markets based on this information. 93 operators provided part or all of the quantitative data requested on retail domestic and (intra-EU/extra-EU) roaming data consumption and revenue. The CC-ME of the JRC extracted the original data and organized them in a unified database. Several inconsistencies in the way data were reported were corrected, in particular as regards the unit of measurement. In section 4.4, the results of the analysis are shown by operator and by country. For each variable of interest (e.g. intra-EEA retail roaming volume as % of total retail consumption) the operators' graph represents the distribution of the operators' values in the sample of operators providing the necessary data as a cumulative fraction of the sample (expressed as %). This means that for each value of the variable of interest on the x-axis, the graph shows what % of the operators' sample is below that value. Operators are looked at on a per-country basis, which means per subsidiary for the multi-country groups. The countries' graphs show the aggregated value of the variable of interest over all operators operating in a given country that have provided the necessary data. 4.2.Market failures in retail roaming markets This sub-section provides an overview of the market failures that have been traditionally associated with retail roaming markets, in particular: Imperfect substitutes at retail level; Lack of tariff transparency and bill shock; and Inelastic demand for roaming services for a significant proportion of the customer base. 4.2.1.Imperfect substitutes at the retail level One of the main problems that has been typically associated with retail roaming services is the lack of (or substantial imperfections in) substitutes, as customers have no effective means of substituting for the roaming service at retail level. In 2011 the Commission assessed the substitutability of retail roaming services with, among others: Local SIM cards, which could be used in a dual-Sim handset as well) VoIP, (directly linked to the availability of WiFi hotspots) Global or regional SIM card (with multi-IMSI SIM cards or call back options). The Commission concluded that none of the assessed possible alternatives was a perfect substitute for roaming based on their level of (i) mobility; (ii) availability; (iii) accessibility; (iv) affordability; and (v) ease of use. This lack of available substitutes at the retail level is mainly due to consumers' preference for using their mobile phone as they do at home over any available alternative.

In relation to the Roaming III regulation, there are some changes to be considered, especially in relation to OTTs. According to a study by Deloitte, OTT VoIP (Over-The-Top Voice over Internet Protocol) players like Skype, Facetime and WhatsApp have been used for international communications for years now, significantly affecting the roaming market. What has changed? First of all, smartphones have now multiplied, making OTT VoIP services much more available to the European consumer. Despite the lack of specific data, the introduction of voice service into the massively used WhatsApp in 2015 should be considered as an important development regarding the availability of OTT VoIPs as well. Second, Wi-Fi hotspots, where the consumer can connect for free or for a fee, are more widespread now, a growing trend that is likely to extend in the future. Third, LTE and 4G speeds are better capable of providing OTTs good-quality voice calls than 3G. While the final cost of this service (some estimates talk of around 800Kb/Min) is variable and difficult to calculate, it could nonetheless be competitive depending on the specific roaming tariffs. Yet, in spite of these trends, OTT VoIP services still present constrains in terms of mobility, availability, accessibility and ease of use that should not be underestimated. Together with local SIM cards, or global/regional SIM cards, OTTs are only imperfect substitutes for the majority of consumers, as they limit mobility and do not allow subscribers to receive incoming calls on their usual numbers (for voice and SMS). They are also less suited to calling businesses, public authorities and other entities outside the circle of friends and family, particularly those OTT that do not terminate to the PTSN. OTT services may also be unable to access premium numbers, interactive automated services, micropayment services and emergency services. In addition, alternatives to roaming services (e.g. global and regional MVNOs and SIM cards) lack sufficient uptake due to the lack of consumer awareness, complexity of usage for customers, language barriers, and low brand recognition among consumers as regards the service providers. A general problem with any roaming substitute that has to be purchased in the visited country is that it imposes high search costs on the consumer, as s/he is obliged to become knowledgeable about prices and services in each visited country. The lack of availability of substitutes for retail roaming services is reflected in consumers' patterns of use of mobile services when travelling to another EU country. Table 2 below shows the habits of EU mobile subscribers' when travelling abroad to another EU country. Switch off mobile phone Switch off data capability Activate special data roaming plan Public or private WiFi access Purchase local SIM card Other Don't know EU 28 28% 25% 18% 16% 10% 9% 6% Source: here According to the 2014 Eurobarometer on roaming, only 10% of mobile users use a local SIM card and 16% a public or private WiFi access when travelling abroad to another EU country. The majority of mobile users prefer instead to either switch off their mobile phone (28%) or switch off the data capability (25%). While none of the available alternatives appears to be considered a good substitute for roaming services, a series of technological developments, especially eSims, might change this situation in the mid-term. These developments are briefly analysed in section 4.5 of this report. 4.2.2.Lack of tariff transparency and bill shock Mobile users typically purchase roaming services as part of a bundle including a domestic subscription allowing access to domestic mobile services. In practice, this means that roaming charges make up only a relatively small proportion of a user's total bill for its mobile services. Furthermore, roaming charges tend to be intermittent, as these are only charged when the subscriber uses its mobile subscription while travelling abroad from its home country, which only happens occasionally for the majority of European mobile users. These features of roaming services have tended to result in a lack of tariff transparency for the majority of European mobile subscribers and have resulted in unexpected high roaming charges or "bill shock", which are also the product of certain smart phone features, such as hidden data consumption, which are difficult to control by the consumer. This lack of tariff transparency and bill shock may have been mitigated by the Commission's Roaming Regulations, which have included measures to increase transparency and mitigate bill shock (as already described in section 3.1 above). However, for the reasons described above, lack of tariff transparency and bill shock can be considered an intrinsic characteristic of retail roaming services in the absence of adequate regulatory intervention. For example, in the 2006 Eurobarometer (prior to the introduction of the Roaming Regulations and the spreading of smart phones), only 29% of respondents to the survey declared that they were familiar with international roaming charges. Even currently, in spite of the successive regulations, roaming within the EU is still one of the causes for unexpectedly high bills amongst users experiencing bill shock. 4.2.3.Inelastic demand for roaming services for a significant proportion of the customer base There has not been much research into the price elasticity of demand of roaming services. As far as the Commission is aware, there have been the following empirical studies on the own price elasticity of demand of outgoing voice calls while roaming: European Commission (2006): three different scenarios for the welfare assessment have been used, namely, -0.55, -1.0 and -1.2; GSMA (2008): considered that the elasticity of demand should be -0.25;

Europe Economics (2008): estimated that elasticity of demand should range between -0.35 to -0.44; CMT (2009): estimated the elasticity of demand around -0.37. In the Commission's 2011 Impact Assessment on the options for roaming the preparatory study for the IA had assumed relatively low elasticities of demand for voice and SMS (in the range of -0.2 to -0.3), albeit the elasticity for data was likely to be higher (it was difficult to assess the elasticity of demand for data, since usage was growing due to the increase in use of smartphones). Overall, a low price elasticity of demand has traditionally been associated with retail roaming services. As described above, the low price elasticity of demand is likely to be due to the fact that mobile operators typically set different prices for roaming services and bundle these with domestic offers. The resulting lack of transparency and high search costs for consumers (for a relatively small proportion of their total mobile bill) may drive the lack of responsiveness to prices from consumers at the time of choosing their retail tariff. In addition, roaming bill shocks are also likely to have resulted in lower price responsiveness from end users, especially for data. Due to the comparatively high roaming prices, which are still mostly based on per-unit pricing rather than flat-rates, and the lack of transparency and control in smart phones' data consumption, the consumer is afraid of switching on the overall data capabilities of his device regardless of specific price differences. In this respect, it is highly possible that, especially regarding roaming data consumption, it is not so much the lack of a linear price elasticity that matters. What matters is the consumer's sense of control over such consumption, which has been severely damaged by both, the structural features of the market, and the opportunistic strategies of its agents, especially facilitated by the limits of steering technologies, which blurred the attribution of market responsibilities (see section 6.2). Indeed, the evidence presented above in section 4.2.1 shows that a significant proportion of end users (53%) opt for either switching off their mobile or data capabilities when travelling abroad. This is most likely the result of historical high per-unit roaming prices and the incidence of bill shock on EU mobile users when using their mobile abroad. The Commission therefore expects that the introduction of RLAH, which will eliminate the possibility of roaming surcharges (within fair use limits), will give consumers a renewed sense of security when using roaming services, what will not only limit the scope for bill shocks in the EU, but also result in higher demand responsiveness to prices, and increase consumption up to optimal economic levels for both consumers and operators. 4.3.Domestic price level and consumption pattern BEREC analysis shows that the domestic annual retail revenue per user varies considerably between EEA countries from 3.70 € per month in Lithuania and Latvia to 43.80 € per month in Liechtenstein, with a weighted average of 14.30 €. There are also large differences in domestic consumption patterns of mobile services (voice, SMS and data). These differences in consumption are particularly high for data services whose average use per user per month in 2014 varies from about 100 MB in Romania to almost 3000 MB in Finland. 4.4.A comparison of retail roaming and domestic traffic Figure 10 to Figure 13 show, per operator, the share of intra-EEA retail roaming consumption in total retail (i.e. domestic plus roaming intra-EEA and extra-EEA) consumption, in terms of revenues and volumes for each service, based on operators' data from the autumn 2015 data collection.

Data: operators' replies to the autumn 2015 data collection JRC's calculations The share of direct intra-EEA retail roaming revenues, received by operators through current retail roaming surcharges, has been decreasing over the last years. This is result of decreasing retail roaming prices under decreased price caps in July 2013 and 2014. In the first semester 2015, intra-EEA retail roaming revenues represented less than 5% of total retail revenues for almost 80% of the operators. This is an important observation in view of the sustainability of the abolition of retail roaming surcharges. Data: operators' replies to the autumn 2015 data collection JRC's calculations Data: operators' replies to the autumn 2015 data collection JRC's calculations Data: operators' replies to the autumn 2015 data collection JRC's calculations In terms of volumes, for 80% of the operators, intra-EEA retail roaming consumption represents less than 3% and 5% of total retail consumption of outgoing minutes and SMS respectively. For data, the share of intra-EEA retail roaming consumption in total retail consumption is below 1.5% for 80 % of the operators.

One can therefore make the following observations. First of all, the share of retail roaming revenues in total retail revenues ( Figure 10 ) is higher than the share of retail roaming consumption in total retail consumption for voice and data ( Figure 11 and Figure 13 ). This reflects the higher prices paid by customers for retail roaming consumption than for domestic consumption. Second, the lower share of roaming consumption in total consumption for data services indicates that roaming customers seem to use, proportionally to their domestic habits, less data than voice and SMS while roaming in the EEA. Third, the share of roaming consumption in total consumption for data has been increasing since 2013. This means that intra-EEA roaming data consumption has increased more rapidly than domestic data consumption. This is likely to be a direct effect of the two successive retail roaming price cap regulations in July 2013 and 2014, which have to some extent unleashed data usage in an intra-EEA roaming situation on top of the positive trend in data consumption observed domestically. RLAH is likely to potentiate even more this trend, in a general technological context where data consumption will be proportionally more and more important in all settings (domestic and whole travelling). Figure 14 shows per country, the share of intra-EEA retail roaming consumption in total retail (domestic plus roaming intra-EEA and extra-EEA) consumption, in terms of revenues and volumes for each service. Data: operators' replies to the autumn 2015 data collection JRC's calculations In 2014, the share of intra-EEA retail roaming revenues in total retail revenues was the highest for operators in Luxembourg (~9%), Slovakia and Slovenia (~7%), Norway and Belgium (~5%). The higher share observed for Luxembourg's operators is linked to the longer time that residents of that country spend abroad in the EEA compared to residents of other EEA countries. For operators in all other countries than these five countries, the share of intra-EEA retail roaming revenues in total retail revenues is smaller than 5%. This is an important observation in view of the sustainability of the abolition of retail roaming surcharges. As noted at operator level in Figure 11 to Figure 13 above, for almost all countries, the share of retail roaming in total retail consumption is higher in terms of revenues than in terms of volumes. This is due to the higher prices paid by customers for roaming services than for domestic services. For almost all countries, the share of retail roaming in total retail consumption is smaller for data services than for voice and SMS services, a sign of the higher propensity of customers to limit data consumption than voice or SMS consumption while roaming. 4.5.Retail roaming offers This section is based on the information provided by EEA operators during the autumn 2015 data gathering exercise and draws on the analysis made by BEREC of the information received about existing RLAH offers . Recently an increasing number of operators have started to offer domestic tariff plans which include roaming services in the domestic bundle. This reflects new competition dynamics in the retail roaming market, the roaming part of a domestic tariff plan becoming a new commercial argument to attract customers and increase market shares. This is indicative that, in the RLAH context, "roaming revenues" will be in part transformed and included in the revenues derived from the domestic tariffs, with which operators compete for customers.

However, most of these tariff plans do not cover all EU Member States, or concern only voice and SMS, or data only, and/or include roaming services in the domestic bundle as an add-on package (i.e. for a fixed periodic - daily, weekly or monthly – charge which represents a fixed roaming surcharge over the domestic price), In fact, most of the available offers do not fully comply with the RLAH requirements set out in the Regulation. The geographical scope of these offers usually reflects the countries where the operator is present, and countries where good roaming deals were concluded. The truly RLAH offers (with no add-on) which exist on the market are mostly high-end domestic tariff plans aimed at high-end or professional users. The geographical scope of these RLAH offers varies. In some Member States however, such offers also exist for (non-business) consumers while in other Member States, such offers do not exist at all (see Table 13 in Annex 1). In most existing RLAH offers (be they included in the domestic tariff plan for an add-on price or not) the amount of roaming consumption included in the domestic tariff plan, is subject to fair use clauses. These clauses may take very different forms across operators and tariff plans. Fair use limits usually depend on the price of the tariff plan and are more often expressed as a volume limitation per month. This volume limit may be on the amount of domestic volume available while roaming or it may be on an extra specific roaming volume available on top of the domestic volume. In some cases, fair use limits are expressed in terms of days per year (e.g. from 10 to 60 days a year), often combined with an additional volume limit per month on data. In most countries, the roaming data volumes in RLAH offers are rather low, usually below 500 MB per month. The roaming data allowance in RLAH offers is always capped, even if the offer includes unlimited voice and SMS units. Once fair use limits are reached, users can usually continue using roaming services at regulated prices. Data is often simply throttled beyond fair use. 4.6.Current technological developments as potential substitutes to roaming In the questionnaire circulated by BEREC in mid-September 2015, many operators stated that incipient technological developments such as eSIM or VoLTE among others will impact the functioning of the roaming market. While these technological developments still are at an early phase of implementation in the market, this section reviews their potential effect in the roaming context, with a special focus on eSims. What are eSims? Electronic Sim cards (also known as virtual Sims) are here understood as a new type of technologies that allow consumers to switch and combine mobile operators without having to introduce a physical Sim card in their mobile devices. What are eSims theoretical market impact? eSim cards can basically reduce consumer's transaction costs when switching/combining operators. In theory, this opens up the possibility of greater choice and competition at both, domestic and EU level. eSims can be a significant substitute for roaming (see below). What is their current diffusion/situation? While in the machine-to-machine context, eSIMs cards have been used for several years, its introduction in consumer devices is only now taking-off. At the 2015 and 2016 editions of Mobile World Congress in Barcelona, the GSMA staged its intention to align all ecosystem participants on standardized reference architecture in order to introduce eSIMs. In the 2015 edition of the MWC, Simless, Inc., a US-based startup, unveiled the world's first GSM phone without a SIM card slot. "Apple SIM", which works in several iPad models and in limited countries, is a form of eSim that gives users the option to select from a number of carrier partners. These include GigSky, a pay-as-you-go data provider that offers cellular data plans in more than 90 countries. On July 16, 2015 The Financial Times reported that Apple and Samsung were in talks with a significant amount of telecom groups to launch a standardized eSim card. eSims were cited as the second technology to have the greatest future impact on the telecommunications market (below cognitive technology) in a survey conducted by IBM (and presented in IDATE's Digiworld Summit). A recent report by McKinseystates that "the ability to change providers easily means that eSim customers don’t have to carry multiple Sims, have full tariff transparency, and can more easily avoid roaming charges". eSims diffusion seems strongly aligned with the diffusion of "wearables", connected cars and global roaming devices and containers, what has a strong international component. This is confirmed by the results of the Public Consultation that the Commission undertook in 2015 in view of the revision of the overall EU Telecommunications Framework, where a specific question on eSims was asked to stakeholders. What is/can be their impact on roaming? eSims are a technical development that constitutes a possible substitute to roaming, providing a potentially less expensive solution for consumers, and thus introducing competition forces at both retail and wholesale level. This entails not only a technical, but a subjective perception: consumers must see eSims as a satisfactory solution to their international needs. Following the RIII impact assessment report (Annex I), 5 criteria to evaluate the potential of eSims as substitutes for roaming were considered. 1. Mobility. Refers to the possibility of being able to move while using voice, SMS or data service. eSims offer high mobility - the consumer can use a local plan throughout the territory covered by the local chosen provider's network.

2. Availability. Refers to the availability of the alternative itself as well as of the technical coverage. eSims themselves have currently a very limited availability, but given the situation explained above, they might become a standard in the near future. There will be a period of co-existence between Sim and eSim. In terms of the local operators available to the consumer, eSims make it potentially very easy for the consumer to choose between offered plans, as there is no need to switch the Sim card, nor go to a foreign retail store to buy a local Sim. On the other hand, the availability of operators will depend on potential blockages, especially likely to take place in subsidized handsets. 3. Accessibility. Relates to the possibility of being reached at any time and at any location on the same phone number. eSims offer high accessibility, as domestic home numbers can potentially be combined with foreign numbers using the same headset. The trend towards data and VoLTE is also a significant positive factor towards accessibility. 4. Affordability. Concerns the investment (one-off cost) and the cost of using (recurring cost depending on the volume of services) for using alternative services. With eSims, the consumer can easily benefit from local tariffs (for example, easily buying X GB of data), which can be potentially better than RLAH tariffs or RLAH + sustainability tariffs. This introduces market pressure to RLAH-type of offers that include more generous FUP (to avoid "educating" consumers on switching operators once FUPs limits are surpassed). 5. Ease of use. Refers to the steps required / possible difficulties before being able to use the service, as well as the ease of the actual use of the alternative service. eSims have the potential to dramatically reduce the transaction costs related to the consumer's research efforts to find and compare service providers in the area. There might be, however, learning costs for users regarding different local tariffs. In sum, the current availability of eSims, and of operators that are given access to the eSim "market", is the main factor limiting eSIMs being a viable substitute for roaming. There is still high uncertainty regarding the specific strategies that operators are going to follow in relation to this new technological development. For example, if Local Break-Out (LBO) technologies (see section 5.6) diffuse in parallel to eSims, visited operators may decide to restrict eSims packages in order to avoid cannibalization. Nonetheless, eSims show indeed a clear potential to introduce competitive pressure in the international roaming market, but this will be contingent on the different strategies that will finally shape the technology. Other technological developments related to roaming are VoLTE and Fi. VoLTE promises HD voice over packet-switched technology to the consumer that has a supporting device. It is associated to an infrastructural change towards all-data, so it can have a substitution effect in relation to current voice and SMS roaming services, creating a new dynamic at both wholesale and retail level. It terms of roaming, however, VoLTE use will still be dependent on the data provisions of visited networks. While VoLTE, due to its better traffic management, is widely seen by operators as a way of competing with OTTs (also in the roaming context), it is only now that plans around its deployment are being released in Europe. It is indeed still soon to venture into the actual specific effects that this technological development might have on international roaming markets. Google has also developed a technology and an associated business model with a potential high impact on international roaming. Google Fi lets users connect to the best available network in each situation. The signal, which can come from different operators in one single session, is in principle never dropped: The user automatically switches to Wi-Fi, 3G/4G, or other different networks without noticing. Fi is currently available in certain Nexus models in the US, where Google has become a de facto MVNO. Through its deals with mobile operators, Google has secured competitive internationals roaming rates: Google Fi costumers surf at the same rate (10$ per 1GB) than in the US in more than 120 countries, but at reduced 3G speeds. Google Fi-type of models/technologies, if coming to the European market, could bring competitive pressure to RLAH offers. 4.7.Conclusion There have been some important developments on the retail roaming markets recently, with domestic offers proposing more and more affordable roaming prices to the customers. However, most of the new, RLAH-like, retail roaming offers are not RLAH offers in the sense of the Roaming Regulation, i.e. covering the full of the EU for no additional surcharge at all (no add-on) within fair-use limits. In addition, these developments are unequal across Member States . With the current levels of competition in wholesale roaming markets, therefore, the retail markets have not been capable of delivering full EU-wide RLAH. Regarding technological developments concerning roaming, there have also been significant changes in some Member States, especially the diffusion of smartphones, OTT services and the proliferation of Wi-Fi hotspots. Among the new emerging technologies, eSims might have a significant impact in the mid-term, even though this is highly contingent to the different strategies that will be play-out around them. Overall, however, none of the observed technologies constitutes a perfect substitute for roaming services. Thus, their current market pressure remains limited. 5.Assessment of the cost of providing wholesale roaming services in the EEA 5.1.Introduction This section describes the approach to assessing the costs of providing wholesale roaming services in the EEA. This section is structured as follows: Description of the Commission's approach in assessing the costs of providing wholesale roaming services in the EEA; brief overview of previous estimates of costs of wholesale roaming services; description of the TERA Consultants' model that was commissioned to estimate the costs of wholesale roaming services; description of the approach to assessing the termination rates that should be considered for the purposes of assessing the costs of originating voice calls by a visited network operator;

assessment of international transit costs, relevant for roaming services; sense-checks conducted on the estimates of wholesale roaming costs; approach to assessing the costs of wholesale roaming SMS services; and conclusions on the costs of providing wholesale roaming services in the EEA. This section should be read jointly with the TERA Consultants' report on the cost model used as an input to assess the costs of providing wholesale roaming services in the Final report of the study. 5.2.Description of the Commission's approach The Commission has relied on several sources of information to assess the costs of providing wholesale roaming services in the EEA. Firstly, an independent study to assess the level of costs incurred by visited network operators when providing wholesale roaming services was commissioned. The study was conducted from end of October 2015 to the end of March 2016. When developing the cost model, the contractor had to take into account, as far as possible, the methodologies and approaches used by NRAs in EU Member States to estimate mobile network costs. The aim was to build a cost model that facilitated as far as possible the estimation of wholesale roaming costs in every EEA Member State. Information on NRAs' cost models and relevant cost data necessary to form a view on the costs of mobile network operators in the EEA were obtained via two questionnaires sent in September 2015 by the Commission and BEREC to M(V)NOs in all Member States and NRAs, as well as via additional requests from the Commission on the characteristics and inputs of NRAs' mobile termination rates cost models in the course of the study (December 2015 and January 2016). The public consultation itself did not have the objective of providing information on wholesale roaming costs. In addition, the Commission has relied on other sources of information, namely: Data on fixed and mobile termination rates currently in place in MS; and Information on domestic retail prices. These sources are described in more detail below. 5.2.1.Questionnaires to NRAs and operators For the purpose of assessing the cost of providing wholesale roaming services in the EU, NRAs were requested to provide data and information about: (i) the cost model they use to estimate mobile network costs, including detailed information on characteristics of their cost model (e.g. equipment utilisation factor, radio access network sites), and inputs to their cost model (e.g. commercial traffic, busy hour traffic, geotypes, spectrum, cell radii); (ii) their estimated network cost per service (voice origination/termination, SMS origination/termination, data); (iii) any applicable wholesale price regulation for MVNOs in their country; (iv) market data on overall volumes of retail consumption of each service (minutes, SMS, MB) in their country. For the purpose of assessing the cost of providing wholesale roaming services in the EEA, operators were requested to provide data and information about: (i) current wholesale roaming agreement structures and tariffs, including the situation of light MVNOs; (ii) specific wholesale and retail roaming costs; (iii) wholesale roaming payments, revenues and volumes by Member States of destination and origin; (iv) average wholesale prices for balanced and unbalanced traffic, (v) expected wholesale roaming prices for the year 2016. 5.2.2.External study to estimate wholesale roaming costs The call for tenders On 24 July 2015, the Commission services published an advance notice for a contract to assess the cost of providing wholesale roaming services in the EEA, to be awarded under the negotiated procedure. On 11 August 2015, the Commission services invited eight companies that had expressed interest to submit an offer. Four companies responded to the call and sent their respective tenders by the deadline of 7 September 2015 set in the invitation to tender. The contract was awarded to TERA Consultants and signed by the latest party on 21 October 2015. The last deliverable under this contract is due within 5 months after that date.

The objectives of the study The study has estimated the efficient costs (including proportionate allocation of joint and common costs) of providing wholesale roaming services (including voice, SMS and data roaming services) by mobile network operators in 28 MS plus Norway. Consultation with NRAs and mobile operators During the development phase of the cost model by the contractor, NRAs were regularly consulted via the International Roaming Expert Working Group of BEREC on the methodological approach. In order to take into account, as far as possible, the methodologies and approaches used by NRAs in EEA Member States, NRAs were asked to provide detailed information on characteristics of their respective cost models used for mobile termination rates. On 28 January 2016 the Commission and the contractor organised a public workshop where the contractor presented the interim results of the study in order to obtain feedback on the cost model from NRAs and operators. The feedback from stakeholders has been incorporated into the final version of the cost model (described in more detail in Final report of the study). In addition, between March – April 2016, the cost model developed by TERA Consultants was shared with the NRAs from the countries included in the study. TERA Consultants incorporated, as far as possible, the comments from NRAs into the final version of the model. 5.3.Previous estimates of wholesale roaming costs In December 2010 BEREC estimated the following upper bound, average and lower bound of wholesale costs for wholesale roaming services : Maximum Average Minimum Outgoing voice call €9.7cents/min €5.4cents/min €3cents/min Incoming voice call €3cents/min SMS €2.7cents/SMS €0.8cents/SMS €0.6cents/SMS Data €15cents/MB €8.1cents/MB €1.6cents/MB These cost estimates were used in the Impact Assessment accompanying the Commission proposal for Roaming Regulation III. In February 2012, BEREC updated its analysis of wholesale roaming costs. BEREC's new estimations were: Maximum Outgoing voice call €5cents/min SMS €1cent/SMS Data €5cents/MB These new cost estimates were used during the negotiations on Roaming Regulation III between the co-legislators, and informed the setting of new wholesale roaming price caps after 1 July 2014 set in Roaming Regulation III adopted in June 2012. 5.4.The TERA Consultants cost model This section briefly describes the main features of the TERA Consultants cost model (hereinafter, the cost model). For additional information on the approach followed and the results of the cost model, please refer to the TERA Consultants' Final report of the study.

5.4.1.The approach followed by TERA Consultants The TERA Consultants cost model estimates the costs of providing wholesale roaming services in 28 MS plus Norway. Two EEA countries, notably Iceland and Liechtenstein were not part of the study as no information as part of the autumn information request was received and due to the lack of publicly available information on the cost models used by these countries' NRAs to set mobile termination rates. In addition, little information from certain MS of the EU (e.g. Germany or Estonia) was provided. The cost model focuses on the costs of providing wholesale roaming services by the visited network operator and, in particular, on the following five mobile services: Incoming voice calls (i.e. voice termination on the visited network); Outgoing voice calls (i.e. voice origination on the visited network); Incoming SMS (i.e. termination of SMS on the visited network); Outgoing SMS (i.e. origination of SMS on the visited network); and Data services. It should be noted at the outset that the TERA cost model has mainly focused on estimating the costs of voice and data services, as these are the most important wholesale roaming services. Therefore the cost model's estimates of wholesale SMS costs are not considered as robust as the estimates of voice and data services and therefore the approach followed to assessing the costs of wholesale SMS services is described below. In addition, the TERA cost model does not assess the costs of international transit, which are also relevant for roaming voice and data services. The approach to estimating the costs of international transit is described in more detail in section 5.6 below. The cost model distinguishes between two different types of costs relevant for the provision of wholesale roaming services, notably: Network costs: the costs of rolling out the mobile network to provide mobile services to both domestic and roaming customers in each of the 29 countries considered; and Roaming specific costs: network and non-network costs that a mobile company incurs in order to provide wholesale roaming services. In addition, the cost model also estimates the impact of seasonality on the allocation of underlying network costs between domestic and roaming customers. Seasonality can be described as follows. Mobile network operators typically make decisions about network built up (e.g. the capacity they need to build in certain areas) based on the traffic they expect in a specific area at peak hour. A significant share of roaming traffic is seasonal, meaning that is concentrated in certain periods of the year (typically, the summer period) and is also concentrated in certain geographic locations (i.e. touristic areas). Thus, some operators (50% in the public consultation) argue that roaming traffic drives operators' investment decisions to build additional capacity in certain areas to accommodate the additional roaming traffic received over the summer period. Furthermore, these operators argue that the investment cost of building this additional capacity in touristic areas should be recouped from the roaming traffic received over the short seasonal period, as roaming customers drive operators' investment decisions. In practice, this approach would mean that a significant share of the investment costs in touristic areas has to be recovered from a relatively low annualised volume of traffic (the seasonal roaming traffic) and may therefore result in significantly higher unit cost for roaming traffic than for domestic traffic. In contrast, 40% of the operators responding to the public consultation defend the view that there is no impact of seasonality on the costs of providing wholesale roaming services. These operators argue that seasonality would concern only a very small part of the network, which has no effect on the total network costs. They note that domestic traffic is also seasonal and that the costs of meeting roaming capacity are not different than the costs of domestic capacity. They finally underline that roaming seasonality also works in favour of the visited operator, by optimising the use of some sites as domestic users move away while tourists arrive ('inverse peaks’). The remaining 10% of the responding operators do not pronounce themselves on this question.

Finally, TERA Consultants have run several sensitivities on their estimated costs of wholesale roaming services (see the Final report of the study for further details). In particular, they have assessed the impact on the estimated costs of changing several of the assumptions used. This sensitivity analysis shows that the costs estimated by the model are robust, as the changes in the unit costs estimated by the model are consistent with the expected changes in the underlying assumptions and the unit costs estimated under these sensitivity scenarios are broadly in line with those estimated under the main base case scenario. The sections below look into these issues in more detail. 5.4.2.High level assumptions in TERA's cost model When developing a cost model there are several decisions that need to be made regarding the approach chosen to estimate costs. In developing their cost model TERA has made a significant number of assumptions and modelling choices, however, this section only briefly summarises and explains the justifications for some choices made in the TERA cost model that were considered particularly important, namely: The choice of cost standard; The approach to cost modelling; and The choice between modelling the costs of an existing operator or an hypothetical efficient operator (HEO). For further information on the modelling assumptions used by TERA Consultants in their cost model, please refer to the Final report of the study. The choice of cost standard The two most common cost standards used to derive the costs of providing a service are the: Long-Run Incremental Cost (LRIC); and Long-Run Incremental Cost plus some allocation of common cost (LRIC+). The LRIC is the cost of producing a specified additional increment of output in the long run (the long run meaning that all production inputs, including capital investment, are considered variable). The relevant increment considered may encompass the entire output of just one service or that of a group services. Another way to look at it is that the incremental cost of a service is the difference between the total costs in a situation where the service is provided and the costs in another situation where the service is not provided (i.e. the incremental costs are the costs avoided by no longer supplying the specific service). In contrast, the LRIC+ cost standard includes, in addition to the incremental costs of the specific service, a contribution to costs that are common or shared with other services provided by the company. In the case of a mobile network, the incremental costs of data services will be those costs that are solely driven by the provision of data services whereas common costs would be costs associated with activities or equipment that are shared between, say, data services and voice services. A LRIC+ approach ensures that all costs of provision are fully allocated to services. In general, companies need to recover common costs to ensure that their business is sustainable in the long term. For this reason, common costs are typically allocated or shared among the different services that generate them, and recovered in the prices for those services. The TERA cost model estimates service costs using a combination of both cost standards: LRIC and LRIC+. As a rule, it estimates costs based on LRIC+, as this is consistent with the Roaming Regulation's Article 19, notably that:

"In assessing measures necessary to enable the abolition of retail roaming surcharges, the Commission shall take into account the need to ensure that the visited network operators are able to recover all costs of providing regulated wholesale roaming services, including joint and common costs." Thus, TERA's cost model estimates costs for the following services based on LRIC+: Outgoing voice calls; Outgoing SMS; and Data services. In the case of incoming voice (i.e. voice termination), the TERA cost model estimates these costs based on pure LRIC. This is to ensure consistency with the Commission's 2009 Recommendation on Termination Rates, which recommends the estimation of termination rates based on a bottom-up pure LRIC approach, and which has been implemented by the majority of MS in the EU and consistently supported by BEREC. For incoming SMS services, the TERA cost model does not allocate any cost to these services. This is to ensure consistency with Regulation No 531/2012 which states that "roaming customers should not be required to pay any additional charge for receiving a regulated roaming SMS or voicemail message while roaming on a visited network, since such termination costs are already compensated by the retail charge levied for the sending of a roaming SMS or voicemail message". In practice, the approach for voice termination and incoming SMS means that some costs that would have been otherwise allocated to these services have to be recovered from other services. The approach to re-allocating costs between services to ensure full cost recovery of joint and common service costs, consistent with the Roaming Regulation, is explained below. The approach to cost modelling There are two main approaches to modelling costs: Top-down cost modelling based on the accounts of an existing operator; and Bottom-up cost modelling based on a hypothetical efficient operator. Top-down cost models derive the costs from the operator's accounts and allocate these to each service using some allocation rule. In contrast, bottom-up cost models use detailed data and engineering rules to build an hypothetical network of an efficient operator using the most advanced and efficient technologies available in the timeframe considered by the model, to the extent they can be identified. The TERA cost model uses a mix of both approaches. For network costs it estimates these costs using a bottom-up approach, consistent with the approach followed by the majority of NRAs when estimating mobile termination costs. In the case of roaming specific costs, however, as there is no data and/or engineering rules available to derive the efficient costs bottom-up, TERA relied instead on the data provided by operators in the autumn information request. There have been some operators that have disagreed (both during the January 2016 Workshop and in response to the public consultation) with the use of a bottom-up approach based on efficient costs to estimate wholesale roaming costs, advocating instead for a top-down approach based on actual costs. It does not seem possible to agree with the views of these operators, however, for the following reasons.

First of all, the purpose of the cost model is to provide an estimation of costs for the provision of wholesale roaming, as one of the input for the overall assessment of the functioning of wholesale roaming markets and eventually the adoption of appropriate measures to address any failure in this regard. In this regard, a bottom-up approach based on efficient costs is more appropriate as it would reflect the workings of a competitive market and therefore represents a reliable benchmark to assess how the wholesale roaming market is functioning and which appropriate measures may be needed. In a competitive environment, operators would be forced to be productively efficient and would not be compensated for inefficiently incurred costs. Furthermore, in the context of two-way access services such as roaming services, where operators need to purchase wholesale access from each other, it would not be appropriate to compensate some operators for being inefficient to the detriment of more efficient operators. Moreover, network costs are already subject to cost modelling across the Union, in the context of the determination of MTRs, and the adoption of the hypothetical efficient operator approach for the calculation of the network costs would ensure that any cost estimation of roaming costs across the Union is generally consistent with the cost-modelling approach usually adopted for MTRs across Europe. Estimation of network costs The first step in TERA's cost model is to estimate the network costs in each of the 29 countries considered. Estimating the network costs consists of several steps in which the model takes into account the costs of building up the network for the expected future demand, as shown in Figure 15 below. Source: TERA Consultants report. The estimation of the network costs in the cost model consists of the 8 steps shown above. As described in more detail in TERA's report, the approach followed by TERA is consistent with the typical approach used by NRAs to estimate mobile termination costs in the EEA. In order to populate the model with relevant national data TERA relied on: Publicly available cost models used by NRAs to estimate mobile termination costs; and/or Information provided by NRAs in response to a questionnaire prepared by TERA; and/or Other publicly available information sources (e.g. Eurostat, CISCO studies, etc.) In order to test the cost model, TERA sense-checked its results against those obtained by several NRAs using their respective cost models, as further described in the study's Final report. As explained above, the costs of two services (voice and SMS termination) are estimated at pure LRIC and at zero, respectively. In order to ensure full recovery of costs (including joint and common costs), as required by the Regulation, this implies that the costs not recovered through these two services need to be re-allocated to other services. In this case, the TERA cost model re-allocates the joint and common costs from voice termination to voice origination and those of SMS termination to SMS origination. This is shown in Figure 16 below. Source: TERA Consultants report. In addition to this re-allocation of costs between services, the TERA cost model also includes a re-balancing of costs to take into account the mobile termination rates effective in every country. This works as follows. The TERA cost model calculates the total cost of the voice services, including the pure LRIC and common costs of both voice termination and origination. However, the model includes three different scenarios regarding termination rates:

Voice termination rates are equal to mobile termination rates effective in each country on the second semester of 2015 (Scenario A in the model); Voice termination rates are capped at the highest pure LRIC rate effective in the EEA as of the second semester of 2015 (the Slovak termination rate at €1.23c/min). In other words, if the national termination rate is lower than that level, then the national rate applies but if it is higher, the Slovak termination rate applies (Scenario B in the model). Voice termination rates are considered to be equal to the pure LRIC for each country estimated by the cost model from TERA Consultants (Scenario C). In practice, the impact of the above re-balancing is that if the termination rate considered is higher than the pure LRIC estimated by TERA, then the model considers that the termination rate contributes towards the joint and common costs (and potentially the costs of origination if the termination rate considered is higher than the LRIC+ cost of termination estimated by TERA). This is shown in Figure 17 below. Figure 18 below shows TERA's estimates of the network costs in Scenario B (taking into account national MTRs when lower than the Slovak pure LRIC MTR or the latter if higher) for voice origination. Figure 19 presents the costs estimated by TERA for data services. In addition, the unit cost estimates from TERA have been sense checked against the retail unit prices derived from a Commission study for each of the 29 countries considered. This section relied on the study's assessment of the prices for 5 mobile baskets in the 29 countries, namely: Handset use Voice calls SMS Data Basket 1 51 min 100 100 MB Basket 2 191 min 140 500 MB Basket 3 576 min 225 1 GB Basket 4 1809 min 350 2 GB Basket 5 191 min 140 2 GB

The baskets used in the study are consistent with the OECD methodology for mobile telecommunications price baskets. Domestic retail prices have been derived by subtracting from the VAT-inclusive prices the VAT in every MS considered in the analysis. The VAT rates considered were as follows: Country VAT rate AT 20% BE 21% BG 20% CY 19% CZ 21% DE 19% DK 25% EE 20% EL 23% ES 21% FI 24% FR 20% HR 25% HU 27% IE 23% IT 22% LT 21% LU 17% LV 21% MT 18% NL 21% PL 23% PT 23% RO 24% SE 25% SI 22% SK 20% UK 20% NO 25% Source: http://ec.europa.eu/taxation_customs/resources/documents/taxation/vat/how_vat_works/rates/vat_rates_en.pdf (page 16)] In order to allocate basket prices to each service, we use the average wholesale roaming prices effective in the 28 MS plus Norway that were gathered during the autumn information request to derive relative prices between services (voice, SMS and data). The basket prices have been allocated to each service ensuring that the relative retail prices derived are the same as for average wholesale roaming prices in the 29 countries considered. Table 7 below presents the retail prices for each of the 29 countries considered. Voice (€c/min) SMS (€c/SMS) Data (€c/MB) AT 3.84 1.18 1.31 BE 3.87 1.19 1.32 BG 8.74 2.70 2.99 CY 5.77 1.78 1.98 CZ 7.43 2.29 2.54 DE 4.41 1.36 1.51 DK 3.09 0.95 1.06 EE 3.83 1.18 1.31 EL 6.21 1.92 2.13 ES 5.86 1.81 2.01 FI 3.91 1.21 1.34 FR 3.75 1.16 1.29 HR 5.24 1.62 1.79 HU 8.61 2.66 2.95 IE 4.69 1.45 1.61 IT 4.04 1.25 1.38 LT 1.77 0.55 0.61 LU 4.80 1.48 1.64 LV 4.33 1.34 1.48 MT 8.54 2.64 2.93 NL 5.60 1.73 1.92 PL 3.72 1.15 1.27 PT 7.16 2.21 2.45 RO 3.88 1.20 1.33 SE 3.80 1.17 1.30 SI 4.69 1.45 1.61 SK 5.40 1.67 1.85 UK 2.91 0.90 1.00 NO 3.80 1.17 1.30 In order to compare TERA's cost estimate for voice origination against retail unit prices, Figure 20 below compares TERA's cost estimates for voice origination after re-allocation of termination common costs but before the re-balancing against effective national mobile termination rates, as this is the TERA cost estimate that is more appropriate to compare against retail prices. Figure 20 shows that the costs estimated by TERA Consultants for voice origination are well below estimated retail prices in all countries considered. It also shows that countries for which TERA Consultants have estimated relatively low voice costs (e.g. Lithuania, Poland and Romania) similarly have relatively low retail prices. There are however countries for which TERA Consultants have estimated relatively low costs in contrast to relatively higher retail prices. This is not necessarily an inconsistency of the costs estimated by TERA Consultants, given that retail prices are not solely determined by underlying costs but also other factors such as competitive conditions present in every country. No country was identified where very low domestic retail prices would directly put in question the plausibility of the underlying TERA cost estimates.

The comparison of TERA Consultants' cost estimates with the data retail prices estimated for each country ( Figure 21 ) yields similar results to the comparison of voice services. TERA Consultants conducted additional sensitivity checks on its estimates that are explained in detail in its Final report. Roaming-specific costs Roaming-specific costs are considered as mobile operators' costs that can be solely attributed to the provision of wholesale roaming services (as opposed to domestic mobile services). In other words, mobile network and non-network costs that are incremental to the provision of the wholesale roaming service. In order to assess the magnitude of these costs, data from mobile operators on roaming-specific costs were included in the autumn information request. Following this request, 90 operators replied with data on roaming-specific costs. TERA Consultants analysed the information provided by operators and identified four separate categories of roaming-specific costs, namely: Roaming network related costs: operating network costs specific to roaming services such as roaming route testing/monitoring and route provisioning. No capital expenditures specific to roaming services were identified at the network level. Roaming Operation and Management (O&M) costs: costs relating to all business intelligence systems and software dedicated for roaming O&M, including: accounting, payment, fraud prevention, revenue assurance, roaming steering and quality assurance. Roaming data clearing and payment costs: costs relating to roaming clearing costs including both data clearing costs (DCH: Data Clearing House) incurred with the exchange of TAP/RAP files between the home and the visited operator, as well as the financial clearing of payments between operators. Roaming contract negotiation costs: costs relating to the administration and negotiation of wholesale roaming contracts, including external fe