Commission staff working paper accompanying the proposal for a regulation of the European Parliament and of the Council amending Regulation (EC) No 717/2007 on roaming on public mobile telephone networks within the Community and Directive 2002/21/EC on a common regulatory framework for electronic communications networks and services - Impact assessment {COM(2008) 580 final} {SEC(2008) 2490}
Date: 2008-09-23
Institutions: European Commission
Subjects: approximation of laws, communications systems, mobile phone, regulation of telecommunications, telecommunications, transmission network

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 23.9.2008 
SEC(2008) 2489 

COMMISSION STAFF WORKING PAPER 

accompanying the 

Proposal for a 

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

amending Regulation (EC) No 717/2007 on roaming on public mobile telephone 
networks within the Community and Directive 2002/21/EC on a common regulatory 
framework for electronic communications networks and services 

IMPACT ASSESSMENT  

{COM(2008) 580 final} 
{SEC(2008) 2490} 

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TABLE OF CONTENTS 

2.3. 

2.1. 
2.2. 

2.2.1 
2.2.2 

2.3.1 
2.3.2 
2.3.3 
2.3.4 

2.4. 
2.5. 
2.6. 
2.7. 
2.8. 
2.9. 

CHAPTER 1.  PROCEDURAL ISSUES AND CONSULTATION OF INTERESTED PARTIES ........... 5 
1. 
BACKGROUND ........................................................................................................................................... 5 
2.  DEVELOPMENTS SINCE THE ADOPTION OF THE ROAMING REGULATION .................................................... 6 
Implementation of the Roaming Regulation .................................................................................... 6 
ERG Benchmark Reports ................................................................................................................ 7 
First ERG Benchmark Report in January 2008........................................................................................... 7 
Second ERG Benchmark Report in July 2008............................................................................................ 8 
Public consultation.......................................................................................................................... 8 
Voice .......................................................................................................................................................... 9 
Per-second/per-minute billing..................................................................................................................... 9 
SMS .......................................................................................................................................................... 10 
Data services............................................................................................................................................. 10 
Meetings with interested parties.................................................................................................... 11 
Commission study.......................................................................................................................... 12 
Developments in the market for SMS and data roaming services ................................................. 12 
Commission Services Inter-service Group .................................................................................... 12 
Development of an economic model.............................................................................................. 13 
Impact Assessment Board.............................................................................................................. 13 
CHAPTER 2.  PROBLEM DEFINITION..................................................................................................... 15 
1.  MARKET SIZE AND SEGMENTS................................................................................................................. 15 
PROBLEM DEFINITION: VOICE  ROAMING......................................................................................... 17 
2. 
Background ................................................................................................................................... 17 
The nature of the problem ............................................................................................................. 17 
Situation before the current Regulation .................................................................................................... 17 
2.2.1 
The current situation ................................................................................................................................. 17 
2.2.2 
At wholesale level .................................................................................................................................... 18 
2.2.3 
2.2.4 
At retail level ............................................................................................................................................ 19 
PROBLEM DEFINITION: VOICE BILLING UNITISATION............................................................................... 19 
Background ................................................................................................................................... 19 
The nature of the problem - retail level......................................................................................... 20 
Wholesale level.............................................................................................................................. 20 
PROBLEM DEFINITION: SMS .................................................................................................................... 21 
Background ................................................................................................................................... 21 
The nature of the problem ............................................................................................................. 21 
4.2.1  Wholesale: Inter-operator tariffs (IOTs) ................................................................................................... 22 
4.2.2 
Retail prices and transparency .................................................................................................................. 23 
PROBLEM DEFINITION: ROAMING PACKET SWITCHED DATA SERVICES..................................................... 24 
Background ................................................................................................................................... 24 
Nature of the problem ................................................................................................................... 25 
Wholesale charges ........................................................................................................................ 26 
Retail charges and transparency................................................................................................... 28 
CHAPTER 3.  THE CASE FOR EU ACTION (SUBSIDIARITY TEST).................................................. 29 

5.1. 
5.2. 
5.3. 
5.4. 

3.1. 
3.2. 
3.3. 

2.1. 
2.2. 

4.1. 
4.2. 

3. 

4. 

5. 

1. 
2. 

CHAPTER 4.  OBJECTIVES......................................................................................................................... 31 
BROAD  OBJECTIVES ................................................................................................................................ 31 
SPECIFIC OBJECTIVES............................................................................................................................... 31 
CHAPTER 5.  ALTERNATIVE POLICY OPTIONS ................................................................................. 33 
SELF REGULATION ................................................................................................................................... 33 
CO-REGULATION ..................................................................................................................................... 33 
SOFT LAW................................................................................................................................................ 34 
ASSESSMENT OF COMPETITION ASPECTS .................................................................................................. 34 

1. 
2. 
3. 
4. 

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5. 

2.1. 
2.2. 

3.1. 
3.2. 

2.1. 
2.2. 
2.3. 
2.4. 

1.1. 
1.2. 
1.3. 
1.4. 
1.5. 

1.1. 
1.2. 
1.3. 
1.4. 
1.5. 
1.6. 

TARGETED REGULATION.......................................................................................................................... 37 
CHAPTER 6.  VOICE ROAMING OPTIONS............................................................................................. 38 
1.  VOICE ROAMING POLICY OPTIONS................................................................................................ 38 
No policy change........................................................................................................................... 38 
Duration ........................................................................................................................................ 38 
Transparency regulation ............................................................................................................... 39 
Wholesale voice regulation ........................................................................................................... 39 
Retail voice regulation .................................................................................................................. 39 
Summary evaluation and assessment of impacts........................................................................... 41 
2.  OPTIONS FOR WHOLESALE AND RETAIL REGULATION OF VOICE ROAMING SERVICES............................... 43 
Glide path for price ceilings.......................................................................................................... 43 
Maintain current price ceilings..................................................................................................... 44 
Glide path option 1........................................................................................................................ 45 
Glide path option 2 - with wider gap between wholesale and retail ceilings................................ 45 
3.  VOICE REGULATION IMPACT ANALYSIS ................................................................................................... 46 
Consumer and industry welfare - economic impact ...................................................................... 47 
Competition - impact on smaller operators................................................................................... 47 
CHAPTER 7.  BILLING UNITISATION POLICY OPTIONS.................................................................. 49 
1.  UNITISATION AT RETAIL LEVEL ............................................................................................................... 49 
Do nothing..................................................................................................................................... 49 
Retail Billing Option 1 – Additional transparency obligations..................................................... 49 
Retail Billing Option 2 – Strict per second billing obligation (1+1)............................................. 50 
Retail Billing Option 3 – Modified per second billing obligation (30+1)..................................... 50 
Retail Billing Option 4 – Further reduction of the price caps ...................................................... 51 
2.  UNITISATION AT WHOLESALE LEVEL ....................................................................................................... 51 
Wholesale Billing Option – Do nothing ........................................................................................ 51 
Wholesale Billing Option – Per-second billing............................................................................. 51 
3.  ASSESSMENT OF IMPACTS........................................................................................................................ 52 
Consumer and industry welfare - economic impact ...................................................................... 52 
Competition - impact on smaller operators................................................................................... 52 
SUMMARY EVALUATION.......................................................................................................................... 52 
CHAPTER 8.  SMS POLICY OPTIONS ...................................................................................................... 54 
REGULATION OF SMS ROAMING SERVICES.............................................................................................. 54 
No policy change........................................................................................................................... 54 
Tariff Transparency for roaming SMS .......................................................................................... 54 
Wholesale regulation only............................................................................................................. 55 
Retail regulation only.................................................................................................................... 55 
Wholesale and retail regulation .................................................................................................... 55 
2. 
SUMMARY EVALUATION AND ASSESSMENT OF IMPACTS.......................................................................... 56 
3.  DURATION ............................................................................................................................................... 57 
4.  OPTIONS FOR WHOLESALE AND RETAIL REGULATION .............................................................................. 58 
Option 1 – NITA cost model.......................................................................................................... 58 
Option 2 - Retail price ceiling at 15 cents..................................................................................... 60 
Option 3 - Retail price ceiling at 11 cents..................................................................................... 61 
SMS IMPACT ANALYSIS........................................................................................................................... 62 
Social welfare................................................................................................................................ 63 
COMPARISON OF OPTIONS........................................................................................................................ 64 
CHAPTER 9.  DATA ROAMING POLICY OPTIONS .............................................................................. 65 
REGULATION OF DATA ROAMING SERVICES............................................................................................. 65 
No policy change........................................................................................................................... 65 
Transparency regulation only ....................................................................................................... 65 
Wholesale regulation..................................................................................................................... 66 
Retail regulation only.................................................................................................................... 67 
Wholesale and retail regulation .................................................................................................... 67 
SUMMARY CONCLUSION ON REGULATORY APPROACH............................................................................. 67 
COMPARISON OF OPTIONS........................................................................................................................ 69 

1.1. 
1.2. 
1.3. 
1.4. 
1.5. 

1.1. 
1.2. 
1.3. 
1.4. 
1.5. 

4.1. 
4.2. 
4.3. 

3.1. 
3.2. 

2. 
3. 

5.1. 

6. 

4. 

1. 

5. 

1. 

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5.1. 
5.2. 
5.3. 

4.1. 
4.2. 
4.3. 
4.4. 

4.  DETAILED OPTIONS FOR TRANSPARENCY REGULATION ........................................................................... 69 
Provision of basic pricing information.......................................................................................... 69 
Cut-off and warning limits ............................................................................................................ 70 
Real time expenditure information ................................................................................................ 70 
Flat rate offer ................................................................................................................................ 70 
5.  DETAILED OPTIONS FOR WHOLESALE REGULATION ................................................................................. 71 
Option 1 – Aggressive Wholesale cap linked to best market offers............................................... 71 
Option 2 –Wholesale cap set at safeguard level............................................................................ 71 
Option 3 – A new wholesale model ............................................................................................... 71 
6.  ANALYSIS OF THE IMPACTS ..................................................................................................................... 72 
Transparency................................................................................................................................. 72 
Industry impact ......................................................................................................................................... 72 
Consumer impact...................................................................................................................................... 72 
Administrative burdens............................................................................................................................. 73 
Wholesale regulation..................................................................................................................... 73 
Industry and consumer impact .................................................................................................................. 73 
Competition and impact on smaller operators .......................................................................................... 74 
Administrative burden .............................................................................................................................. 74 
7.  DURATION ............................................................................................................................................... 74 
COMPARISON OF OPTIONS........................................................................................................................ 75 
8. 
EVALUATION AND MONITORING ............................................................................ 76 

6.1.1 
6.1.2 
6.1.3 

6.2.1 
6.2.2 
6.2.3 

6.2. 

6.1. 

CHAPTER 10. 

CHAPTER 11. 

3. 

3.1. 
3.2. 

2.1. 
2.2. 

CONCLUSIONS – OVERALL IMPACTS OF THE PREFERRED OPTIONS ......... 77 
ANNEX I............................................................................................................................................................ 79 
1. 
INTRODUCTION........................................................................................................................................ 79 
2.  VOICE – MARKET SIZE AND OTHER KEY PARAMETERS ............................................................................. 79 
Estimation of volumes ................................................................................................................... 79 
Estimation of revenues .................................................................................................................. 80 
SMS - MARKET SIZE AND OTHER KEY PARAMETERS ................................................................................ 81 
Estimation of volumes ................................................................................................................... 81 
Estimation of revenues .................................................................................................................. 81 
4.  DATA SERVICES ....................................................................................................................................... 81 
Estimation of volumes ................................................................................................................... 81 
Estimation of revenues .................................................................................................................. 83 
ANNEX II ........................................................................................................................................................ 84 
1. 
INTRODUCTION TO THE MODEL................................................................................................................ 84 
2.  DEMAND MODEL..................................................................................................................................... 86 
3. 
COST FUNCTION ...................................................................................................................................... 88 
4.  WELFARE IMPACTS OF EC REGULATION 717/2007 (THE VOICE REGULATION) ........................................ 90 
5.  WELFARE IMPACTS OF REGULATORY OPTIONS ........................................................................................ 94 
5.1. 
Voice roaming regulation as proposed in Option 1 ...................................................................... 94 
5.2. Voice roaming regulation as proposed in this impact assessment – Option 2 ..................................... 96 
5.3. SMS roaming regulation as proposed by the ERG ............................................................................... 98 
5.4. SMS roaming regulation as proposed in this impact assessment ......................................................... 98 

4.1. 
4.2. 

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CHAPTER 1.  PROCEDURAL ISSUES AND CONSULTATION 

OF INTERESTED PARTIES 

1.  BACKGROUND 

This impact assessment (IA) report examines options arising from the Commission's review 
of the functioning of the Roaming Regulation1 pursuant to Article 11 thereof. In particular it 
examines the possible extension of its duration beyond its current expiry date of 30 June 2010 
with  regard  to  intra-Community  voice  roaming  services  and  the  possible  extension  of  its 
scope to cover intra-Community SMS roaming and/or intra-Community packet data roaming 
services. In each case it examines the impact of these options on consumers and the industry.  

Due  to  the  specific  cross-border  characteristics  and  structure  of  the  international  roaming 
markets, national regulatory authorities (NRAs) were not able to deal effectively with the lack 
of  competitive  pressures  and  the  ensuing  unjustifiably  high  prices  for  Community-wide 
roaming services. The NRAs, through the medium of the European Regulators Group (ERG), 
which  has  been  established  in  order  to  give  expert  advice  to  the  Commission  on  regulatory 
issues  with  a  single  market  dimension,  acknowledged  this  problem  and  called  on  the 
Commission to act at European level. The Commission adopted a proposal for a Regulation 
on public mobile networks within the Community2 on 12 July 2006.  

On  the  basis  of  the  Commission's  proposals  and  in  response  to  persistent  concerns  over  the 
high  prices  paid  by  EU  citizens  when  using  their  mobile  phones  to  make  and  receive  voice 
calls while  travelling abroad in  other Member States, and in order to ensure a high level of 
consumer protection and the smooth functioning of the Internal Market, on 27 June 2007 the 
European Parliament and the Council adopted the Roaming Regulation.  

The Roaming Regulation is based on Article 95 of the EC Treaty. It came into force on 30 
June  2007  and  will  expire  on  30  June  2010  unless  the  European  Parliament  and  Council 
decide  to  extend  it  beyond  that  date,  on  the  basis  of  a  proposal  from  the  European 
Commission.  

The Roaming Regulation requires mobile telephony network and service providers within the 
Community  to  offer  their  customers  a  'Eurotariff'  for  voice  calls  made  and  received  when 
roaming  in  other  Member  States  which  complies  with  the  price  ceilings  specified  in  the 
Roaming Regulation. These ceilings will be further reduced by the Roaming Regulation on 30 
August  2008  and  20093.  The  Roaming  Regulation  also  places  a  ceiling  on  the  average 

1  

(EC) No 717/2007 of the European Parliament and of the Council of 27 June 2007 on roaming on public 
mobile  telephone  networks  within  the  Community  and  amending  Directive  2002/21/EC,  OJ  L  171  of  29 
June 2007 p 32-40 

2   Proposal  for  a  regulation  of  the  European  Parliament  and  of  the  Council  on  roaming  on  public  mobile 
networks within the Community and amending Directive 2002/21/EC on a common regulatory framework 
for electronic communications networks and services of 12 July 2006, COM(2006)382 final.  

3   The retail charge (excluding VAT) of the Eurotariff which a home provider must offer its roaming customer 
for the provision of regulated roaming voice calls shall not exceed €0.49 per minute for any call made or 

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wholesale  price  that  one  mobile  operator  can  charge  another  for  the  provision  of  regulated 
roaming calls at wholesale level4.  

The  Regulation  includes  requirements  on  mobile  roaming  providers  which  guarantee  a 
minimum level of price transparency for their customers and NRAs are charged with the task 
of  monitoring  and  supervising  compliance  with  the  Roaming  Regulation  and  may  intervene 
on their own initiative to ensure compliance.  

The Roaming Regulation5 also calls on the European Commission to review the functioning 
of the Roaming Regulation and report to the European Parliament and the Council before 30 
December 2008. In its report, the Commission is required to assess whether the objectives of 
the Roaming Regulation have been achieved and whether, in the light of developments in the 
market and with regard to both competition and consumer protection, there is need to extend 
its  duration  and/or  to  amend  it,  taking  into  account  the  developments  in  charges  for  mobile 
voice  and  data  communication  services  at  national  level  and  the  effects  of  the  Roaming 
Regulation  on  the  competitive  situation  of  smaller,  independent  or  newly  started  operators. 
Provided  that  the  European  Commission  finds  that  there  is  such  a  need,  it  shall  submit  a 
proposal to the European Parliament and the Council. 

The  European  Parliament  and  Council  also  charged  the  Commission  in  the  Roaming 
Regulation specifically with reviewing developments in wholesale and retail charges for the 
provision to roaming  customers of  data communication services,  including  SMS  and MMS, 
and, if appropriate, including recommendations regarding the need to regulate these services.  

Regulatory proposals in the review of the functioning of the Roaming Regulation are based on 
the provisions of Article 95 of the EC Treaty.  

2.  DEVELOPMENTS SINCE THE ADOPTION OF THE ROAMING REGULATION 

The  Commission  services  commenced  preparations  for  the  review  of  the  functioning  of  the 
Roaming Regulation in the Autumn of 2007. The main elements of the Commission Services 
work  in  preparation  for  this  Review,  together  with  other  significant  developments,  are 
summarised in this section.  

2.1.  Implementation of the Roaming Regulation  

The  Roaming  Regulation  entered  into  force  on  30  June  2007.  The  obligations  relating  to 
wholesale voice roaming prices (Article 3 of the Regulation) took effect on 30 August 2007, 
while  the  transitional  period  allowed  for  the  introduction  by  roaming  providers  of  the 
Eurotariff came to an end on 30 September 2007. Implementation of the Roaming Regulation, 

€0.24 per minute for any call received. These ceilings shall decrease to €0.46 for calls made and €0.22 for 
calls received on 30 August 2008 and to €0.43 and €0.19 respectively on 30 August 2009 (Article 4(2) of 
the Roaming Regulation). 

4   The wholesale price ceiling is set at €0.30 per minute, decreasing to €0.28 and €0.26 on 30 August 2008 and 

30 August 2009 respectively (Article 3 of the Roaming Regulation).  

5   Article 11 of the Roaming Regulation  

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and the transition to the 'Eurotariff' in particular went smoothly, with only a few exceptions 
noted by NRAs.  

At the end of September 2007 it is estimated that over 400 million EU citizens could benefit 
from the 'Eurotariff' which makes it the standard, default tariff in Europe. While per minute 
retail roaming prices in the EU in 2007 were probably significantly lower than in 20056 and 
2006,  in  the  second  quarter  of  2007  (the  quarter  preceding  the  entry  into  force  of  the 
regulation)  the  average  was  €0.77  for  outgoing  voice  calls  and  €0.42  for  incoming  voice 
calls7. Prices have now fallen to no more than  €0.49  per  minute  for  making  calls  and  to  no 
more  than  €0.24  per  minute  for  receiving  voice  calls  (excluding  VAT).8  The  ERG  and 
operators have  also  reported that in general the application of the new wholesale ceilings is 
working smoothly. 

The  Roaming  Regulation  has  also  ensured  that  consumers  benefit  from  more  transparent 
information on roaming charges. The ERG's first Benchmark Report (see below) found that 
operators  have  now  broadly  complied  with  the  transparency  obligations  set  out  in  the 
Roaming Regulation even though some further progress appears to be needed to ensure full 
compliance and to tackle problems such as "hidden charges", resulting from the use of billing 
for roaming charges by minutes instead of by the second. 

2.2.  ERG Benchmark Reports   

Shortly after the adoption of the Regulation, the ERG established a project team to monitor 
the  implementation  of  the  Regulation  and  to  provide  input  to  support  the  Commission's 
review of its functioning as well as input to the key policy issues that need to be addressed. 
The  main  activity  of  the  ERG  in  this  context  is  an  extensive  six-monthly  data  collection 
exercise which has formed the basis for two Benchmark Reports.  

2.2.1 

First ERG Benchmark Report in January 2008  

The ERG published the first of its six-monthly reports in January 2008 covering the 6 months 
from  April  to  September  2007  and  including  data  from  150  mobile  service  providers  in  all 
Member  States9.  The  ERG  estimates  that  this  covers  around  95%  of  EU  consumers  using 
international roaming services in January 2008. The fact that the 1st report includes data from 
before  the  Roaming  Regulation  came  into  effect  gives  a  reference  point  against  which  the 
trend in roaming tariffs can be measured. 

6 The average for 2005 was estimated to be around €1.10 per minute 

7 It should be noted that the EC economic model looks at actual volumes rather than to billed volumes, since this 
will allow a more precise calculation of price elasticities in future reports. Thus, the average price as derived 
in  this  impact  assessment  cannot  be  directly  compared  to  the  average  price  as  estimated  by  ERG  in  its 
reports of January and August 2008, in which average prices were derived based on billed volumes. 

8   For customers who have selected a 'Eurotariff'. 

9   ERG (07) 85, available at http://erg.eu.int/doc/publications/erg_07_85_intl_roaming_rep.pdf 

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Given that the first reporting period only ran until shortly after the Roaming Regulation's full 
effects  were  felt,  it  was  still  too  early  to  draw  conclusions  on  the  overall  effects  of  the 
Roaming  Regulation  in  the  ERG's  1st  report.  However,  the  figures  for  that  period  already 
illustrate the positive impact of the Roaming Regulation on average tariffs. The report noted 
that prices for roaming calls made and received have fallen in all EU Member States.  

The  report  indicates  that  prices  for  data  and  SMS  roaming  services  were  high  with  a  very 
diverse  pattern  across  Member  States.  Average  data  prices  in  the  3rd  quarter  of  2007  were 
measured at €5.24 per MB down from €5.81 in the second quarter. The average SMS price 
(€0.29) was the same in both quarters. There were significant gaps between the highest and 
lowest SMS charges with the average price in Spain being over €0.50 compared to €0.15 in 
Estonia.  Poland  showed  the  highest  average  charge  per  MB  for  data  roaming  at  over  €11 
while Austria was the lowest at just under €4 per MB.  

In addition to the implementation of the Roaming Regulation and the levels of prices for data 
and SMS roaming, the ERG's 1st report also covers other issues on which the Commission has 
to  report  to  Council  and  Parliament.  These  issues  relate  to  traffic  steering,  inadvertent 
roaming and actual v. billed minutes (per minute as opposed to per second charging).  

2.2.2 

Second ERG Benchmark Report in July 2008  

The  second  ERG  Report  covers  the  last  quarter  of  2007  and  the  first  quarter  in  2008.  This 
provides evidence that national averages for wholesale and retail Eurotariff prices were in full 
compliance with the Regulation in all Member States. However, average retail prices remain 
at, or just below, the cap in around two thirds of Member States. At the wholesale level, there 
was  a  clear  decrease  in  the  average  rate  in  all  countries  compared  to  the  position  pre-
Regulation. For SMS there appears to have been little movement in prices in most Member 
States, at the retail and wholesale levels. The average data price per megabyte shows a diverse 
picture, particularly at the retail level where the differences in price between countries remain 
large, and some countries still have very high average prices. At the overall level, however, it 
seems that both retail and wholesale prices for data roaming are following a downward trend. 

The Report also indicates that roaming minutes billed exceeded actual elapsed minutes by a 
significant  margin  (typically  24%  at  the  retail  level  for  calls  made  and  19%  for  call 
received10) as a consequence of the practice of many providers of using charging intervals of 
more than one second at both the wholesale and retail levels.  

2.3.  Public consultation     

The  European  Commission  launched  a  wide-ranging  public  consultation  on  7  May  2008 
asking for comments on the review of the Roaming Regulation and on the possible extension 
to SMS and data roaming services. 39 questions were raised about the general functioning of 
the roaming regulation as well as on specific issues such as inadvertent roaming, the effect on 
smaller operators and domestic prices, the issue of actual vs. billed minutes and the need for 
similar rules concerning SMS roaming services and data roaming services. 

10 This is in reference to the Eurotariff. 

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The public consultation11 was made accessible via the 'Your voice in Europe' website12. This 
is  the  European  Commission's  single  access  point  to  a  wide  variety  of  consultations, 
discussions  and  other  tools,  and  was  set  up  in  the  context  of  the  Interactive  Policy-making 
Initiative as part of the Commission's minimum standards on consultation. 

Although the deadline stipulated for submission of the responses was 2nd July, the European 
Commission has not rejected any submissions that were received later. In total, 45 responses 
were  received  and  the  submissions  that  have  not  been  marked  as  containing  confidential 
information are available on the roaming website.13 

2.3.1 

Voice 

There was strong support for the view that the voice regulation should be extended beyond the 
2010  deadline.  In  particular,  the  European  Regulators’  Group,  other  individual  NRAs, 
Member  States  and  consumer  organizations  have  argued  for  retaining  both  wholesale  and 
retail  regulation.  Only  one  Member  State  (Czech  Republic)  has  expressed  itself  against 
extension  of  the  regulation.  The  GSM  Association  and  the  large  majority  of  operators  have 
expressed  the  view  that  voice  regulation  should  not  be  extended  since  the  objectives  have 
been met and prices are not likely to increase in future.  

A  few  small  and  independent  operators,  including  some  that  do  not  form  part  of  alliances, 
continue to favour an extension of the regulation at least at the wholesale level. 

In their submission, the ERG note that so far, there is no sufficient evidence of competition to 
justify lifting regulation at the retail level since many operators offer the Eurotariff at or near 
the  maximum  caps.  ERG  has  assumed  that  any  extension  to  the  regulation  would  be  for  a 
period of three years and would favour further reductions in the glide paths of 2-3 cents at the 
retail  level  on  the  basis  of  current  cost  trends.  A  higher  reduction  might  be  justified  for 
incoming retail calls. Moreover, they also indicate that the ceiling could be reduced by 2 cents 
each year at the wholesale level. 

Consumer  organizations  are  also  of  the  opinion  that  it  is  still  too  early  to  withdraw  the 
Regulation  and  note  that  wholesale  regulation  alone  is  not  sufficient  to  ensure  that  there  is 
pass-through of the benefits to retail consumers. 

2.3.2 

Per-second/per-minute billing 

The issue of per-minute and per-second billing was also raised by most respondents. The ERG 
believes  that  urgent  action  is  needed  to  deal  with  what  they  call  the  ‘hidden  charge’  issue. 
While  the  regulators  acknowledge  that  retail  billing  units  of  1  second  would  undoubtedly 
provide  consumers  with  the  most  transparent  solutions,  they  also  state  that  a  two-part  tariff 
would not be an unreasonable structure given that fixed costs are incurred in setting up a call.  

11   Available 

at 

http://ec.europa.eu/information_society/activities/roaming/roaming_regulation 

/consultation_may08/index_en.htm 

12   http://ec.europa.eu/yourvoice/consultations/index_en.htm 

13 http://ec.europa.eu/information_society/activities/roaming/regulation/consult08/contributions/index_en.htm 

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Consumer organizations, such as BEUC and the Finnish Consumers Association, have called 
for per minute pricing to be banned. INTUG, which protects the interests of business users, 
has noted that per minute (or 30 seconds) are common for new plans and several per second 
plans are being discontinued. 

The  GSM  Association,  however,  points  out  that  billing  itemization  is  indicative  of 
competitive  differentiation.  To  address  this  issue  in  the  regulation  would  constitute  micro-
regulation and erode competition. Many of the operators note that this issue should be left to 
the  market  and  the  large  majority  of  operators  that  replied  have  stressed  that  they  have  not 
changed their billing practices as a result of the Roaming Regulation. However, two operators 
suggested that per second billing should apply at the wholesale level since per minute billing 
at the wholesale level puts a constraint on the ability of an operator to price on a per-second 
basis at the retail level. Vodafone, in its non confidential submission notes that by 1 October 
2008, its operators in different Member States will all move to ’60 plus 1’ unitization for the 
Eurotariff which would mean that the vast majority of their customers would have the same 
unitization for roaming as for their domestic services. 

2.3.3 

SMS 

The ERG has noted that there appears to be little movement in SMS retail roaming prices up 
to April 2008, despite strong calls from National Regulatory Authorities and political pressure 
to bring down prices. They have therefore recommended the introduction of a price cap on the 
average wholesale rate charged by any one operator to any other operator for SMS roaming, 
and the amendment of the Eurotariff obligation to include an offer of SMS roaming at a retail 
rate  not  greater  than  a  specified  maximum  cap.  The  ERG  recommended  that  wholesale 
charges could vary from 4 to 8 cents while retail caps should be set at a maximum of between 
11  cents  and  15  cents  since  such  levels  would  be  sufficient  to  allow  full  recovery  of  costs 
together with a reasonable return. Both NITA, the Danish NRA, and UKE, the Polish NRA 
have  submitted  opinions  in  favour  of  wholesale  and  retail  regulation  of  SMS.  As  for  voice 
services,  the  Member  States  that  responded  to  the  public  consultation  were  in  general  in 
favour of regulation of SMS at wholesale and retail level while only the Czech Republic was 
against. 

Consumer organizations have also expressed themselves in favour of SMS regulation at both 
wholesale and retail level. 

On  the  other  hand,  the  GSM  Association  and  mobile  operators  are  generally  against  such 
regulation. The GSM Association notes that there are few consumer complaints and a number 
of operators have lowered roaming prices or introduced SMS bundles. Prices have fallen by 
18% up to April 2008 and there is a similar price ratio between a voice call and an SMS in the 
domestic  market.  The  large  majority  of  mobile  operators  are  against  any  form  of  price 
regulation at wholesale and retail level with the main arguments being that prices are not high 
and  that  there  are  very  few  consumer  complaints.  However,  four  operators  have  expressed 
themselves  in  favour  of  wholesale  regulation  for  SMS  since  this  is  the  only  way  retail 
competition is possible. 

2.3.4  Data services 

In the responses to the public consultation, there was almost a general consensus on the desire 
to  eliminate  ‘bill  shock’  and  to  this  extent,  many  operators  have  introduced,  or  will  be 
introducing, transparency measures to deal with this issue. 

EN 10 

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The  ERG  recommends  a  more  cautious  approach  concerning  regulation  of  data  roaming 
compared  to  the  case  of  voice  and  SMS.  They  suggest  that  there  are  some  signs  of 
competition  at  both  the  retail  and  wholesale  levels.  The  latest  collected  data  paints  a 
heterogeneous picture of the evolution of rates per MB at retail level. Whereas some countries 
show a decrease in prices, in other Member States prices have remained unchanged or even 
increased.  It  noted  there  are  two  special  concerns  that  need  to  be  further  investigated  when 
considering  price  regulation.  First,  it  is  concerned  that  lower  wholesale  charges  should  be 
available to smaller, newer and more independent operators. Lower wholesale charges are a 
prerequisite  to  lower  retail  rates  (although  not  a  guarantee).  Second,  it  notes  the  progress 
made by certain operators in reducing their wholesale and retail costs but this is not the case 
in all Member States. 

The  ERG  believes  that  "immediate,  formal  regulatory  action"14  is  required  to  improve 
transparency and eliminate bill shock. 

The Danish and Polish NRAs have indicated that wholesale and retail regulation is necessary. 
On  the  other  hand,  the  Portuguese  government  and  the  Czech  government  have  expressed 
themselves against price regulation while the Maltese government has left the issue open but 
said that transparency measures might not be enough to solve the problem.  

Consumer  organizations  have  also  expressed  themselves  in  favour  of  regulation  at  both 
wholesale and retail levels. BEUC notes rounding of unitization can have big impact on bills 
and called for a protective cap which could be a price per day subject to a maximum usage 
limit. INTUG said that data roaming tariffs are prohibitively high and that transparency is a 
must  but  is  not  sufficient  for  lowering  charges.  For  the  EU  to  be  competitive,  mobile  data 
access is essential but the current tariffs represent a tax on doing business in Europe, dissuade 
use and prevent the development of data services in the EU. 

The GSM Association, and the majority of operators have expressed themselves against price 
regulation  noting  that  these  services  are  still  being  developed,  investments  in  infrastructure 
are still being made and prices have been falling. Operators also point to alternative forms of 
competition to data roaming services such as Wifi hotspots and access to internet from hotels. 

Some operators have called for wholesale regulation to enable competition at the retail level 
while two operators have in particular suggested possible changes to the wholesale charging 
structure  to  take  into  account  the  changes  that  are  taking  place  in  data  usage.  For  example, 
one suggestion was to move from a per MB charging mechanism to a per minute/hour basis 
while an alternative charging model would be to move to a pure wholesale model which could 
be based on a yearly volume commitment by the home network. 

2.4.  Meetings with interested parties 

As  with  the  consultations  conducted  during  the  preparation  of  the  Commission's  initial 
proposal  for  a  regulation  on  intra-Community  voice  roaming  services,  the  Commission 
services  have  remained  open  to  contacts  with interested parties throughout the process. The 
services have listened  to  and  taken note of all views expressed, and have gathered as much 
information as possible from different players and stakeholders. Meetings with operators and 
representatives of the ERG, which established a special international roaming project team to 

14   ERG opinion  p.12 

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monitor  implementation  of  the  Roaming  Regulation  and  develop  the  ERG's  collective 
position on the review of the Regulation, in the light of market developments, have continued 
during the process of drafting the present impact assessment report.  

2.5.  Commission study    

The Commission also commissioned a study by independent consultants, Connect2Roam, on 
"Roaming Data Services". This study focuses on:  

•  analysing the principal characteristics of mobile data roaming services; 

• 

the  commercial  and  economic  features  of  the  wholesale  and  retail  markets  for  data 
roaming; 

• 

technical infrastructure needed to offer these services; and  

•  prices at wholesale and retail levels. 

The  consultants'  final  report  on  this  study,  dated  24  June  2008,  has  been  published  by  the 
Commission on 27 June 2008 at the following address:  

http://ec.europa.eu/information_society/activities/roaming/docs/study_data.roaming.pdf  

2.6.  Developments in the market for SMS and data roaming services     

Commissioner Reding warned the industry in February 2008 at the GSM World Congress in 
Barcelona that prices for SMS and data roaming needed to be reduced by early July 2008 in 
order to avoid regulation15.    

On  4  June  2008  Commissioner  Reding  wrote  to  the  CEOs  of  all  mobile  operators  in  the 
European  Union,  requesting  information  on  their  price  offerings  for  SMS  and  data  roaming 
services in the EU as well as on transparency measures taken for those services, as at 1 July 
2008. Operators were given till 30 June 2008 to reply to this letter.  In total, 82 operators have 
replied to the letter and the result of their responses is available on the Roaming Website16.  

2.7. 

 Commission Services Inter-service Group 

In  order  to  support  the  preparation  and  drafting  of  this  Impact  Assessment,  a  Commission 
Services  inter-service  group  was  established.  The  following  Commission  Services  were 
invited to participate: Secretariat General, Legal Service, Enterprise and Industry, Health and 

15   See  Commissioner  Reding's  public  comments  at 

in  Barcelona  at 
"I  have  no 
http://ec.europa.eu/information_society/activities/roaming/docs/dataroamingcomments.pdf: 
appetite at all for regulating again. But to avoid regulation, the industry will have to show its responsiveness 
to consumer concerns by credible reductions of the cost for data roaming both at the wholesale and at the 
retail level and by transparent offers compatible with the spirit of the single market. The market situation on 
1 July 2008 will be decisive for whether regulation will be necessary or not." 

the  GSM  World  Congress 

16 (http://ec.europa.eu/information_society/activities/roaming/tariffs/index_en.htm) 

EN 12 

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Consumer Protection, Internal Market and Services, Competition, Employment, Social Affairs 
and  Equal  Opportunities,  Economic  and  Financial  Affairs  and  Trade.  There  were  three 
meetings of this group (on 27 May, 3 July, 24 July). 

2.8.  Development of an economic model 

In  addition  to  the  general  data  gathering  exercise  undertaken  by  ERG,  all  NRAs  have 
provided directly to the Commission the operator-specific data which was gathered by them 
as  part  of  that  general  monitoring  exercise.  This  comprehensive  data  has  enabled  the 
Commission Services to construct an economic model which provides estimates of the impact 
of the current Regulation as well as the economic impact of the policy options set out in this 
report.  This model is explained in detail in Annex II.  

2.9.  Impact Assessment Board 

On 1 September 2008 the Impact Assessment Board (IAB) in its final opinion recommended 
the following improvements in summary:  

The  IAB  indicated  that  the  conclusion  that  competition  is  inadequate  needs  more 
explanation and the use of competition policy measures should be analysed for at least 
the  data  roaming  market.  Furthermore  the  report  should  add  key  facts/information 
about the mobile telecoms industry and assess the costs of the transparency measures 
proposed. In particular the report should explain the rationale for analysing roaming as 
a  market  in  its  own  right,  as  opposed  to  viewing  the  purchase  of  a  mobile  phone 
package  as  the  relevant  market.  With  regard  to  prices  the  report  should  not  merely 
present minimum and maximum prices but give a fuller overview of the spread. 

The report should assess where possible the impact on revenue (in absolute numbers 
and as a percentage of revenues and profit) that operators have faced as a result of the 
existing  Regulation  and  the  additional  impact  that  they  will  face  under  each  of  the 
policy options analysed, and present these figures in a clear overview table.  

A more detailed elaboration as to why competition is inadequate and an evaluation of the use 
of  competition  policy  measures  is  provided  in  Chapter  5  on  alternative  policy  options.  This 
also  includes  an  elaboration  on  the  rationale  for  analysing  roaming  as  a  market  in  its  own 
right, as opposed to viewing the purchase of a mobile phone package as the relevant market.  

In relation to the use of competition law instruments, the Impact Assessment associated with 
the  current  Regulation  referred  to  the  Commission's  sector  inquiry  which  covered  inter  alia 
national  and  international  roaming  services.  Based  on  the  results  of  this  enquiry,  the 
Commission carried out an in-depth investigation which resulted in statements of objections 
which set out the Commission’s preliminary position, according to which four operators had 
infringed Article 82 of the EC Treaty. Following hearings held in June and July 2005 and a 
further  exchange  of  views  with  the  parties  involved,  the  Competition  DG  subsequently 
concluded its investigation while pointing to the Roaming Regulation. However, it should be 
stated  that  any  regulatory  initiative  under  Article  95  of  the  Treaty  does  not  preclude  the 
possibility of action under EU competition law.   

EN 13 

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In  relation  to  the  economic  impacts  (Annex  I),  these  have  been  expanded  to  include  more 
detail on the impact of the Roaming Regulation upon industry and in particular on how voice 
roaming revenues have developed following entry into force of the Regulation including how 
these  are  projected  to  develop  over  the  following  years.  The  impacts  of  the  Roaming 
Regulation on revenues and profits are also now expressed in relative percentage terms over 
time as well as in relation to the value of the mobile sector as a whole.  

In terms of administrative burden, the Regulation is largely self-enforcing which means that 
the  administrative  burden  should  not  be  high  and  therefore  not  significant.  Regarding 
compliance costs, these are most likely to arise in the area of transparency where some market 
players have indicated that they will be implementing such measures in any case. As shown 
on page 75 (section 4.4) the question of the proportionality of transparency measures for data 
roaming  has  been  considered  and  the  potentially  more  onerous  requirements  have  been 
discarded. 

It is considered that the length of this document is reasonable in light of the need to carry out 
a full assessment on three distinct roaming services i.e. voice, data and SMS.  

EN 14 

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CHAPTER 2.  PROBLEM DEFINITION  

1.  MARKET SIZE AND SEGMENTS

17 

The  EU  market  for  mobile  roaming  services  can  be  divided  into  voice  services,  SMS  and 
broadband data services. The three segments together in 2007 accounted for €6.54 billion in 
revenues.18 This corresponds to approximately 4.7% of the total EU mobile market, which in 
the Commission's 13th implementation report was estimated at €137 billion.19 While in terms 
of revenues roaming services are thus of less importance to the mobile industry than domestic 
services or wholesale mobile termination services, the roaming share of an operator's revenue 
pie is still significant, and typically more attractive than other services from a profit-margin 
perspective.        

Voice services constituted 79.1% (€5.17 billion) of the overall roaming market in 2007, SMS 
12.3% (€0.80 billion) and broadband data 8.6% (€0.56 billion). 

17  All  figures  in  this  section  are  derived  from  a  detailed  data-collection  exercise  undertaken  by  the  national 
regulatory authorities and the European Commission. Data were collected from 27 NRAs on an individual 
per-operator basis, and were then aggregated by means a bottom-up approach. See the annex for a detailed 
explanation.  

18 The market size figure for 2007 is estimated on an as-if-basis, i.e. correcting for the effect of regulation on 
prices in Q3:2007 and Q4:2007. In other terms, the figure shows what the size of the EU roaming market in 
2007 would have been in the absence of the roaming regulation (retail price caps mostly came into effect on 
30 September 2007). It should also be noted that it is difficult to compare the 2007 figure, which is derived 
from a comprehensive set of firm-level data, to the figures given in the impact assessment of 2006, which 
had to rely on other sources. 

19  Progress  Report  on  the  Single  European  Electronic  Communications  Market  2007  (13th  Implementation 

Report), COM (2008) 153, 19/03/2008, p.3  

EN 15 

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Chart 1: 

Market Size and segments
(Euro, million) 

Data; 559.15

SMS; 804.32 

Voice; 5173.28

Voice  and  SMS  roaming  service  growth  largely  reflects  the  maturity  of  these  market 
segments; growth for data roaming services is however very dynamic and at least in line with 
domestic mobile data services growth20. The data segment is thus expected to overtake SMS 
to become the second-biggest roaming segment in one or two years.  

20  Domestic  data  services  are  growing  at  more  than  40%  p.a.  As  for  roaming  data  services,  according  to  EC 
estimates, data volumes grew sequentially over 20% in each quarter of 2007, ranging from 24.6% (Q3:2007 
to Q4:2007) to 49% (Q2:2007 to Q3:2007). 

EN 16 

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2.  PROBLEM DEFINITION: VOICE  ROAMING 

2.1.  Background 

In  its  report  on  the  functioning  of  the  Roaming  Regulation,  the  Commission  must  assess 
whether, in the light of developments in the market and with regard to both competition and 
consumer protection, there is a need to extend the duration of the Regulation beyond the 30 
June 2010 or to amend it. In considering this issue the Commission has to take into account 
developments  in  charges  for  mobile  voice  services  at  national  level  and  the  effects  of  the 
Regulation on the competitive situation of smaller, independent or newly started operators.  

A key question is whether consumers would benefit from competitive retail roaming rates in 
the  long  term  if  the  Roaming  Regulation  were  allowed  to  expire  on  30  June  2010.  Such  a 
scenario  would  imply  that  the  market  and  technological  conditions  which  gave  rise  to  the 
need for regulation in the first place have altered so that sustainable competition at wholesale 
and / or retail levels is likely from June 2010 onwards.  

2.2.  The nature of the problem 

2.2.1 

Situation before the current Regulation 

The  Commission's  impact  assessment  accompanying  Roaming  Regulation  identified  the 
absence of a meaningful relationship between prices for EU-wide roaming at both wholesale 
and retail level one the one hand, and the underlying costs of service provision on the other as 
one of the key problems the regulation was designed to address.21 In addition to tackling the 
excesses which prevailed in the pricing structure for many years, the regulation also sought to 
increase  transparency  of  prices  and  offerings  for  consumers,  thereby  leading  to  more 
competition between operators on this service. 

The  challenges  proposed  by  the  EU  market  for  roaming  services  were  unique  in  that  they 
could not be addressed by existing regulatory tools. Having studied and analysed the market 
carefully, national regulatory authorities alerted the Commission that the problem was ‘non-
trivial’ and that it required action at EU level. Due to the cross-border nature of the service, a 
common EU approach for the internal market as a whole had to be adopted.  

2.2.2 

The current situation 

By setting wholesale and partial retail price caps (the latter are partial because the Eurotariff 
does  not  apply  to  all  mobile  consumers)  and  by  imposing  transparency  obligations  on 
operators,  the  regulation  arguably  succeeded  to  tackle  the  challenge  explained  above.  The 
Commission's  monitoring  of  implementation  suggests  that  obligations  imposed  by  the 
Regulation  are  being  met,  and  consumers  now  have  access  to  a  Eurotariff  at  or  below  the 

21 Impact assessment of policy options in relation to a Commission Proposal for a Regulation of the European 
Parliament and of the Council on roaming on public mobile networks within the Community COM (2006) 382 final 
p.17

EN 17 

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price  caps  permitted  by  the  Regulation.  As  a  result,  consumers  under  the  Eurotariff  on 
average save 36.4%  for  outgoing calls  and 42.9% for incoming calls when compared to the 
prices for EU roaming services prevailing in early 2007.22 

However  despite  these  gains,  it  appears  that  the  structural  problems  with  this  market  have 
remained intact. While voice roaming services may be an important source of revenues and 
profits for a mobile operator, from the point of view of consumers prices for voice roaming 
are perceived as prices for only one element of a larger mobile bundle purchased – and as a 
less  important  element  of  this  bundle  than,  say,  domestic  voice,  domestic  SMS  or  a 
(subsidized)  mobile  device  included  in  the  mobile  price  plan.  This  mitigates  the  ability  of 
operators  to  use  attractive  roaming  prices  as  an  efficient  tool  for  customer  acquisition. 
Furthermore, the presence of switching costs and the lack of adequate substitutability of voice 
roaming  once  the  customer  is  abroad  reduce  the  degree  of  expected  competitive  rivalry  on 
this service. Both of these structural characteristics suggest, theoretically, that there might be 
good reasons for continued regulatory intervention. 

Based  on  the  Commission's  comprehensive  data  collection  and  analysis,  the  evidentiary 
record  since  adoption  of  the  regulation  confirms  this.  In  its  response  to  the  public 
consultation,  the  ERG  confirms  that  the  fundamental  problems  which  existed  prior  to  the 
current  Regulation  remain.  According  to  its  submission,  consumer  surveys  indicate  that 
consumers pay little attention to roaming tariffs when making their initial choice of network 
operator.  Nor are they  likely to switch networks in response to  prices  changes for roaming 
tariffs. There is some competition generated by independent service providers, for example by 
companies  marketing  host-country  SIM-cards  for  use  while  abroad.    But  these  offers  have 
made relatively small inroads into the market. 

The current wholesale and retail voice roaming caps were set by Parliament and Council so as 
to allow all market players to recover  efficiently  incurred  costs (with a contribution to joint 
and common costs as well as retail costs) and to make a profit on service provision. In other 
terms,  the  caps  were  designed  with  the  intention  to  allow  price  competition  below  the 
Eurotariff price caps. A key question is thus the extent to which such competition has indeed 
occurred. 

2.2.3 

At wholesale level 

The average wholesale cap for the period of 30 August 2007 - 30 August 2008 is €0.30 per 
minute for the provision of a regulated (outgoing) roaming call.  It applies to the average of 
the  charges  between  any  two  operators  over  a  twelve  month  period.  ERG  Benchmark  Data 
Reports  indicate  that  average  wholesale  charges  (between  non-group  companies)  have  been 
decreasing  steadily  and  markedly  from  46€c  pre-Regulation  (Q2:2007),  to  39€c  (Q3:2007), 
27€c (Q4:2007) and 25€c (Q1:2008), an overall reduction of 46% (the charges negotiated for 
2008 are likely to take into account the August 2008 reduction in the wholesale cap to 28€c 
per  minute).  Eight  countries  reported  an  average  charge  that  is  5€c  or  less  than  the  2008 
average  28€c  cap.  The  distribution  of  average  charges  by  country  has  narrowed  since  the 
Regulation has come into effect. While these developments are encouraging, there are still a 
large number of Member States where the wholesale cap is still on average very close to the 

22 See Annex I for a discussion of price levels in 2007. The percentages are based on the Eurotariff price caps of 
€0.49  and  €0.24  valid  until  mid-2008;  Individual  savings  (as  well  as  savings  in  coming  years)  may  be 
significantly higher. Similarly, savings compared to prices in 2005 or 2006 may be more significant. 

EN 18 

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ceiling set in the Regulation. In addition to the objective of harmonisation, it is also essential 
to ensure that smaller operators do not suffer margin squeeze and can continue to compete in 
this market.  

2.2.4 

At retail level 

The  second  ERG  Benchmark  Data  Report  for  October  2007  –  March  2008,  the  first  six 
months of full implementation of the Roaming Regulation, found Eurotariff offers for making 
and  receiving  calls  below  the  maximum  caps  in  around  one  third  of  the  relevant  countries 
which means that in two thirds of countries the Eurotariff offers are at the maximum caps. Of 
the one third of countries below the maximum caps,  a third of these reported an average price 
at least 5€c below the 49€c cap for making calls.  

While  these  developments  are  clearly  encouraging,  prices  do  not  yet  vary  sufficiently  from 
the  Eurotariff  cap  to  provide  evidence  of  healthy  innovation  and  competition.  Despite  the 
recent declines in wholesale tariffs there is so far no evidence that these cost reductions are 
being  passed  onto  consumers  in  all  Member  States.  Rather,  many  operators  offer  the 
Eurotariff at or near the maximum caps, while alternative tariffs account for a relatively small 
share of total traffic. The fact that more than 400 million EU consumers were protected by the 
Eurotariff,  making  it  the  standard  default  retail  roaming  offer,  suggests  that  there  is  little 
evidence of a significant impact of non-Eurotariff innovative offers, thus further corroborating 
the initial decision to introduce retail as well as wholesale caps.  

3.  PROBLEM DEFINITION: VOICE BILLING UNITISATION 

3.1.  Background 

The  Roaming  Regulation  imposes  price  limits  on  intra-Community  voice  roaming  services 
which  are  expressed  in  terms  of  a  specified  monetary  amount  expressed  on  a  "per  minute" 
basis, in accordance with normal industry and regulatory practice. The relevant provisions of 
the Regulation did not however specify explicitly what should be the minimum units of time 
by reference to which the prices for wholesale and retail roaming voice services were to be 
calculated when it came to billing for the regulated roaming calls made or received.  

Indeed, the ERG benchmark data report for September 2007–March 2008 estimated that per-
minute  billing  practices  add  around  24%  to  a  typical  retail  bill  for  calls  made  and  19%  for 
calls received using the Eurotariff23. The ERG's first report also estimated there was a smaller 
difference  at  the  wholesale  level.  This  reflected  the  ‘unitisation’  practices  of  the  mobile 
carriers, under which charges are not necessarily billed by reference to the actual number of 
seconds  that  a  call  has  lasted,  but  rather  by  reference  to  how  many  units  of  time  (e.g.  per 
minute), or parts thereof, have been consumed.   

There  are  various  different  unitisation  practices  in  place,  for  wholesale  roaming  services  as 
well as for retail services.  

23 
 It should be noted that several providers were unable to provide accurate information on the difference 
between actual minutes and billed minutes. For the purposes of the ERG Benchmark Data Report, where data for 
actual or billed minutes has not been provided, the ERG has sought estimates.  

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At  wholesale  level  a  minimum  charge  or  a  minimum  duration  of  60  seconds  are  very 
common. The subsequent billing intervals range between 1 to 60 seconds. 

At retail level there may be a call set-up charge or a charge set by reference to a minimum 
duration. The subsequent billing intervals also range from 1 to 60 seconds. The model 60+60 
is  common,  that  means  60  second  minimum  duration  then  billing  at  60  second  intervals. 
Another approach is to allow a minimum initial charging interval (e.g. 60 seconds) followed 
by per second billing for all subsequent periods (the '60+1' model). 

3.2.  The nature of the problem - retail level 

It  has  become  apparent  that  due  to  the  unitisation  practices  of  some  operators  the  billed 
minutes  may  exceed  the  regulated  Eurotariff  caps  and  by  doing  so  they  would  dilute  the 
effects of the EU roaming regulation. In response to a recent ERG questionnaire to National 
Regulatory Authorities on international roaming (April 2008), 4 NRAs reported an increase in 
intervals to per minute billing in their Member States. 

Divergent  legal  requirements  and  practices  to  billing  for  the  Eurotariff  by  mobile  operators 
undermine the original aim of the Regulation which was to provide a common price ceiling 
across the Community.  Some Member States have taken different national measures in this 
area (e.g France, Spain, Portugal and Lithuania) while others have taken no measures at all. 
These  measures  would  also  affect  roaming  prices.  This  creates  a  situation  where  varying 
national legal measures result in different approaches to implementation of the price ceilings.   

The costs which the end-user has to pay may vary significantly depending on the unitisation 
model  which  the  operator  applies.  A  61  second  call,  for  example,  would  be  much  more 
expensive when the 60+60 model is applied than if a 60+1 model was applied. However, it 
was the objective of the Regulation to guarantee comparable prices within the Single Market. 
Until  now  the  Roaming  Regulation  lacks  a  provision  on  the  unitisation  issue  which  would 
enhance  comparability  and  clearly  and  unambiguously  prevent  operators  from  diluting  the 
positive effects of the Regulation for consumers by means of increasing their billing units.  

3.3.  Wholesale level  

Wholesale  roaming  charges  are  normally  charged  with  a  minimum  charge  of  one  minute; 
subsequent intervals are commonly between one and fifteen seconds.  By contrast, ERG notes 
that other wholesale interconnection charges are normally charged per second. Furthermore, it 
seems  that  the  fixed  costs  of  setting  up  the  call  at  the  wholesale  level  are  already  taken 
account of in regulated termination charges. On that basis, it is hard to see any justification for 
anything  other  than  billing  for  the  actual  volume  of  wholesale  roaming  services  used.    The 
possibility  for  divergent  approaches  to  wholesale  billing  potentially  distorts  competition 
conditions for operators when viewed from a single market perspective.  

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4.  PROBLEM DEFINITION: SMS 

4.1.  Background 

As stated in the Impact Assessment for policy options in relation to the Commission's original 
proposal  for  a  Regulation  on  Roaming,  of  July  2006,  some  respondents  to  the  Public 
Consultations held in 2006, identified similar issues of unjustifiably high prices for non-voice 
roaming services such as SMS as were identified for voice roaming services. However, at that 
stage, national regulatory authorities had not in general analysed the market for SMS roaming 
services.  In  June  2005  ERG  launched  a  public  consultation  on  a  common  position  on  the 
wholesale market for international roaming on public mobile networks (market 17) which was 
at the time included in the Commission’s Recommendation on relevant markets. This market 
did not include SMS roaming services which meant that the focus of ERG at that time was on 
voice roaming services. Consequently ERG had not called on the Commission to address the 
problem at EU level.  

Nevertheless, the perceived problems with the level of prices for SMS roaming services and 
their  disassociation  from  underlying  costs  were  sufficiently  clear  during  the  legislative 
process leading to the adoption of the Roaming Regulation in June 2007 for the legislators to 
introduce  wording  in  Article  11  calling  on  the  Commission  specifically  to  address  the 
question of the need to regulate intra-Community SMS roaming services in its review of the 
Regulation and to make recommendations accordingly. 

4.2.  The nature of the problem 

SMS is based on SS7 signalling which consists of routing, transaction and status and control 
information. SMS  is  a very  simple and mature service, which has a large acceptance across 
Europe.   Considering the figures below, it can be seen that intra-Community SMS roaming 
prices  have  an  impact  on  millions  of  EU  citizens.  SMS  services  are  particularly  used  by 
younger  consumers.  In  fact,  77%  of  young  people24  (between  15  and  24  years  of  age)  send 
texts  while  using  their  mobile  abroad.  Within  this  group  of  consumers,  38%  of  the 
respondents answered that as far as mobile communications are concerned they use only text 
messages when abroad. 

24 Eurobarometer survey n° 269 – November 2006 

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In  a  recent  study  prepared  by  ARCEP25  it  is  stated  that  over  95%  of  the  French  consumers 
between 11 and 24 years old are SMS users (at a domestic level). Thus, high prices for SMS 
roaming services are likely to have a stronger impact on young people, such as students, who 
generally have a lower income when compared to older consumers. 

Based  on  the  data  gathered  by  NRAs  on  international  roaming,  the  European  Commission 
services estimate that the SMS roaming market within EU/EEA was worth around €0.8 billion 
in 2007, which corresponds to approximately 12,3% of overall roaming revenues within the 
same  period.  In  the  same  period  over  2.5  billion  text  messages  were  sent  by  roaming 
customers in the EU. 

4.2.1  Wholesale: Inter-operator tariffs (IOTs) 

The level of the wholesale charges for sending an SMS while roaming within the Community 
does  not  appear  to  be  justified  by  the  underlying  costs  and  as  in  the  case  of  voice  roaming 
services,  there  appears  to  be  insufficient  competitive  pressures  on  operators  to  bring  prices 
down.  

In  relation  to  the  underlying  costs,  according  to  a  study  carried  by  the  Danish  Regulator, 
National  IT  and  Telecom  Agency26,  in  an  effective  market,  the  IOT  charged  should  be  no 
higher than 0.80 cent. Some operators claim that SMS prices have been falling and will fall 
even  more  as  competitive  forces  continue  to  play.  However,  according  to  ERG  figures  this 
does  not  seem  to  be  the  case.  In  fact,  according  to  these  figures,  the  average  IOT  charged 

25 "Rapport sur les évolutions tarifaires des prestations de SMS et de transmission de données sur les réseaux de 

téléphonie mobile français", July 2008 

26 "Analysis of Prices and Costs for Mobile Data Services Abroad" – June 2008 

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within the EU has clustered around 16 cent from the second Quarter 2007 to the first Quarter 
2008.  

In  2006,  ARCEP  notified  the  European  Commission,  the  analysis  of  the  wholesale  SMS 
termination in mobile networks market (notification FR/2006/0413). In this notification, some 
cost elements relative  to the provision  of a domestic SMS were  presented. This  notification 
confirms the low level of such cost. 

In  the  negotiations  for  roaming  agreements,  mobile  operators  often  focus  their  attention  on 
voice  services,  as  the  revenues  of  such  services  constitutes  almost  80%  of  the  roaming 
market. SMS agreements are often included as an appendix to the roaming agreement. This 
may  indicate  that  the  market  pressure  for  price  decrease  in  the  SMS  roaming  wholesale 
market is even weaker than in voice.       

Currently  no  wholesale  SMS  termination  charge  is  levied  by  the  visited  network  operator 
when a roaming client receives an SMS.  

4.2.2 

Retail prices and transparency 

The average EU SMS retail price for Q1 2008 is around 28.527 cent which is (if at all and not 
only due to statistics) only a very slight decline on the figure of 29 cent published by ERG for 
Q2  200728.  According  to  the  Commission  data,  SMS  prices  have  shown  only  very  limited 
progress, with retail prices as high as 80 cent in one case. Most operators' prices seem to be in 
the 20 to 30 cent range.  

On  the  contrary,  at  domestic  level,  SMS  bundles  are  generally  offered  by  operators.  These 
bundles often include a large number of SMS for a monthly fee. Recently in some countries, 
unlimited SMS offers are becoming widespread. According to the above mentioned ARCEP 
study,  in  2005,  mobile  operators  started  to  introduce  unlimited  domestic  SMS  offers. 
According  to  the  same  study,  28%  of  consumers  have  subscribed  such  type  of  unlimited 
offers.  Similar  SMS  bundles  are  seldom  offered  for  roaming.  And  even  when  bundles  are 
offered, the price per SMS is still high (e.g one operator in the UK offers 90 SMS for €25, or 
€10 for 30 SMS by one Dutch operator). Only one operator in Austria is offering 100 bundled 
text messages at €0.10 per roamed message.   

It is worth mentioning that ERG, in its submission to the Public Consultation stated that the 
difference  between  domestic  and  roaming  prices  appears  to  be  no  better  than  for  voice  and 
that those differences are unlikely to be justified on the basis of roaming-specific costs.  

In  fact,  prices  at  retail  level  seem  to  bear  no  relation  to  cost.  The  above  mentioned  study 
developed  by  the  National  IT  and  Telecom  Agency  of  Denmark,  states  that  in  an  effective 
market retail price for a SMS sent abroad should not be higher than 4,2 cent (including 25% 
VAT).  

According to the consumer organisation BEUC, another way of looking at the costs versus the 
price is to look at the regulated SMS termination rates (in France). BEUC point out that the 
costs of termination ranges from 3.0 to 3.5 cent, depending on the operator.  Comparing the 

27 GSM Association have indicated that the average SMS roaming price in Q1 08 was 28 cent 
28 ERG 2nd data collection 

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cost of 3.5 cent with the average roamed SMS price of 29 cent yields a mark-up of more than 
an 800%.  

It is worth reflecting on why the issue of very high roaming prices has not been addressed by 
market  forces.  Similar  to  the  situation  for  voice  services,  one  of  the  reasons  for  high  SMS 
roaming prices is the fact that when choosing a mobile operator, consumers do not take these 
prices into consideration. As a result, consumers often only become aware of the high prices 
charged when the service is used.  Compared to voice roaming services, lack of transparency 
of SMS charges is easier to address, because of the fact that SMS services are provided on a 
per message basis. Nevertheless, the provision of adequate information on prices charged for 
SMS roaming services is of the utmost importance. 

The European Commission has published prices for voice, SMS and data roaming services on 
its dedicated roaming website29. This information not only helps raise consumer awareness of 
prices, but also highlights the high levels of prices charged as well as the variation in those 
charges across the Member States. 

5.  PROBLEM DEFINITION: ROAMING PACKET SWITCHED DATA SERVICES 

5.1.  Background 

Data  services,  other  than  SMS,  which  is  treated  separately,  include  Multimedia  Message 
Service  (MMS)  and  internet  browsing  (as  well as  access  to  email)  from  mobile  phones  and 
laptop devices. The use of data services can take place through a number of devices such as 
mobile phones (smart phones), Blackberry devices, PDAs or laptop computers. 

Data roaming rates have been high and the situation has become more pronounced over the 
past year since the arrival of high-speed internet access or mobile broadband, particularly for 
laptop  users.  Such  users  normally  make  use  of  high  volumes  of  data  traffic,  which  when 
coupled with a lack of flat-rate offers, or limited flat-rate offers followed by per MB charges 
has led to ‘bill shock’ which at times have reached thousands of Euros for customers. 

In the previous impact assessment30, it was stated that it was difficult to foresee, in relation to 
MMS  services  and  data  services  how  these  would  develop  and  that  at  their  stage  of 
development, there were clearly significant risks of applying inappropriate regulation which 
could hinder the development of this market. 

However,  concerns  as  to  the  level  of  charges  for  data  roaming  services  were  raised  in  the 
political  discussions  that  preceded  the  adoption  of  the  Roaming  Regulation.  It  was  finally 
agreed  that  the  Commission  would  specifically  analyse  this  issue  when  reviewing  the 
Roaming Regulation. 

29   http://ec.europa.eu/information_society/activities/roaming/index_en.htm 

30  SEC  (2006)  925  Commission  Staff  Working  Paper,  Impact  Assessment  of  policy  options  in  relation  to  a 
Commission Proposal for a regulation by the European Parliament and of the Council on Roaming on Public 
Mobile Networks within the Community. 

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To some extent the underlying core problem with data roaming services is similar to that for 
voice  and  SMS  in  that  the  customer  generally  has  not  been  sensitive  to  the  prices  for  data 
roaming when purchasing mobile services. This may be further complicated by the fact that 
prices  for  data  roaming  services  derive  from  the  generally  low  use  of  roaming  services 
compared  to  domestic  services.  Nevertheless  prices  for  EU-wide  data  roaming  services  at 
both wholesale and retail levels are unjustifiably high when compared to the charges for the 
equivalent domestic services and to the underlying costs of providing the services.   

ERG considers that the costs of provision of data roaming (including a reasonable allowance 
for  common  costs  and  returns)  are  likely  to  represent  a  fairly  small  percentage  of  typical 
current charges. This problem has been compounded by lack of transparency of prices at retail 
level (where consumers, particularly laptop users, are not aware of the price and usage limits). 
This makes it very difficult for consumers to understand how much they are going to pay for 
the  service  and  over  the  past  year  or  so  has  created  the  problem  of  ‘bill-shock’.  For  some 
customers,  performing  relatively  simple  tasks  that  would  not  prove  expensive  at  home,  can 
lead to extremely high bills compared to domestic rates.   

5.2.  Nature of the problem 

Usage  of  mobile  data  services  is  growing  rapidly  in  the  European  Union  albeit  starting  off 
from very low volumes. Based on data collected by the European Commission, it is estimated 
that the total size of the data roaming market, excluding SMS revenues, was €559 million for 
2007. The contribution of data roaming services to roaming has also increased considerably 
and has nearly doubled from Q2 2007 to Q1 2008. Volumes are also increasing as can be seen 
from the graph below. 

Growth in volumes

60000000

50000000

40000000

30000000

20000000

10000000

0

Series1

Q2
2007

Q3
2007

Q4
2007

Q1
2008

There  has  also  been  a  drop  in  average  retail  prices  between  Q2  2007  and  Q1  2008.  The 
average retail price per MB has decreased from €5.81 to €3.65. A price reduction is observed 
in wholesale prices, at least for non-group companies which have gone down from €3,22 to 
€2.00 for the same period31. This suggests that there is a higher likelihood of pass-through of 
wholesale price reductions to end users than is the case for voice or SMS roaming services. 

31 The average retail price is blended between group and non-group companies. For the wholesale average, the is 

blended non group average is taken. 

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Data  roaming  services  may  be  subject  to  greater  competitive  constraints  at  retail  level,  for 
example, from WiFi services.  Laptop users have the possibility to make use of Wifi hotspots 
which are often are found in airports, stations, hotels, cafés and restaurants. This possibility is 
also available to a growing number of handsets which are also enabled with Wifi technology. 
Therefore, to some extent at least, Wifi hotspots and access to the internet in hotels may be 
considered as providing an alternative to mobile operators for the provision of roaming data 
services. These can be available either free of charge or charged for periods of time (per hour 
or per day for example). As of end June 2007, it was estimated there were more than 50,000 
hotspots in Western Europe out of 113,000 worldwide32. However, data on usage and volume 
is not available. 

Another  option  is  for  the  roaming  customer  to  use  a  local  domestic  mobile  broadband  SIM 
card which is a more attractive option than for voice or SMS because there is no numbering 
constraint  associated  with  the  usage  of  data  services  i.e.  the  customer  is  not  worried  about 
losing  their  number.  The  fact  that  data  services  are  not  linked  to  a  mobile  number  also 
increases  the  possibility  that  customers  will  shop  around  for  more  attractive  data  roaming 
packages without severing service with their current domestic provider.  

The ERG also come to a similar conclusion stating that in contrast to voice, there appears to 
be  some  real  commercial  incentives  to  cut  rates,  irrespective  of  regulatory  pressure  since 
domestic  mobile  data  services  are  growing  fast,  probably  driven  to  a  significant  extent  by 
recent price cuts in domestic tariffs and increased consumer access to related technology. 

The  most  recent  offers  from  mobile  operators  for  roaming  data  services  may  reflect  similar 
flat-rate  charges  for  Wifi,  although  the  mobile  operators'  offers  include  maximum  capacity 
limits  of  50MB  for  example.  Nevertheless,  such  offers  remain  considerably  higher  than 
equivalent national prices.  

5.3.  Wholesale charges 

The relationship between wholesale charges and retail charges is complex, in particular when 
operators choose to have one retail price per Member State. The fact that operators will have 
to  pay  non-discounted  high  IOTs  (the  wholesale  charge  one  operator  charges  another  for 
enabling  roaming),  may  hinder the  development of cheap retail offers. The ERG report that 
wholesale charges have fallen by around 60-70% since 2002-2003 with the average wholesale 
rate being €2.00 for Q1 2008 though they still exceed costs by far. 

While it is becoming evident that discounted prices for wholesale data roaming services can 
normally range from 25 cents to 75 cents per MB (though the price per MB could be lower for 
higher  volume  sessions),  problems  at  the  wholesale  level  still  remain  for  non-discounted 
prices. The majority of operators have indicated a movement from the standard prices per MB 
to discounted prices based on volume discounts which apply on a reciprocal basis.  

There  is  strong  evidence  that  competition  at  wholesale  level  for  data  services  is  still  very 
limited  mainly  because  traffic  steering  techniques  are  not  yet  effective.  Because  home 
operators  only  have  limited  success  in  steering  traffic  onto  preferred  networks  they  are 
therefore forced to pay extremely high rates on non-preferred networks. 

32 Source: Confidential submission from an operator in the public consultation. 

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These 'non-preferred' network charges which in many cases can be even higher than €10 per 
MB,  can  create  considerable  problems.  While  home  operators  can  negotiate  relatively  low 
rates  with  their  preferred  networks,  they  continue  to  face  extremely  high  non-preferred 
network  charges  thus  pushing  up  the  average  wholesale  price  paid  by  a  home  network 
provider even if only a very small proportion of the traffic goes to a non-preferred network. 

 The fact remains that significant volumes of traffic go to non-preferred networks. Rates on 
such  non-preferred  networks  are  extremely  high,  thus  pushing  up  the  overall  average 
wholesale charges to unjustifiably high levels. 

Traffic steering for data roaming is not as effective as it is for voice since it is constrained by 
the  network  coverage  and  quality  of  service  issues.  Moreover,  operators  prioritise  traffic 
steering  for  voice  services  onto  networks  which  might  not  be  the  most  appropriate  for  data 
services in terms of price or data transfer speeds. 

This  affects  all  operators  in  the  market,  but  especially  smaller  operators  with  weaker 
bargaining power. The end result is high average wholesale prices which creates uncertainty 
for  operators  and  hinders  their  ability  to  compete  at  retail  level  with  transparent  and 
competitive retail packages. 

Therefore,  until  such  high  wholesale  standard  prices  are  reduced,  the  development  of 
competitive retail offers will be hindered as shown in the examples in the box below.   

Example A: 

An operator has a negotiated rate of 25 cents per MB. The standard rate with other operators 
is at €10 per MB. If 80% of traffic is steered to the preferred network, the average price per 
MB would still be €2.20 even though the operator has a wholesale rate of 25 cents per MB for 
the large majority of traffic. 

Example B: 

An operator has a negotiated rate of 25 cents per MB. The standard rate with other operators 
is at €1 per MB. If 80% of traffic is steered to the preferred network, the average  price per 
MB would be 40 cents. 

While  the  case  for  wholesale  intervention  on  voice  is  clear,  the  case  for  intervention  for 
wholesale data is even stronger. This is not only because of less effective traffic steering, but 
also  because  the  much  higher  differential  which  exists  between  wholesale  data  rates  on 
preferred and non-preferred networks, as compared with the differential that existed for voice, 
considerably  raises  the  average  wholesale  costs  an  operator  incurs  which  translates  into 
extremely high retail charges.  

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5.4.  Retail charges and transparency 

With the introduction of 3G services including 3G roaming, prices for wholesale data services 
have started to become more important in roaming negotiations particularly in view of the fact 
that users have become accustomed to low monthly domestic fees for data services (e.g. €10 
in Austria and €13 in the United Kingdom33). Retail data roaming charges ranging up to more 
than  €15  per  MB  are  leading  customers  to  receive  bills  that  can  run  into  hundreds  if  not 
thousands of Euros. The ERG notes that the average retail price per MB is €3.65 for Q1 2008 
but the spread of retail prices is very wide and in eight Member States it averaged between €8 
and €11. Even though there has been a decrease in retail prices, access to the internet while 
roaming is, in many cases, prohibitive.  

However, with usage of data services increasing, significant problems have emerged related 
to lack of transparency and ‘bill shock’ as a result of the high per MB charges that may apply. 
In general, users are less likely to understand a price per MB of data than a price per SMS or a 
per minute voice call. Laptop users may receive unexpected data downloads such as software 
maintenance  downloads,  spam  etc.  Moreover,  it  is  difficult  to  manage  data  volumes  being 
transmitted. For example, if your email programme is switched on, it might be impossible to 
block receipt of a large document unless the programme is disconnected. 

At the moment, there are very few operators that have effective means in place for monitoring 
the amount of data being used by consumers or for consumers to control the choice of tariff in 
real-time.  Flat-rate  data  roaming  offers  which  have  emerged  over  recent  months  are  a  good 
starting  point  to  tackle  the  problem.  However,  for  a  very  light  user,  or  for  someone  who  is 
surfing the internet from a mobile phone or accessing emails from a Blackberry device, a flat-
rate daily charge might not be suitable even though the per MB charge would be considerably 
higher. 

Moreover,  operators  are  only  now  starting  to  introduce  transparency  measures  aimed  at 
solving the problem of ‘bill shock’. In its response to the Consultation, the GSMA noted that 
the  GSMA  and  its  member  operators  have  been  working  over  the  past  few  months  on  the 
development of data monitoring usage tools for people accessing mobile services via a laptop 
computer  through  a  data  card  or  dongle.  Some  operators  have  been  able  to  implement 
indicative  solutions  while  others  are  working  to  offer  real  time  solutions.  However,  the 
majority  of  respondents,  apart  from  industry,  have  highlighted  that  transparency  remains  an 
issue  and  that  measures  should  be  formulated  requiring  companies  to  introduce  effective 
measures to control bill shock. 

33 Source: GSMA Press Release 11th June 2008 

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CHAPTER 3.  THE CASE FOR EU ACTION (SUBSIDIARITY 

TEST) 

As mentioned in Chapter 1, given the cross-border nature of the international roaming market 
the  NRAs  were  unable  to  act  and  deal  effectively  with  the  lack  of  competitive  pressures  in 
this  market.  Furthermore,  NRAs  which  are  responsible  for  safeguarding  and  promoting  the 
interests of mobile customers who are resident within their territory are not able to control the 
behaviour of the operators of the visited network situated in other Member States. This led the 
NRAs  to  call  on  the  Commission  to  act  at  European  level.  In  December  200534,  the  ERG 
alerted the Commission to its concern that measures being taken by NRAs would not resolve 
the  problem  of  high  prices.  It  also  made  it  clear  that  it  was  committed  to  working  with  the 
European  Commission  to  develop  an  appropriate  and  more  complete  solution.  The  ERG 
described  the  problem  as  ‘not  trivial’.  It  further  noted  that  roaming  creates  an  exceptional 
instance  where  an  apparent  case  of  consumer  detriment  is  not  prospectively  solved  by  the 
application  of  the  regulatory  framework.  ERG  has  confirmed  in  its  response  to  the  public 
consultation that nothing has changed in that respect in the meantime. 

It was also noted in the Impact Assessment associated with the current Roaming Regulation 
that  in  the  absence  of  any  such  action  to  address  this  problem  there  would  be  persistent 
pressure on Member States to take measures to address the level of EU-wide roaming charges. 
However, any such measures would create divergent results across the European Union and 
be ineffective, given the particular cross-border characteristics of the services concerned.  

As far as the options outlined in this Impact Assessment for the continued regulation of voice 
roaming  services  are  concerned,  precisely  the  same  considerations  apply  as  did  when  the 
current Roaming Regulation was first proposed. Indeed it is for this reason that the ERG has 
called on the Commission, in its response to the public consultation, to propose an extension 
of  the  Roaming  Regulation  in  time,  so  that  it  continues  to  apply  a  solution  at  Community 
level  for  the  continuing  problem  of  Community-wide  voice  roaming  services,  both  at 
wholesale and retail levels.  

Similarly,  the  very  same  special  characteristics  that  apply  to  the  Community-wide  voice 
roaming  markets  (and  warranted  Community  action  under  the  current  Roaming  Regulation) 
also  apply  to  the  provision  of  Community-wide  SMS  and  data  roaming  services.  For  these 
services too action by the Member States would not be effective in resolving the problem of 
unjustifiably  high  prices,  given  the  cross-border  nature  of  the  services  and  the  fact  that 
competitive pressure is limited by the fact that these roaming services are also not purchased 
independently but as part of a wider retail package. This is implicitly acknowledged in Article 
11  of  the  current  Roaming  Regulation,  which  called  on  the  Commission  to  include  data 
communications, including SMS, in its review of the functioning of the Roaming Regulation 
and, if appropriate, make recommendations regarding the need also to regulate those services 
at the EU level.  

34    ERG  letter  to  the  Director  General  of  the  Commission’s  DG  Information  Society,  Mr  Fabio  Colasanti, 

December 2005   

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It is for this reason too that the ERG, in its response to the public consultation on the review 
of the Regulation has called on the Commission to act at European level with regard to SMS 
roaming and data roaming services35.  

Consequently, it is necessary to consider action at EU level to ensure an effective response on 
a cross-border basis in relation to Community-wide SMS and data roaming services, as well 
as  with  regard  to  the  continuing  regulation  of  voice  roaming,  and  to  ensure  that  divergent 
approaches by Member States do not constitute an obstacle to the realisation of the internal 
market or distort the competitive conditions for roaming services across the Community. As is 
the case for the current Regulation, any regulatory proposals arising from this review will be 
based on Article 95 of the EC Treaty. 

A  concrete  example  of  the  risk  of  divergent  approaches  in  the  absence  of  harmonised  rules 
can be seen in relation to the issue of the unitisation of billing for voice roaming services, one 
of the elements under consideration in this Impact Assessment. A number of Member States 
(e.g. Spain, Portugal, Lithuania and France) have already imposed varying requirements with 
regard to per second billing on their operators as a matter of national law, while others have 
not so far done so. This creates divergent conditions for operators in different Member States 
which,  in  the  context  of  a  cross-border  activity  such  as  Community-wide  roaming,  is  not 
conducive to the completion of a single market for electronic communications. 

It is also worth noting that the Commission's proposals for the revision of the 2002 regulatory 
framework  for  electronic  communications,  currently  under  discussion  in  the  European 
Parliament  and  Council,  have  not  altered  the  key  principles  applicable  to  the  assessment  of 
significant market power in the electronic communications markets, since these remain valid 
and the most effective means of promoting competition and maximising consumer welfare in 
the  vast  majority  of  markets.  International  roaming  services  however  remain  an  exceptional 
case, in which the specific characteristics of the market require a more targeted approach. The 
continued  application  of  the  regulatory  framework  for  electronic  communications,  modified 
and  updated  where  appropriate  following  the  Commission's  Review  proposals,  should  not 
prevent the adaptation of the specific rules contained in the Roaming Regulation in line with 
other  considerations,  so  as  to  ensure  the  most  effective  means  of  achieving  a  high  level  of 
consumer  protection  whilst  improving  the  functioning  of  the  single  market  with  regard  to 
Community-wide roaming services. 

35   See  also  Ed  Richards'  comments  on  text  and  data  roaming  in  the  EU,  29  January  2008  at 
http://www.ofcom.org.uk/media/speeches/2008/jan/stakeholdermeeting:  "national  regulators  are  unable  to 
address these issues unilaterally." 

EN 30 

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CHAPTER 4.  OBJECTIVES 

1.  BROAD  OBJECTIVES 

The general objective of EU action is to promote the further development of the single market 
for  electronic  communications  services,  which  include  voice  telephony,  SMS  and  data 
services, for users of public mobile telephone networks for EU-wide roaming services when 
travelling within the Community. In concrete terms, the objective is to ensure that prices paid 
by users of public mobile telephone networks for EU-wide roaming services when travelling 
within the Community are not unjustifiably higher than the charges payable by that user when 
calling, sending SMS or transferring data within his home country.  

i2010 

the  crucial  role  of 

initiative  which  stresses 

The general objective is fully in line with the horizontal EU level strategies, in particular the 
Commission’s 
information  and 
communication  technologies  (ICT)  in  achieving  the  growth  and  jobs  objectives  of  the 
renewed Lisbon strategy. In the area of electronic communications, the i2010 initiative aims 
to create a Single European Information Space by 2010 that offers affordable and secure high 
bandwidth communications, rich and diverse content and digital services. It is also consistent 
with  the  'Europe  of  Results'.  Furthermore,  the  general  objective  is  also  compatible  with 
objectives of the existing regulatory framework for electronic communications, which aims to 
create  an  open  and  competitive  single  market  for  electronic  communications  services  and 
networks in Europe and encourage innovation.  

2.  SPECIFIC OBJECTIVES 

The general objective translates  into  a number of specific objectives of  an EU  action in the 
area  of  mobile  roaming  services.  These  objectives  are  intended  to  tackle  the  problem  of 
excessive  prices  of  mobile  roaming  communications,  the  underlining  problem  drivers 
(insufficient  competition),  the  need  for  a  consistent  approach  across  the  EU,  improved 
transparency  and  low  administrative  burdens.  Concerning  the  links  between  the  specific 
objectives, they are complementary and they all support the general objective of strengthening 
the single market in mobile communications.  

The following specific objectives have been identified:   

1.  To ensure that there is no return to the excessive retail and wholesale voice roaming 

prices that existed before the Regulation. 

2.  To  ensure  that  there  is  a  meaningful  relationship  between  retail  voice,  SMS  and 
roaming prices and the underlying costs of providing these services as well as between 
these prices and equivalent domestic prices. 

3.  To ensure adequate transparency for mobile users of prices for voice, SMS and data 
roaming services so that customers can be empowered to control their expenditure and 
avoid shock bills.  

EN 31 

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4.  To  ensure  customers  do  not  pay  for  more  than  they  consume  (taking  account  of 
reasonable  set  up  charges)  and  that  there  is  a  consistent  approach  to  the  billing  of 
voice roaming services across MS.  

5.  To ensure the maximum number of customers can avail of reasonable tariffs for voice, 

SMS and data roaming services in the shortest possible time. 

6.  To ensure that mobile operators can compete by differentiating their roaming services 

on the basis of quality and ease of use (transparency). 

7.  To ensure that operators can avail of wholesale rates for voice, SMS and data roaming 

services which will enable them to compete in the retail roaming market.  

8.  To  ensure  that  any  policy  initiative  does  not  hinder  market  and  technological 
developments which may ultimately render regulation unnecessary in the longer term. 

9.  To  minimise  the  administrative  burden  for  market  players  and  national  regulatory 

authorities associated with implementation of any policy initiative. 

10. To  ensure  maximum  simplicity  of  any  policy  initiative  in  accordance  with  the 

principles of Better Regulation. 

11. To  ensure  consistency  of  approach  across  Member  States  in  relation  to  pricing  at 
wholesale and retail levels, transparency measure and roaming billing approaches. 

12. To  ensure  coherence  of  any  initiative  with  principles  contained  in  the  Telecoms 

Regulatory Framework. 

EN 32 

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CHAPTER 5.  ALTERNATIVE POLICY OPTIONS 

Regulation should always be used as a last resort and only when it is clear that market forces 
will  not  bring  about  the  desired  objective.  For  example,  regulation  could  be  avoided  if 
acceptable  and  effective  self-regulation  proved  to  be  an  option.  It  is  necessary  therefore  to 
consider the potential impact of regulatory and non-regulatory approaches.   

1.  SELF REGULATION 

Self-regulation  is  defined  as  the  possibility  for  economic  operators,  the  social  partners,  non 
governmental organisations or associations to adopt amongst themselves and for themselves 
common guidelines at European level (particularly codes of practice or sectoral agreements). 
As one of its responsibilities, the Commission scrutinises self-regulatory practices in order to 
verify  that  they  comply  with  the  provisions  of  the  EC  Treaty.  The  Commission  notifies  the 
European  Parliament  and  the  Council  of  the  self-regulatory  practices  that  it  regards,  on  the 
one  hand,  as  contributing  to  the  attainment  of  the  EC  Treaty  objectives  and  as  being 
compatible  with  its  provisions  and,  on  the  other,  as  being  satisfactory  in  terms  of  the 
representativeness  of  the  parties  concerned,  sectoral  and  geographical  cover  and  the  added 
value of the commitments given. 

While it is understood that some operators within the industry have explored possibilities for a 
more  structured  approach  to  wholesale  data  charging,  these  initiatives  have  not  proved 
successful and, even if they had, they may have raised issues under EU competition law. 

The success of self-regulation would depend on how effective the industry can be in ensuring 
compliance by members. The complexity of voice, data and SMS roaming charges means that 
assessing  compliance  is  extremely  challenging  and  would  require  significant  industry 
resources. The absence of effective sanctions could prove to be a problem. 

In  view  of  past  experience  and  the  underlying  structural  limitations  on  competition  in  the 
roaming markets, leaving the problems to be addressed by means of self-regulation does not 
seem to be a viable solution. 

2.  CO-REGULATION 

The co-regulation approach implies a regulatory framework in which the overall objectives, 
the deadlines and mechanisms for implementation, the methods of monitoring the application 
of the legislation and any sanctions are set out. The regulator also determines to what extent 
defining and implementing the measures can be left to the concerned parties. Such provisions, 
for example sectoral agreements, must be compatible with Community law and must be in the 
interests of the public. Co-regulation must be transparent. Members of the public must have 
access to the act and to the implementing provisions.  

This  approach  was  not  considered  appropriate  as  an  alternative  to  the  current  Regulation, 
which,  as  explained  above,  has  been  largely  successful  in  addressing  the  problem  of  high 
voice  roaming  charges.  Co-regulation  is  likely  to  be  more  effective  than  self-regulation  but 

EN 33 

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the fact that specific goals are broadly defined could prove to be a problem when it comes to 
measuring compliance. As in the case of self-regulation, clearly any collective industry action 
or  agreements  in  relation  to  prices  for  voice,  SMS  or  data  roaming  services  could  raise 
competition  concerns.  It  is  therefore  considered  that  Co-regulation  is  not  an  appropriate 
approach.  

3.  SOFT LAW 

Under this approach, the Commission could issue a Recommendation to Member States with 
guidelines  on  appropriate  rates  for  voice,  SMS  and  data  roaming  charges.  An  exercise  of 
benchmarking SMS roaming and data roaming prices could be established on the basis of best 
practice  prices  across  the  Community.  Such  an  approach  would  not  bind  Member  States  or 
operators  but  would  rather  act  as  a  form  of  encouragement  or  target  to  be  achieved.  Such 
benchmarking would also increase transparency by highlighting the extent to which operators’ 
voice, SMS and data roaming prices are out of line with best practice prices in the EU.  

However,  given  the  relative  lack  of  response  from  the  industry  to  calls  for  lower  SMS 
roaming charges and the potential for widely differing approaches at national level (to what is 
a cross-border problem) and the fact that no one NRA has the necessary regulatory tools to 
address the problem at both the wholesale and the retail levels, it is considered unlikely that 
such a soft law approach would be sufficient to address the enduring problems that have been 
identified as underlying the roaming markets. 

4.  ASSESSMENT OF COMPETITION ASPECTS 

When  the  Commission  in  the  summer  of  2006  first  proposed  to  regulate  the  market  for 
international roaming services in the Community, the wholesale segment of this market was 
listed  in  the  Recommendation  on  relevant  markets36  as  a  market  susceptible  to  ex  ante 
regulation.  The  reason  for  having  listed  this  market  as  a  market  susceptible  to  ex  ante 
regulation was that the Commission, after due performance of the three-criteria test, came to 
the conclusion that this market was in need of sector-specific forward regulation rather than of 
mere ex post oversight under general competition policy. 

Several  national  regulators  started  to  review  this  market  but  were  unable  to  identify  any 
operator  with  significant  market  power  (dominance)  and  to  impose  appropriate  remedies  to 
reduce high roaming charges. 

The competition law principles embedded in the EU regulatory framework (i.e. that a market 
is  defined  in  accordance  with  supply  and  demand  characteristics  and  that  regulatory 
interventions should remove distortions of competition on identified product markets) govern 
the present analysis. While mobile services are typically sold as a bundle, it is often necessary 
based  on  competition  law  principles  for  the  regulator  to  analyze  individual  supply  and 
demand  peculiarities  of  each  element.  For  instance,  in  the  past,  regulators  have  looked  at 
possible anti-competitive effects of on-net/off-net domestic call price differentials; at possible 

36 Commission Recommendation of 11 February 2003, 2003/311/EC 

EN 34 

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distortions  arising  from  mobile  call  termination;  or  again  at  the  economic  characteristics  of 
domestic  SMS  termination.  Similarly,  as  regards  international  mobile  roaming  services,  
voice, SMS and data services in their respective wholesale and retail aspects may be regarded 
as  separate  product  markets  and  require  careful  and  separate  analysis  in order  to  arrive  at  a 
thorough understanding of the issues involved.37 

This  impact  assessment  examines  various  policy  options  designed  to  harmonize  the 
prospective  regulatory  treatment  of  mobile  roaming  services  in  the  Community.  In  this 
respect, it posits that the structural characteristics – in conjunction with its cross-border nature 
and importance for the internal market - pertaining to the market for voice roaming services 
(which necessitated the inclusion of this market in Recommendation 2003/311/EC) hold true 
in  analogous  fashion  for  SMS  roaming  services,  and,  albeit  to  a  lesser  extent38,  for  mobile 
data roaming services. 

Could competition policy alone tackle high data roaming prices? 
It is conceivable that the instruments of EU competition policy alone could be used to address 
some  of  the  issues  discussed  in  chapter  9  below.  In  particular,  one  can  imagine  a  situation 
where  a  finding  of  dominance  on  the  wholesale  market  for  mobile  data  roaming  services 
might  be  the  basis  for  a  further  finding  of  abusive  (excessive  pricing)  behaviour  and 
subsequent  fines.  However,  any  such  inquiry  would  be  complicated  by  the  current 
ineffectiveness of traffic steering (raising questions of collective dominance and/or collusive 
behaviour), questions relating to substitution of data roaming by other access forms, such as 
WiMax, and the incentive-distorting cross-border nature of the service which suggests that the 
application  of  a  competition  law  approach  would  be  difficult  and  rather  time  consuming. 
Moreover,  competition  law  procedures  could  only  tackle  individual  operators'  pricing 
behaviour whereas the proposal tries to address a situation where a large number of operators 
pursue a policy of excessive prices. A sector-specific approach is thus favoured here.    

It  should  be  stressed  at  the  outset  that  harmonizing  the  regulatory  treatment  of  mobile 
roaming services in the Community is not tantamount to an attempt to simulate a hypothetical 
competitive  process  or  outcome.  The  difficulties  for  a  regulator  to  specify  the  price  for  a 
product  or  service  which  would  be  the  outcome  of  a  hypothetical  competitive  equilibrium 
situation are well-known. First, though in a static setting (where investment is the exception 
and there are no economies of scale) the competitive outcome would be that prices are equal 
to marginal or incremental costs, such outcome is difficult to be computed by the regulator in 
practice because of imperfect information. Second, in a dynamic setting (where fixed costs are 
high and where there are barriers to entry), the competitive outcome may well be higher than 
incremental costs. In fact, the only thing that could safely be asserted in such a setting is that 
the  competitive  level  will  result  in  prices  somewhere  between  incremental  costs  and  stand-
alone  costs.  It  is  therefore  not  the  task  of  this  impact  assessment  to  make  a  judgment  on  a 
hypothetically competitive price for roaming services.      

37 This is not to say that the impact of potential regulation does not need to be read in the larger context; see the 
annex for a comparison of some of the potential financial impacts on industry stemming from the regulation 
of roaming services with overall market parameters.    

38 Substitutability, the nature of price vs. quality competition and the stage of market development differ for this 

service. See chapter 9 below. 

EN 35 

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Rather,  the  Commission's  impact  assessment  accompanying  Regulation  (EC)  No  717/2007 
identified  the  'absence  of  a  meaningful  relationship  between  prices  for  EU-wide  roaming  at 
both wholesale and retail level one the one hand, and the underlying costs of service provision 
on  the  other'  as  one  of  the  key  problems  the  regulation  was  designed  to  address.  In  other 
terms, it emphasized the disconnection between the cost structure and the observed prices in 
the  EU  for  voice  roaming  services.  For  example,  it  was  argued  that  while  the  costs  of 
producing an outgoing roaming call could be approximated by applying a two or three times 
multiple  of  the  average  EU  mobile  termination  rate  (MTR),  the  actual  price  charged  was 
several  times  higher,  and  thus  arguably  not  reflective  of  economic  value.  This  analysis 
remains valid today and, mutatis mutandis, applies to today's SMS and mobile data roaming 
prices. 

The same is true for other parameters such as profit margins. While elsewhere in the mobile 
bundle competition has driven average profit margins to EBITDA39 levels of often below 40 
percent, the margin made on roaming services is substantially higher.40 Furthermore, it is also 
true  that  since  the  adoption  of  the  voice  roaming  regulation  (and  indeed  during  many  years 
preceding it) there was no significant actual or potential entry which could have constrained 
existing  pricing  practices.  Indeed,  no  such  entry  should  be  expected  barring  significant  and 
unforeseen technological progress – despite the attraction of potentially high profit margins in 
the absence of regulation. 

Overall,  it  would  be  a  strong  signal  for  emerging  competition  on  roaming  services  if  a 
significant number of operators could be observed to engage in price competition below the 
regulated caps, or if market forces were gradually to drive down roaming prices to the level of 
comparable,  i.e.  domestic,  services.  In  the  current  implementation  period  of  the  voice 
regulation,  no  such  thing  could  however  be  observed.  Only  a  minority  of  EU  mobile 
customers has been offered a Eurotariff below the regulated price caps, and alternative offers 
still have to gain traction.  

The  lack  of  competition  signalled  by  the  above  considerations,  the  cross-border  nature  of 
roaming services as well as their importance to the completion of the internal market, are thus 
central to the proposal to impose transparency obligations and to set certain price ceilings for 
voice, SMS and data roaming services, which allow operators to compete by offering better 
terms and conditions at both the wholesale and retail levels.  

For the sake of completeness, one may finally ask whether there is a point at which the market 
would  be  deemed  to  be  competitive.  On  this  issue,  competition  has  clearly  both  a  process-
dimension (such as market entry/exit or the number of players) and a performance-dimension 
(such as resulting prices or profit margins). It would therefore be reductionist for the regulator 
to set an artificial milestone (such as a hypothetically correct price or a 'fair' profit margin for 
industry),  which,  if  reached,  would  trigger  the  end  of  regulation.  Rather,  the  competitive 
dynamics  of  the  market,  including  the  behaviour  of  participants  and  the  evolving  market 
structure,  should  be  carefully  followed  in  the  period  going-forward  to  evaluate  whether 

39 Earnings before interest, taxes, depreciation and amortization (EBITDA).  

40 For instance, the margin on SMS roaming services by some measure can be estimated to be close to a multiple 
of 8.5 of the cost base. Similar findings apply to data roaming. Nor are these margins readily justifiable by 
some simple reference to Ramsey pricing (as occasionally submitted by some industry players).    

EN 36 

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regulation remains, all things considered, the best available option available from an internal 
market perspective. 

5. 

      TARGETED REGULATION 

The  following  chapters  examine  options  for  regulatory  intervention  to  address  the  main 
problem  areas  identified  in  Chapter  2.  Assessment  of  possible  ways  of  addressing  the 
problems  of  the  mobile  roaming  market  is  relatively  complex.  For  this  reason  and  for  the 
reason of proportionality, options are formulated at different levels (general options and more 
detailed sub-options) and their assessment is carried out in two stages.  In the first phase, all 
options (apart from those that are discarded already at the beginning) will be assessed against 
a  predefined  set  of  five  assessment  criteria.  These  criteria  are  closely  linked  to  the  specific 
objectives identified in section 4. In the second stage (an in-depth quantitative and qualitative 
impact analysis) is provided only for those options that score best in terms of achieving the 
objectives.    In  the  final  comparison  stage,  the  detailed  sub-options  will  be  benchmarked 
against the same five assessment criteria taking into account the results of the in-depth impact 
analysis and final conclusions will be drawn. The criteria are as follows: 

Effectiveness  –  the  extent  to  which  the  options  achieve  the  main  objective  of  reducing  the 
mobile roaming charges. This criterion relates to objectives 1 to 5.  

Competition – the extent to which the options improve competition on the mobile market and 
strengthen competitive pressures. This criterion relates to objectives 6-8.  

Efficiency  –  normally  measures  the  extent  to  which  the  objectives  can  be  achieved  at  least 
costs.  The  cost  of  any  proposed  measure  would  include  administrative  costs  (link  to  the 
objective  9),  compliance  costs  for  mobile  operators  (e.g.  cost  of  implementing  regulatory 
measures)  and  the  expected  loss  in  profits  (in  case  of  price  regulation).  For  options  where 
existing  data  and  evidence  allows  quantitative  modelling  of  costs  and  benefits,  a  full  cost-
benefit analysis will be performed and the criterion will measure the difference between costs 
and benefits in terms of the overall social welfare.        

Consistency – the extent to which the options provide for a harmonised outcome and prevent 
market fragmentation. This criterion relates to the objectives 10 and 11.  

Coherence – the extent to which the options are coherent with the general principles of the 
electronic communications regulatory framework and EU law in general. This criterion relates 
to the objective 12.  

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CHAPTER 6.  VOICE ROAMING OPTIONS 

1.  VOICE ROAMING POLICY OPTIONS 

1.1.  No policy change 

Before taking action, regulatory or otherwise, to resolve a particular problem the possibility of 
‘doing nothing’ should be considered. This is a base case against which other forms of action 
can be assessed. For the purposes of voice roaming services, the option of 'no policy change' 
would effectively mean allowing the Regulation to expire on 30 June 2010, with the resulting 
removal of all the regulatory obligations currently contained in it.  

As  noted  in  the  section  on  voice  problem  definition,  the  evidence  suggests  that  given  the 
structural  characteristics  of  the  voice  roaming  market  and  the  evidentiary  record  of  the 
regulated period, removing either wholesale or retail price regulation for voice would not be 
an  effective  option.    There  is  a  significant  risk  that  the  underlying  lack  of  competitive 
pressures  in  the  voice  roaming  market  and  the  incentive  for  mobile  operators  to  maximise 
their roaming revenues would translate into a return to higher retail and wholesale prices for 
intra-Community roaming if the pricing obligations in the Regulation were to disappear on its 
expiry in 2010. For this reason it is concluded that the Regulation should be extended beyond 
2010.  

In  the  longer  term  market  and  technological  developments  may  render  regulation 
unnecessary.  For  example,  Voice  over  IP  (internet  protocol)  has  to  a  certain  extent 
revolutionised fixed telephony, paving the way for cheaper voice services and the provision of 
innovative services. The advent of 3G networks and Wi-Fi hotspots is leading to interesting 
developments  in  mobile  services.  New  mobile  handsets  which  are  capable  of  providing 
mobile  over  IP  are  also  emerging.  However,  IP  mobile  telephony  is  set  to  become  a  reality 
only in the medium term. It is predicted that voice traffic won’t significantly move to VoIP 
until  around  2013  –  2015,  after  the  period  considered  for  extension  of  the  Roaming 
Regulation..41 

The Regulation should therefore be extended in duration. This section addresses the options 
for extending the Regulation including its duration and structure.  

1.2.  Duration 

The Regulation should be extended over a reasonable period which will ensure continuation 
of the benefits while providing sufficient time to assess the extent to which real competition 
may  have  developed  in  the  meantime.  In  light  of  the  expected  timing  for  future  market 
developments, an extension of one or two years would not be sufficient for that purpose. The 
Commission  services  believe  that  a  further  period  of  three  years  from  30  June  2010  is 

41  See  Analysys  Research,  “Forecasting  the  Commercial  Impact  of  Wireless  VoIP  in  the  USA  and  Western 
Europe”, 2006. But by 2015 Analysys predicted that 33% of mobile voice traffic in Western Europe will be 
carried using VoIP. ‘Western Europe’ is not defined in the report.   

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required in order to ensure that consumers continue to benefit from reasonable roaming rates 
while at the same time providing sufficient time for competition to develop and a review to be 
carried out.  

1.3.  Transparency regulation  

The  transparency  measures  for  voice  roaming  services  are  an  indispensable  element  of  the 
current regulation. However, just as was the case for the current regulation (and in light of the 
fact that the underlying structural problems which justified voice regulation are still present) it 
is considered that transparency measures alone will not be effective.  

1.4.  Wholesale voice regulation  

For  the  current  Regulation,  the  ERG  had  indicated  that  it  was  not  possible  for  any  national 
regulatory  authority  to  address  effectively  the  high  level  of  wholesale  Community-wide 
roaming charges because of the difficulty in identifying undertakings with significant market 
power  in  view  of  the  specific  circumstances  of  international  roaming,  including  its  cross-
border  nature.  National  regulators  continue  to  hold  this  view,  and  have  indicated  that  the 
Regulation should be extended at wholesale level. Moreover  section 2.2.3 above  has  shown 
that, while there has been some progress, in many Member States wholesale are still around 
the  maximum  allowed  price  ceilings,  and  that  competition  below  these  levels  is  limited. 
Wholesale voice regulation should be maintained for this reason alone. 

A further consideration for why wholesale regulation was deemed necessary in the Regulation 
was to avoid the risk of disrupting the orderly functioning of the roaming market by putting 
smaller operators at a dramatic competitive disadvantage in particular where retail regulation 
is  imposed  (margin  squeeze  created  by  retail  obligations  combined  with  the  absence  of 
sufficient  commercial  bargaining  power  to  be  able  to  purchase  adequately  priced  wholesale 
inputs). In particular, it should be noted that large groups are able to internalize large parts of 
their  wholesale  costs  either  by  relying  on  transactions  with  fully-owned  subsidiaries  or  by 
negotiating agreements with other large groups to form alliances (in which wholesale traffic is 
exchanged  at  massively  discounted  price  levels).  Smaller  operators  do  not  have  access  to 
either  strategy;  nor  have  larger  operators  used  their  superior  competitive  positioning  and 
lower cost-base to undercut significantly the Eurotariff price caps at retail level (see section 
below). 

A removal of wholesale caps in this setting is likely to be damaging to competition because it 
would  seriously  hinder  the  ability  of  smaller  operators  to  compete  with  larger  players.  It  is 
considered therefore that continued wholesale regulation is necessary.  

1.5.  Retail voice regulation 

Section  2.2.4  above  has  shown  that  the  regulated  wholesale  caps  and  the  transparency 
obligations  contained  in  the  Regulation  have  so  far  failed  to  prompt  operators  to  engage  in 
significant price competition below the Eurotariff price caps at retail level. 

One  of  the  objectives  of  regulatory  intervention  was  however  to  ensure  that  consumers  can 
avail of reasonable retail roaming offers (on a sustainable and forward-looking basis), and that 
any  excesses  in  the  pricing  structure  be  eliminated.  If  sufficient  competition  existed  for  the 

EN 39 

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provision of retail roaming services the lower costs resulting from capped wholesale roaming 
charges  would  be  passed  through  to  the  retail  consumer  -  retail  regulation  would  become 
unnecessary. The Regulation is based on the assumption that such pass-through to retail level 
would  not  occur.  The  ERG  has  agreed  to  this  view,  and  concluded  that  pass-through  of 
wholesale  roaming  price  reductions  to  the  retail  level  -  in  whole  or  at  least  to  a  significant 
extent - cannot be taken for granted. 

One  potential  reason  for  very  limited  pass-through  could  be  the  fact  that  not  all  wholesale 
capacity  is  actually  traded,  with  approximately  25-30%  of  large  EU  operator's  wholesale 
roaming demand being met by group-owned subsidiaries. One could argue that industry-wide 
wholesale caps – whatever their level – can only be partially effective in these cases, and will 
not  necessarily  result  in  retail  prices  lower  than  the  caps.42  Another  potential  reason,  as 
pointed  out  in  the  Commission's  impact  assessment  accompanying  Roaming  Regulation  is 
that 

'because from a demand perspective receiving a call is a good substitute for 
making  a  call  (rather  than  a  complement)  -  the  price  difference  between 
these two kinds of calls, active and passive, - is economically crucial: large 
price differences will lead to large substitution effects. Thus, there are good 
reasons  to  assume  that  the  price  level  of  active  calls  is  determining 
indirectly  the  price  level  for  passive  calls  –  and  vice  versa.  If  this  is  true, 
then even a dramatic reduction in wholesale input prices would not result in 
comparable reductions at retail level for active calls […]'43 

. 
While  the  effectiveness  of  wholesale  caps  can  be  questioned,  it  is  also  possible  that  the 
current  wholesale  caps  are  too  high,  and  work  to  reduce  rather  than  maximize  the  retail 
margin available to operators inclined to engage in intense price competition on this service.44 
Consequently,  by  further  reducing  the  current  level  of  wholesale  caps,  operators  would  be 
granted  a  greater  degree  of  pricing  flexibility,  potentially  resulting  in  more  effective 
competition (see section on regulatory options below). 

From  the  arguments  in  the  preceding  sections  it  should  be  obvious  that  given  the  structural 
characteristics of the voice roaming market and the evidentiary record of the regulated period, 
regulation at both retail and wholesale level will continue to be necessary. 

42 A Commission analysis based on confidential operator data suggests that for the period Q2:2007 – Q1:2008 
approximately 25-30% of large operators' wholesale roaming demand was produced in-house, i.e. by group-
owned subsidiaries. In other terms, 25-30% of these groups' wholesale volume was captive or nor supplied 
as  an  exogenous  (and  market-priced)  input  factor.  Note  that  these  figures  are  confined  to  genuine  intra-
group  traffic  and  do  not  include  alliance-based  traffic,  which  to  some  extent  (particularly  if  priced  in 
collusive fashion) might also be unaffected by wholesale caps. 

43 COM(2006) 382 final, p. 18 

44  This  effect  would  be  particularly  pronounced  for  smaller  non-alliance  operators,  which  have  to  purchase 

wholesale capacity as genuinely external production inputs. 

EN 40 

EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
1.6.  Summary evaluation and assessment of impacts 

Returning to the evaluation criteria set out in Chapter 5 the choice between regulatory options 
can be summarised as follows: 

Effectiveness 

It is considered that a combination of transparency measures as well as retail and wholesale 
regulation  is  the  only  way  to  ensure  an  effective  outcome.  Retail  regulation  only  could  be 
damaging  to  competition  as  there  is  a  strong  possibility  it  will  lead  to  margin  squeeze  for 
smaller players. Equally, if regulation is applied at wholesale level only, it is likely that the 
consumer  will  not  see  the  benefits  in  the  form  of  lower  retail  prices.  That  leads  to  the 
conclusion that regulation should be imposed at both retail and wholesale levels to protect the 
interests of roaming customers.   

It is sometimes claimed that the benefits flowing to consumers from regulated roaming prices 
could  be  invalidated  by  compensatory  price  changes  of  mobile  operators  elsewhere  in  the 
retail  price  structure  –  for  example  by  price  changes  for  domestic  services.  However,  the 
Commission  has  argued  in  the  past  that  such  spillover  effects  (or  waterbed  effects)  were 
unlikely to occur in a domestic setting where competitive forces (for instance MVNOs, who 
have only very few roaming customers) would always constrain operators' ability to price ad 
libitum.  The  data  recently  collected  by  ERG  confirm  that  in  fact  there  is  no  evidence  of 
significant spillover effects due to the current regulation. 

Competition 

There is a competition problem in the voice roaming market which will not be addressed by 
transparency measures only or by allowing the Regulation to expire. While in the longer term, 
market developments may increase the possibility of achieving sustainable competition, in the 
medium  term,  a  combination  of  retail,  wholesale  and  transparency  measures  that  provide 
flexibility  to  operators,  could  at  least  help  to  stimulate  a  degree  of  competition  within  the 
parameters of the regulation.  

Efficiency  

The  administrative  burden  associated  with  the  extension  of  the  Regulation  is  likely  to  be 
relatively lower than was the case for the implementation of the current Regulation, given that 
many of the required measures are already in place e.g. data collection. In any case, even if 
regulatory measures had not been taken, data collection by national regulatory authorities to 
facilitate monitoring of market developments would still have been necessary. In the case of 
voice regulation, the measures are generally an extension of existing obligations where costs 
of  implementation  have  already  been  incurred.  The  ERG  believes  that  the  ongoing 
administrative  burden  arising  from  the  Regulation  is  relatively  light,  as  the  Regulation  is 
largely self-enforcing, as a consequence of its design.  

As  for  compliance  costs,  the  GSMA  estimates  that  the  industry  as  a  whole  spent 
approximately  €150  million  to  implement  the  Regulation  (mainly  overhead  and  staff). 
However,  prior  to  the  Regulation  the  industry  had  acknowledged  that  there  was  a  problem 
with roaming charges but claimed that this could be addressed without the need for regulation. 
Therefore,  even  in  the  absence  of  regulation,  operators  would  have  incurred  costs  in 
implementing alternative transparency measures as well as other roaming offers. Therefore it 

EN 41 

EN 

 
 
 
 
 
 
 
 
 
 
 
 
seems likely that part of the estimated cost suggested by the GSMA would have been incurred 
in any case. Finally the GSMA estimate obviously needs to be read in the context of the €2.3 - 
€2.7 billion gains in consumer welfare as a result of the Regulation in the first year alone.   

Consistency 

One of the key benefits of the current Regulation is consistency of approach at wholesale and 
retail  levels  and  in  terms  of  uniform  basic  transparency  requirements.  A  major  part  of  the 
problem  with  roaming  was  that  no  one  NRA  on  its  own  could  tackle  the  problem  since  it 
could  not  control  the  wholesale  charges  imposed  on  its  own  operators  by  operators  from 
another  Member  State.  Equally,  if  an  NRA  had  been  able  to  intervene  to  control  wholesale 
charges  within  its  own  Member  State,  this  could  only  have  benefited  consumers  in  another 
Member  State  and  then  only  if  pass-through  had  occurred.  At  retail  level,  the  Eurotariff 
provides EU citizens with a guaranteed maximum roaming charge anywhere in the EU.  

Coherence 

As stated earlier, the problem of persistently high and unjustified roaming charges could not 
be  addressed  under  the  Telecoms  Regulatory  Framework.  Nevertheless  the  proposed 
extension of voice regulation is consistent with the general principles of that Framework. For 
example, the proposed extension of voice roaming regulation will aim to preserve flexibility 
for competition while at the same time protecting consumers and, as noted above, providing a 
consistent  approach.  These  are  all  key  principles  of  the  EU  regulatory  framework.  This 
extension gives a similar role, for example, in terms of monitoring and dispute resolution, to 
NRAs as exists in the framework.  

EN 42 

EN 

 
 
 
 
 
 
 
 
 
 
 
 
In the table below, the options are measured against the pre-defined criteria set out in Chapter 
5.  Each  scenario  is  rated  between  "---"  (very  negative  impact),  "="  (no  change)  and  "+++" 
(very  positive  impact).  The  scores  are  expressed  in  absolute  terms  and  show  to  what  extent 
the main regulatory options achieve the specific objectives identified in Chapter 4.  

       Criteria 

Effectiveness  Competition  Efficiency 

Consistency  Coherence 

Scenario 

-- 

-- 

policy 

No 
change 

Transparency 
only 

+ 

++ 

++ 

Wholesale 
regulation 
only 

Retail 
regulation 
only 

retail 

Wholesale 
and 
regulation 
including 
transparency 

+ 

++ 

-- 

+++ 

++ 

= 

+ 

+ 

+ 

+ 

-- 

+ 

+ 

+ 

-- 

+ 

++ 

+ 

++ 

++ 

The  following  section  examines  options  for  extension  of  the  Regulation  at  retail  and 
wholesale levels. 

2.  OPTIONS FOR WHOLESALE AND RETAIL REGULATION OF VOICE ROAMING 

SERVICES 

2.1.  Glide path for price ceilings  

If, as has been argued in this impact assessment, regulation continues to be justified at both 
wholesale and retail level, it is necessary to ask whether going forward the existing price caps 
should be maintained or adjusted annually in accordance with a predetermined glide path.  

EN 43 

EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Prices for domestic mobile services have generally declined over recent years as a result of 
competition.  For  example,  the  Commission's  13th  Implementation  Report  shows  that  mobile 
prices in the low usage basket (as calculated by the OECD) have fallen by around 10%, and 
the  prices  for  mobile  services  in  the  medium  usage  basket  and  the  high  usage  basket  have 
decreased  by  nearly  14%.45  Arguably,  prices  for  voice  roaming  services  should  similarly 
decline over time to reflect such developments.   

Furthermore, the Regulation's price caps for voice roaming services should reflect lower input 
costs in future years. Current wholesale caps take account of the different elements involved 
in the production of roaming calls, in particular the cost of originating and terminating calls 
including  overheads,  signalling  and  transit.  The  most  appropriate  benchmark  for  call 
origination and call termination in the EU is the (typically regulated) mobile termination rate 
(MTR), which has seen significant annual decreases in the past. Accordingly, the Regulation's 
wholesale caps (and to some extent its retail caps) should reflect those decreases.46 Details on 
the cost structure are provided in Annex I. With the exception of some small roaming specific 
costs, the cost structure does not differ significantly from that which applies to domestic calls.  

2.2.  Maintain current price ceilings 

Under  this  option,  the  caps  in  place  at  the  current  expiry  date  of  the  Regulation  (30  June 
2010) would remain in place at the same levels for the duration of the extended regulation i.e. 
up to 30 June 2013. Compared to a glide path option, such an approach would have relatively 
less  impact  on  the  industry  and  at  the  same  time  would  provide  a  degree  of  consumer 
protection.  On  the  other  hand,  if  roaming  was  a  competitive  market,  one  would  expect  that 
prices would fall to reflect increasing competition and lower costs. This approach would not 
be in line with the general price developments in the overall mobile sector. 

In fact, in its response to the public consultation ERG suggest that if the caps had been set on 
the  basis  of  earlier  work  carried  out  by  Copenhagen  Economics,  the  starting  point  would 
therefore be around 8€c/min lower, at both wholesale and retail levels, than the limits set out 
in  the  Regulation.  There  are  two  reasons  for  this  difference.  First,  according  to  ERG,  the 
charge caps set by Council and the European Parliament in the Regulation were higher than 
the levels implied by the independent cost analysis. Second, termination rates fell further than 
had been expected at the time the independent analysis was carried out. The current retail caps 
were  deliberately  set  at  generous  levels  to  allow  operators  the  flexibility  to  compete  below 
these levels. If the caps are maintained at current levels actual prices could well continue to 
cluster close to the maximum ceilings. It is reasonable to expect that prices should decline to 
reflect anticipated further reductions in those costs over time. While a healthy margin should 
be  maintained  to  allow  for  the  possibility  of  competition,  consumers  should  be  entitled  to 
expect some benefits in terms of lower retail prices as a result of declining costs. Therefore, 
there is no justification for departing from the approach taken in the current Regulation which 
also  includes  a  glide  path  to  reflect  declining  costs.  For  these  reasons  this  option  should  be 
discarded.  

45 COM (2008) 153 March 2008  

46 Though perhaps not entirely, as the Regulation does not pursue a fully cost-orientated approach: the caps have 
been  set with  the  twin  aim  of  eliminating  the  excesses  in  the  pricing structure  while  allowing operators a 
sufficient degree of freedom to innovate and profit. 

EN 44 

EN 

 
 
 
 
 
 
 
 
 
 
 
                                                 
2010 

2011 

2012 

2013 

Retail outgoing 

43 

Retail incoming 

19 

Wholesale  

26 

43 

19 

26 

43 

19 

26 

43 

19 

26 

2.3.  Glide path option 1  

This option is based on the proposal of ERG. The ERG posits that falling input costs – such as 
lower  termination  rates  and  other  efficiencies  -  give  scope  for  lower  wholesale  and  retail 
roaming price caps. The ERG glide path in its reliance on projected further decreases in EU 
termination  rates  is  premised  on  forecasts  suggesting  that  MTRs  are  likely  to  fall  by  an 
average of 1 cent per year from 2008 onwards. ERG states that this fall in input costs is likely 
to justify a 2 cents reduction each year in the level of the wholesale cap. It is considered by 
ERG that these reductions at wholesale level justify reductions of 2 to 3 cents at retail level 
for outgoing calls. In order to be consistent with the linear glide path contained in the current 
Regulation,  option  1  therefore  proposes  a  glide  path  of  3  cents  for  outgoing  calls.  For 
incoming calls a similar approach is proposed.  

The above approach would lead to the following glide path for voice services: 

2010 

2011 

2012 

2013 

Retail outgoing 

43 

Retail incoming 

19 

Wholesale  

26 

40 

16 

24 

37 

13 

22 

34 

10 

20 

2.4.  Glide  path  option  2  -  with  wider  gap  between  wholesale  and  retail 

ceilings 

An alternative option would consist in accepting the logic of decreasing production costs over 
time, yet to differentiate carefully between the extent of these decreases at wholesale level on 
the one hand and at retail level on the other. 

Based  on  recent  notifications  and  current  experience  with  the  EU  mobile  call  termination 
markets in the context of the Article 7 procedure, the average EU mobile termination rate may 

EN 45 

EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
be  projected  to  decline  from  €0.1051  (January  2007)  to  just  below  €0.05  by  2012.47  This 
corresponds  to  a  compound  annual  reduction  of  13.1%  over  the  period  from  2007  –  2012. 
Accordingly, the implied reduction in future wholesale price caps (starting at €0.26 in 2010) 
should be in line with this rate. 

Turning to retail caps, it is safe to assume that any future efficiencies in production accruing 
from  learning  effects  in  marketing  and  retailing  roaming  services  are  likely  to  be  less 
pronounced. Consequently, future retail caps should follow the glide path proposed in option 
1  (which  is  a  continuum  of  the  path  in  the  current  Regulation)  but  should  be  set  in  slight 
divergence from the wholesale caps. 

This approach would yield the following glide path:  

2010 

2011 

2012 

2013 

Retail outgoing 

43 

Retail incoming 

19 

Wholesale  

26 

40 

16 

23 

37 

13 

20 

34 

10 

17 

The prime virtue of this option is that it serves to increase the margin available to operators 
between the wholesale and retail price caps, thereby potentially allowing additional room for 
price  competition  to  emerge  below  the  regulated  Eurotariff  caps.48  Until  2013,  the  retail 
margin available to mobile operators would increase to 100% (from a current level of 65.3%). 

Furthermore,  in  terms  of  relative  competitive  positioning  of  operators,  while  from  an 
aggregate  industry  perspective  the  level  wholesale  rates  is  immaterial  (IOTs  cancel 
themselves  out  at  overall  EU  industry  level),  smaller  operators  –  in  particular  those 
unaffiliated with an alliance - could reap significant benefits from lower wholesale rates and 
spur future price competition.  

3.  VOICE REGULATION IMPACT ANALYSIS 

The general impact of extending voice regulation at wholesale and retail level was examined 
in the previous section. This section looks at specific impacts relevant to the choice between 
the two glide path options presented in the preceding section.  

47 For purposes of accuracy, an average EU MTR of €0.048 has been projected for 2012.  

48 It is argued in Chapter 2 that as yet there is not significant evidence for innovation and competition to have 

developed underneath the regulated caps. The present option seeks to address this issue.  

EN 46 

EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
3.1.  Consumer and industry welfare - economic impact 

The Commission's economic model presents an assessment of the overall economic impact of  
option 1 for a glide path and the alternative approach which envisages a greater decline in the 
level  of  the  wholesale  caps  over  the  extended  period  of  the  Regulation.  The  details  are 
contained in Annex I. 

For glide path option 1, the Commission’s economic model suggests that, as a direct result of 
extended regulation, for the first year of the extension (to end June 2011) consumer welfare 
could  be  increased  by  approximately  €3.4  and  €4.7  billion  (depending  on  the  elasticity 
scenario) over the 2007 pre-regulation base case. Again depending on elasticity assumptions, 
the change in industry profits could range from an increase of €274 million to a decline of just 
over  €1.1  billion  for  the  same  period.  The  effects  on  industry  profitability  are  in  fact  more 
moderate than could have been expected, bearing in mind that the fall of wholesale costs that 
has  been  observed  since  the  regulation  came  into  force  has  opened  up  an  increasing  gap 
between the caps foreseen in the regulation and the actual costs. Finally, overall social welfare 
(the net effect of increased consumer welfare and changes in industry profits) would increase 
by between €2.3 and €5.0 billion.  

For glide path option 2, the Commission’s economic model suggests that, as a direct result of 
extended regulation, for the first year of the extension (to end June 2011) consumer welfare 
could  be  increased  by  approximately  €3.5  and  €5.0  billion  (depending  on  the  elasticity 
scenario) over the 2007 pre-regulation base case. Again depending on elasticity assumptions, 
the  change  in  industry  profits  could  range  from  an  increase  of  €232  million  to  a  decline  of 
€1.2  billion  for  the  same  period.  Finally,  overall  social  welfare  (the  net  effect  of  increased 
consumer  welfare  and  changes  in  industry  profits)  would  increase  by  between  €2.3  and  5.2 
billion. It should be recalled, as shown in Chapter 2 that, based on an estimate of 2007 pre-
regulation revenues, voice roaming was valued at €5.17 billion which represents 3.8% of the 
total EU mobile market. 

Glide  path  option  2  therefore  produces  a  slightly  greater  overall  social  welfare  result  than 
glide path option 1.  

3.2.  Competition - impact on smaller operators 

One  of  the  aims  of  the  current  Regulation  at  wholesale  level  was  to  ensure  that  smaller 
operators did not suffer margin squeeze as a consequence of having to comply with maximum 
retail  price  ceilings  while  at  the  same  time  facing  the  possibility  of  relatively  high  charges 
imposed  by  larger  operators  at  the  wholesale  level.  Both  options  above  continue  to  provide 
this protection. However, the second glide path allows for a steeper decline in wholesale caps 
compared  to  option  1.  While  this  produces  only  a  marginal  difference  in  industry  profits 
(largely  because  wholesale  revenues  and  costs  cancel  each  other  out  at  the  level  of  the 
industry)  it  nevertheless  provides  the  possibility  for  enhanced  competition  at  retail  level  by 
widening the margin in relative terms between wholesale and retail caps.  

In terms of efficiency (including administrative burden), coherence with the general telecoms 
regulatory  framework  and  consistency  of  approach  both  of  these  glide  path  options  would 
score equally. However, it is considered that glide path option 2 would be more effective as it 
provides a greater opportunity for competition to work below the levels of the caps.  

EN 47 

EN 

 
 
 
 
 
 
 
 
 
 
 
The following table summarises the comparison between these two glide path options in the 
context of the criteria specified in Chapter 5: 

       Criteria 

Effectiveness  Competition  Efficiency 

Consistency  Coherence 

Scenario 

+ 

+ 

+ 

Glide 
option 1  

path 

Glide 
option 2  

path 

++ 

++ 

++ 

+ 

+ 

+ 

+ 

EN 48 

EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CHAPTER 7.  BILLING UNITISATION POLICY OPTIONS 

There are various options to amend the Regulation in order to address billing unitisation for 
roaming voice calls. 

1.  UNITISATION AT RETAIL LEVEL 

The  legal  requirements  applicable  at  national  level  to  the  retail  billing  practices  of  mobile 
operators differ across the Community. While in most Member States the billing unitisation 
practices  of  mobile  operators  are  not  regulated,  in  four  Member  States49  per  second  billing 
obligations have been imposed.   

The  divergent  legal  requirements  and  practices  applicable  to  the  billing  of  roaming  calls 
across  the  Community  therefore  can  be  seen  to  create  different  conditions  in  different 
Member States, thereby distorting competitive conditions in the single market. In addition, for 
consumers  from  the  four  Member  States  with  per  second  billing  obligations  for  domestic 
mobile phone calls, the user experience can change substantially simply by crossing a border 
in the case of operators who practice per minute charging for roaming calls.  

Given  the  Community-wide,  cross-border  nature  of  intra-Community  roaming  services,  it  is 
therefore appropriate for the Regulation to harmonise the obligations on mobile operators in 
this regard, in the interests of strengthening the single market.  

There is a range of options available for dealing with the unitisation issue at the retail level. 

1.1.  Do nothing  

As  experience  with  implementation  of  the  Regulation  has  shown  there  appears  to  be  little 
incentive  for  operators  to  change  billing  practices  for  voice  roaming  services.  It  has  been 
noted  that  these  roaming  billing  practices  are  not  in  line  with  general  domestic  billing 
practices  where  competition  is  more  effective.  As  mentioned  in  Chapter  2  operators  adopt 
divergent approaches in different Member States which is not conducive to the completion of 
a  single  market  for  electronic  communications.  Therefore  it  is  considered  that  this  problem 
will not be resolved in the absence of regulation.  

1.2.  Retail Billing Option 1 – Additional transparency obligations 

For  example,  additional  transparency  obligations  could  be  imposed,  requiring  operators  to 
publish information on the actual price charged for calls of specific durations (e.g. how much 
a 30 second call will cost; how much a 61 second call will cost). This would make it easier for 
customers to be aware of the real costs of a roaming call and to compare the prices charged by 
different  operators.  However  the  underlying  problem  is  primarily  related  to  the  charging 
mechanism  as  opposed  to  any  lack  of  awareness  on  the  part  of  the  consumer  This  option 

49France, Spain, Lithuania and Portugal. 

EN 49 

EN 

 
 
 
 
 
 
 
 
 
 
 
 
                                                 
would  therefore  be  ineffective  as  it  would  not  tackle  the  problem  (that  customers  are  being 
charged for services they do not receive) while adding considerably to the amount of pricing 
information that roaming customers will receive. . This option can therefore be discarded. 

1.3.  Retail Billing Option 2 – Strict per second billing obligation (1+1) 

At  retail  level,  it  would  also  be  possible  to  require  strict  per  second  billing,  whereby  home 
providers  are  required  to  bill  their  roaming  customers  on  a  per  second  basis  from  the  first 
second  of  the  call,  i.e.  both  during  the  first  minute  of  the  call  and  during  all  subsequent 
minutes. This is referred to as the "1+1" approach. This approach would be the simplest and 
most efficient approach and have the most immediate and transparent effect on the roaming 
customer's bill. However, it would also preclude home providers from charging any form of 
set  up  or  connection  charge  at  the  retail  level,  which  was  a  common  practice  across  the 
Community  even  before  the  entry  into  force  of  the  Regulation.  It  would  therefore  have  the 
biggest  financial  effect  on  the  mobile  operators.  Moreover,  this  approach  would  also  run 
contrary  to  the  practice  which  now  exists  in  the  Member  States  which  have  a  per  second 
billing  requirement  under  national  law.  In  such  cases  a  set  up  or  connection  charge  is 
permitted, despite the obligation on operators to charge their customers on a per-second basis. 

For incoming roaming calls, to align the underlying wholesale cost (the termination rate) to 
the retail cap, a strict per second basis is justified i.e. no minimum initial billing period. 

1.4.  Retail Billing Option 3 – Modified per second billing obligation (30+1) 

In order to permit home providers to continue to include a reasonable set up charge in their 
retail bills, a modified per second billing obligation could be included in the Regulation, for 
example to allow a minimum initial charging interval (e.g. up to the first 60 seconds of a call, 
followed by per second billing for all subsequent periods (the "60+1" approach).  

ERG  notes  that,  in  general,  such  a  two-part  tariff  is  not  an  unreasonable  structure  if  cost 
causality is taken into account, given that fixed costs are incurred in setting up a call. A call of 
even  one  second  will  require  VLR  /  HLR,  Intelligent  Network  lookup  (related  to  number 
portability)  as  well  as  single  billing.  These  cost  are  minimal,  however  they  should  be 
considered.  The  ERG  has  also  noted  that  60  seconds  (currently  this  would  be  46  cents)  is 
likely to far exceed the actual costs of setting up a call. 

Setting a minimum billing period at a level of 30 seconds would serve two purposes. First, it 
would  allow  operators  to  recover  comfortably  the  fixed  set  up.  Secondly,  because  this 
approach  is  comfortably  above  costs  it  conforms  with  the  principle  set  out  in  the  current 
Regulation  to  allow  operators  the  freedom  to  compete  by  differentiating  their  offerings  and 
adapting  their  tariff  structures  thus  allowing  operators  to  offer  shorter  minimum  charging 
periods or even full per second billing. 

It may therefore be appropriate to allow a lesser initial charging period at a maximum level of 
30 seconds (30+1), to cover the set up costs. Therefore this is the maximum that any operator 
could impose as a fixed set up charge. Operators are free to impose lower set up charges or 
indeed to opt for strict per second billing.   

EN 50 

EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
No minimum initial charging period is justified in the case of Eurotariff calls received, as the 
underlying wholesale cost is charged on a per second basis and any specific set up costs are 
already covered by mobile termination rates. 

1.5.  Retail Billing Option 4 – Further reduction of the price caps 

Finally,  the  maximum  price  limits  for  roaming  voice  calls  set  by  the  Regulation  could  be 
reduced further, by an amount calculated to compensate consumers financially for the billing 
unitisation  practices  currently  being  applied.  This  option  would  be  ineffective  and 
disproportionate as it would penalise those operators which currently apply per second billing 
on a voluntary basis and create an overwhelming incentive for all operators to move to billing 
on  a  per  minute  basis  for  both  the  first  and  subsequent  minutes.  It  should  therefore  be 
discarded. 

2.  UNITISATION AT WHOLESALE LEVEL  

Since the move by some operators to per minute billing at retail level has been explained by 
the need to recover wholesale costs charged on a per-minute basis, it will be necessary to also 
look at wholesale charges and whether these should be billed on a per-second basis. 

2.1.  Wholesale Billing Option – Do nothing  

Currently,  wholesale  interconnection  charges  between  operators  are  billed  on  a  per  second 
basis across the Community. However, given the fact that the current practice is for wholesale 
charges  for  roaming  to  be  charged  on  a  per  minute  basis,  in  particular  for  the  1st  minute, 
intervention  at  the  retail  level  to  protect  consumers  and  harmonise  the  practice  in  the  EU 
would  require  intervention  at  the  wholesale  level  since  per-minute  wholesale  charges  could 
give rise to margin squeeze for particularly short calls. Therefore the 'do nothing' option is not 
a viable proposition. 

2.2.  Wholesale Billing Option – Per-second billing 

At  the  moment,  there  are  inconsistent  approaches  to  charging  at  the  wholesale  level.  While 
there  are  some  operators  that  already  charge  IOTs  on  a  per-second  basis,  there  are  others 
which have a set-up charge included in their agreements. This may vary but in most cases is 
billed at 60 seconds.  

The  fixed  costs  of  setting  up  a  call  at  the  wholesale  level  are  already  taken  account  of  in 
regulated  termination  charges.  In  addition  a  per  second  basis  is  in  general  applied  for  other 
wholesale interconnection charges at domestic level. 
Since  wholesale  interconnection  charges  at  domestic  level  (termination  rates)  are  in  general 
charged  on  a  per-second  basis,  it  would  be  appropriate  to  introduce  such  a  charging 
mechanism as this would be the most effective outcome in dealing with the problem. For this 
reason, the Commission services agree with the ERG that there is no justification for billing 
other than the actual volume. In particular, a per-second approach at the wholesale level might 
also enable some operators to charge on a strict per-second basis at the retail level. 

EN 51 

EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
3.  ASSESSMENT OF IMPACTS 

3.1.  Consumer and industry welfare - economic impact 

The distribution of call length is not available to enable the Commission services to estimate 
the duration of calls and this is not expected to become available even in the medium term. 
Nevertheless, if one where to assume a move to a complete per second billing system, (since 
2007), then consumers would have made savings of nearly €1 billion for both calls made and 
received (broken down into €696 million for calls made and €242 million for calls made)50. 
However, the impact on the industry is mitigated by that fact that a maximum 30 second set-
up charge will be permitted.  

3.2.  Competition - impact on smaller operators 

The move to per-second billing at wholesale level will give smaller operators more flexibility 
particularly  to  compete  at  the  retail  level.  Currently,  it  would  not  be  feasible  for  such 
operators  to  move  to  per-second  billing  at  the  retail  level  even  if  they  wanted  to  for 
competitive  reasons  since  they  often  have  to  pay  on  a  per-minute  basis  at  wholesale  level.  
Therefore at the wholesale level, a move to per-second billing allows for more competition.  

4.  SUMMARY EVALUATION 

Effectiveness 

Option  3  (modified  per  second  30+1)  will  deliver  the  most  effective  outcome  as  it  will 
remove the 'hidden charge' of billing per minute while at the same time allowing a reasonable 
set-up  charge  for  operators.  Moreover,  the  decision  to  move  to  per-second  billing  at  the 
wholesale level may also encourage more competition at the retail level by allowing operators 
to charge a set-up fee lower than 30 cents. 

Efficiency 

Once a decision has been taken to intervene, any option would require some minor changes to 
the billing systems but these may be considered as minimal and therefore should not have any 
material impact on operators. 

Competition 

The  suggested  option  of  30+1  is  preferable  to  transparency  or  strict  per  second  billing  in 
terms of competition. It is envisaged that this would apply to the Eurotariff only and as such 
operators  would  be  free  to  provide  other  offers  with  different  structures.  The  move  to  per 
second billing at wholesale level could help to stimulate further competition.  

Coherence 

50 Based on ERG estimates of impact of per minute billing combined with Commission market data 

EN 52 

EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
While  modified  per  second  billing  is  not  mandated  as  part  of  the  Telecoms  Regulatory 
Framework, it is considered that the case of roaming is exceptional in that it does not exhibit 
the  competitive  tendencies  of  other  mobile  services. Set-up charges followed by per second 
billing are common practice for domestic mobile services.  

Consistency 

A move to a 30+1 billing regime for roaming would encourage consistency of approach as it 
is  possible  that  if  Member  States  were  to  act  to  address  this  problem  it  would  give  rise  to 
diverse approaches across the EU. This approach is also consistent with commercial practice 
for domestic charges and with charging at wholesale level domestically.  

The  following  table  summarises  the  impacts  of  the  various  options  for  voice  billing 
unitisation: 

       Criteria 

Effectiveness  Competition  Efficiency 

Consistency  Coherence 

Scenario 

- 

Do nothing 

Strict 
per 
second (1+1) 

+ 

Modified  per 
second 

++ 

- 

- 

+ 

- 

+ 

++ 

- 

- 

+ 

- 

- 

+ 

EN 53 

EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CHAPTER 8.  SMS POLICY OPTIONS 

1.  REGULATION OF SMS ROAMING SERVICES 

Before taking action, regulatory or otherwise, to resolve a particular problem the possibility of 
‘doing nothing’ should be considered.  

1.1.  No policy change  

The  option  of  'no  policy  change'  would  mean  not  intervening  on  SMS  roaming  prices,  i.e. 
allowing  market  forces  to  drive  prices  down.  As  noted  above,  there  is  strong  evidence  that 
SMS prices are unjustifiably high, at several times the cost of provision, and that they have 
been relatively stable for some time.  

The discrepancy between domestic SMS prices and SMS roaming prices remains unjustifiably 
high. Despite recent strong calls from the European Commission and national regulators for 
significant price reductions, there has been relatively little movement in the market. In fact, as 
previously  mentioned,  the  average  EU  SMS  retail  price  for  Q1  2008  is  around  28.551  cent 
which is (if at all and not only due to statistics) only a very slight decline on the figure of 29 
cent  published  by  ERG  for  Q2  2007.  Thus,  in  order  to  ensure  that  such  prices  decline  over 
time in a manner consistent with trends which should be expected from a competitive market 
with declining costs, this option will not be effective. 

It  seems  unlikely  that  there  will  be  any  major  market  or  technological  developments  which 
would suggest that SMS roaming prices are likely to fall in the medium term in the absence of 
regulation.  Thus,  competition  is  not  likely  to  be  reinforced  as  a  result  of  technological 
developments in the following years.  

The 'No policy change' option may also result in an inconsistency problem. In fact, according 
to  the  available  information  the  retail  price  of  an  SMS  sent  while  abroad  can  range  from  6 
cents in Estonia and 80 cents in Belgium.   

In terms of efficiency, this option could lead to contradictory results. On the one hand, NRAs 
or market players would not face the administrative burden resulting from the implementation 
of  a  new  regulation.  However,  the  European  Commission,  ERG  and  NRAs  would  most 
probably be required to continue the monitoring of market developments. The need for a new 
review of the roaming regulation in the near future could then be possible. 

Therefore it is considered that the 'do nothing' option is not viable in this case. 

1.2.  Tariff Transparency for roaming SMS 

It may be appropriate to adjust the provisions of Article 6 of the Regulation which provide for 
transparency  of  voice  roaming  prices  and  the  provision  of  price  information  to  roaming 
customers  to  also  include  price  information  on  roaming  SMS  messages.  As  in  the  case  of 

51 GSM Association have indicated that the average SMS roaming price in Q1 08 was 28 cent 

EN 54 

EN 

 
 
 
 
 
 
 
 
 
 
 
                                                 
voice, the transparency measures for SMS roaming services are an indispensable element of 
the  current  regulation.  Also,  given  the  fact  that  the  underlying  structural  problems  for  SMS 
roaming  are  similar  to  those  for  voice  roaming,  it  is  considered  that  transparency  measures 
alone will not be effective to address these problems.  

1.3.  Wholesale regulation only 

If a price ceiling for wholesale SMS roaming charges (IOTs) only were imposed, this would 
be an efficient option in order to enable mobile operators to reduce their retail SMS roaming 
charges  without  the  risk  that  their  retail  revenues  would  not  cover  the  wholesale  costs  of 
providing the SMS roaming service to their customers.  

However,  to  regulate  only  at  wholesale  level  would  assume  that  market  forces  would  be 
sufficient  to  guarantee  a  substantial  pass-through  of  wholesale  reductions  to  the  retail  level 
within a relatively short period. The same economic arguments as apply to the voice roaming 
area  would  suggest  that  such  an  assumption  would  be  ill-founded:  given  the  lack  of 
competitive pressures in the retail roaming markets, there is a significant risk that operators 
would not pass through the benefits of lower wholesale rates to their retail customers.   

Thus,  this  option  is  unlikely  to  be  effective  as  far  as  ensuring  that  customers  will  pay 
reasonable retail prices.  

1.4.  Retail regulation only 

The  imposition  of  price  ceilings  for  SMS  roaming  services  at  the  retail  level  would  be 
effective in so far as it would achieve reductions in prices for consumers. However, without 
wholesale  regulation,  there  is  a  risk  that  smaller  operators  could  suffer  margin  squeeze 
because they may face relatively high wholesale charges while their retail prices are capped. 
This ultimately would not allow them to provide competitive SMS roaming offers.   

Thus,  this  solution  could  also  prevent  efficient  smaller  operators  from  continuing  to  profit 
from  the  provision  of  voice,  SMS  or  data  roaming  services.  As  was  the  case  for  voice 
roaming,  the  significance  of  this  risk  would  suggest  that  retail  regulation  alone  would  not 
achieve the desired objectives of regulation. 

This option could result in inconsistency as significant wholesale price differences might be 
incurred, which could result on unintended market distortions. 

1.5.  Wholesale and retail regulation 

Assuming  that  regulation  at  wholesale  level  only  or  retail  level  only  are  not  sufficient  to 
achieve the objectives set, it is then necessary to consider regulation at both levels. From the 
problem  definition  section  it  is  clear  that  the  wholesale  charges  are  not  justified  by  the 
underlying costs to the host operator. Equally the retail margin is currently rather high without 
sufficient  justification.    Therefore,  it  is  considered  that  wholesale  and  retail  regulation  are 
both necessary to ensure the removal of excessive retail and wholesale SMS roaming prices.  

EN 55 

EN 

 
 
 
 
 
 
 
 
 
 
 
2.  SUMMARY EVALUATION AND ASSESSMENT OF IMPACTS 

Returning to the evaluation criteria set out in Chapter 5 the choice between regulatory options 
can be summarised as follows: 

Effectiveness 

As for voice, it is considered that a combination of transparency measures as well as retail and 
wholesale  regulation  would  ensure  an  effective  outcome.  Equally,  if  regulation  is  applied  at 
wholesale  level  only,  it  is  likely  that  the  consumer  will  not  see  the  benefits  in  the  form  of 
lower retail prices. Retail only regulation could cause margin squeeze for small operators.  

Competition 

Retail regulation only could be damaging to competition as there is a strong possibility it will 
lead to margin squeeze for smaller players. 

Wholesale  and  retail  regulation  would  promote  competition,  as  wholesale  price  regulation 
would be proposed at levels that would allow operators to obtain a reasonable return even in 
the  case  where  an  operator  would  set  SMS  retail  prices  below  the  caps.  Under  this  option, 
smaller  mobile  operators  would  be  protected  from  a  price  squeeze,  which  ultimately  would 
result in less competition in the market. 

Efficiency  

The  extension  of  wholesale  and  retail  regulation  to  SMS  would  not  cause  any  major 
administrative  burden.  For  example,  the  ERG  Benchmark  Data  Reports  on  international 
roaming already provides data for SMS.   

It is important to refer again that National Regulators believe that the ongoing administrative 
burden  arising  from  the  Regulation  is  relatively  light,  as  the  Regulation  is  largely  self-
enforcing, as a consequence of its design.  

Consistency 

As for consistency, wholesale regulation only could have a positive effect at wholesale level, 
but as previously mentioned this may not have a significant impact at the retail level. 

Wholesale and retail regulation would ensure consistency of approach across MS in relation 
to pricing at wholesale and retail levels for roaming services.  

Coherence 

As  a  result,  this  option  is  considered  the  most  coherent  with  the  general  principles  of  the 
Regulatory  Framework.  In  fact,  it  would  contribute  to  the  promotion  of  competition,  and 
effective consumer  protection and would have a decisive role as far as the harmonisation is 
concerned. 

EN 56 

EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The  extension  would  promote  further  development  of  the  single  market  for  electronic 
communications services for users of public mobile telephone networks for EU-wide roaming 
services when travelling within the Community.   

In  the  table  below,  the  options  are  measured  against  pre-defined  criteria.  Each  scenario  is 
rated between "---" (very negative impact), "=" (no change) and "+++" (very positive impact). 

      Criteria 

Effectiveness  Competition  Efficiency 

Consistency  Coherence 

-- 

+ 

+ 

+ 

-- 

+ 

+ 

- 

++ 

++ 

Scenario 

policy 

No 
change 

Tariff 
Transparency 
only 

Wholesale 
regulation 
only 

Retail 
regulation 
only 

retail 

Wholesale 
and 
regulation 
plus 
transparency 

= 

 + 

+ 

+ 

+ 

-- 

+ 

+ 

+ 

-- 

+ 

+ 

= 

+++ 

++ 

Assuming the current Regulation is to be extended to include regulation of SMS at retail and 
wholesale levels as well as transparency measures, the next issues to consider are the duration 
of  such  regulation  and  the  levels  of  the  price  ceilings  together  with  whether  these  should 
decline each year in accordance with a predetermined glide path.  

3.  DURATION 

As shown earlier, SMS exhibits many of the same structural problems as in the case of voice. 
Market  and  technological  developments  which  might  render  the  need  for  regulation 
unnecessary  are  unlikely  to  occur  in  the  short  to  medium  term.  There  is  a  strong  case  for 
aligning  the  period  of  regulation  with  that  of  voice.  This  would  ensure  certainty  for  both 

EN 57 

EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
consumers and market players while allowing sufficient time for real competition to develop 
over  that  period.  Therefore  the  Regulation  should  be  amended  to  include  SMS  roaming 
services with effect from 1 July 2009 for a period of four years to 30 June 2013.  

4.  OPTIONS FOR WHOLESALE AND RETAIL REGULATION 

When  a  roaming  customer  sends  an  SMS,  the  visited  network  bills  the  home  network  a 
wholesale fee for the SMS origination service. The home network bills the roaming customer 
a  retail  fee  for  the  complete  service  (which  includes  the  origination  leg  and  also  the 
termination of the SMS on the recipient's terminal).  

When setting the price ceilings for retail roaming SMS, it should be borne in mind that the 
termination rate at domestic level is generally not regulated. The termination payment faced 
by  the  retail  operator  is  on  average  4.36€c  per  SMS  according  to  the  latest  ERG 
benchmarking (as mentioned in the ERG submission to the Public Consultation).  

On  the  other  hand,  there  are  no  wholesale  or  retail  charges  for  receiving  an  SMS. 
Nevertheless, the cost for terminating the SMS at the visited network must also be taken into 
account when setting the price ceilings for roaming SMS.   According to some submissions to 
the Public Consultation, the costs incurred at the wholesale level are minimal since an SMS is 
treated by the visited network as pure signalling. 

The  following  section  examines  three  options  for  regulation  of  wholesale  and  retail  SMS 
roaming  charges.  The  first  is  proposed  by  the  Danish  national  regulatory  authority  (NITA) 
while the other options were proposed by ERG.  

4.1.  Option 1 – NITA cost model  

The Ministry of Science Technology and Innovation of Denmark submitted as an Annex to its 
answer to the Public Consultation, a recent study carried out by the National IT and Telecom 
Agency, the Danish Regulatory Authority52. The study presents a comprehensive and detailed 
analysis of the prices and costs for SMS and data roaming services with a view to assessing 
whether regulatory intervention is needed.  

According to NITA, the  costs to the visited network (wholesale cost) of an SMS being sent 
can be categorised as follows: 

–  origination; 
– 

international transit. 

Also,  according  to  NITA,  the  unit  cost  of  sending  an  international  roaming  SMS  is  slightly 
less than the costs of sending a national SMS, since the SMS centre (SMSC) will not be used 
in  originating  an  international  roaming  SMS.    In  relation  to  the  international  transit  it  is 
assumed that the costs for an SMS are very close to zero. NITA also suggests that operators 
should  be  compensated  for  the  lack  of  wholesale  cost  coverage  for  receiving  SMS.  This 

52  http://en.itst.dk/interconnection-and-consumer-protection/filarkiv-international-

roaming/English%20abstract.pdf 

EN 58 

EN 

 
 
 
 
 
 
 
 
 
 
 
 
                                                 
compensation  would  be  equal  to  0.40€c.  Therefore  the  overall  wholesale  cost  would  result 
from the following formula:  

Origination costs + international transit + Receiving SMS = 0.4 cents + 0 + 0.4 cents = 0.8 
cents 

At the retail level, according to NITA, the costs to the home operator related to a SMS sent 
from abroad can be divided into the following categories: 

–  handling/receiving SMS; 
termination of SMS; 
– 
–  retail costs. 

In  its  submission  NITA  states  that  the  network  elements  used  are  the  Mobile  Service 
Switching Centre (MSC) and SMSC which together amount to 0.13€c /SMS. 

As for the termination of SMS, a distinction is made between the following three scenarios: 

•  SMS terminating on the sender's home network 
•  SMS terminating on another network in the home country 
•  SMS terminating on another network where the recipient is roaming 

The  first  scenario  covers  the  situation  in  which  the  recipient  is  an  end-user  on  the  sender's 
home network. This results in an internal network cost of 0.40€c / SMS. The second scenario 
relates to the situation in which the recipient network is another national network in the home 
country. In this situation there is a termination payment from the sender's home network to the 
recipient's  network  of  2.68€c  /  SMS  in  Denmark.  However,  as  previously  mentioned  the 
average termination rate in EU27 is around €4.36c. The third scenario considers the situation 
in which the recipient is roaming on a network other than the sender's home network. In this 
scenario, there are no termination charges to be paid. 

NITA  assumed  that  20  per  cent  of  the  traffic  is  destined  for  end-users  abroad  i.e.  roaming, 
while  80  per  cent  of  the  traffic  is  destined  for  end-users  in  the  home  country.  It  is  also 
assumed that the home provider has a 25% market share, which will result in around 25% of 
the traffic to the home country terminating on the operator's own network, with 75 per cent of 
the traffic to the home country terminating on competing networks. On that basis, a weighted 
average  price  for  termination  costs  can  be  calculated  at  1.74€c  per  SMS  based  on  the 
following formula: 

0.2x 0 + 0.8x(0.25x 0.40€c + 0.75x 2.68)= 1.74€c / SMS 

NITA estimates that the average absolute retail mark-up for a national SMS is 0.81€c /  SMS. 
When the roaming customer receives an SMS while roaming, no termination charge is levied 
by  the  host  network  on  the  home  (originating)  network.    Therefore,  on  the  basis  of  the 
analysis  above,  the  overall  costs  to  the  home  network,  excluding  the  visited  network 
wholesale charge (IOT), are as follows: 

EN 59 

EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Incurred costs  

€c / SMS 

Handling / receiving 
(SMSC) 

Termination costs in 
2009  

Retail markup 

Receiving SMS 

Total 

0.13 

1.74 

0.81 

0 

2.68 

Therefore  the  total  estimated  cost  to  the  home  network  (and  consequently  the  retail  price 
ceiling  implied  by  the  NITA  analysis)  is  3.48€c  excluding  VAT  (0.8€  (wholesale  level)  + 
2.68€c (retail level)). 

4.2.  Option 2 - Retail price ceiling at 15 cents 

According to ERG, the costs faced by retail operators (in both this option and option 3 below) 
consist of: 

–  Wholesale charge (IOT) – which includes inter alia origination and international transit; 

Plus home operator costs which include: 

–  Termination payment (payable by the home operator); 

–  Retail cost; 

–  Reasonable return. 

As for regulation of wholesale charges, this method proposes that the wholesale price cap is 
set on the basis of national SMS termination rates. ERG uses the 75th percentile of European 
domestic  non-regulated  SMS  termination  rates  as  a  starting  point  for  its  calculations. 
According to the latest ERG Benchmark Report on SMS termination rates, the average charge 
is  4.40€c,  and  the  75th  percentile  is  4.99€c.    ERG  state  that  the  average  rate  would  be 
expected to decline as charges are brought more into line with costs (NRAs estimate that this 
average  would  not  exceed  4€c  at  1  January  2010).    On  this  basis,  they  estimate  that  the 
average cost for terminating an SMS is 4€c.  

The  cost  of  originating  an  SMS  also  needs  to  be  covered,  together  with  the  other  roaming-
specific costs (e.g international transit). ERG believes that the roaming specific costs do not 
exceed 0.5€c per SMS. As for origination costs, the average cost of originating an SMS could 
also  be  estimated  at  4€c.  On  this  basis,  ERG  indicates  that  the  total  wholesale  costs  of 
provision of a roaming SMS (including reasonable return) could be assessed at 8€c (4€c for 
origination and 4€c for the unrecovered cost of terminating incoming SMS) per SMS53.   

This assumes that no wholesale charge is levied for termination of a roaming SMS and that the 

53 
wholesale charge for originating a roaming SMS additionally covers the cost of terminating incoming 
SMS.  

EN 60 

EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
As  mentioned  above,  in  setting  the  retail  cap,  it  is  necessary  to  consider  the  termination 
payment on the home network, the retail cost and a reasonable return. 

For the termination payment (as also in the NITA methodology – option 1) it is assumed an 
average operator's market share of 25%. Thus, 25% of the SMS traffic will terminate on its 
own  network.  In  this  case,  the  operator  faces  an  internal  network  cost  of  around  0.5€c  per 
SMS.    On  this  basis  the  average  termination  payment  can  be  calculated  at  3,4€c 
(4,4€c*75%+0,5€c*25%).  As  far  as  the  retail  cost  is  concerned,  ERG  consider  that  the 
available  data  indicates  that  the  mark-up  could  be  lower  than  1€c/SMS  and  as  high  as  3€c. 
This estimation is also confirmed by other submissions to the Public Consultation, and also in 
one of the meetings that the European Commission had with operators in the context of the 
review of the Roaming Regulation.  

Overall,  ERG  indicate  that  it  is  not  necessary  to  allow  more  than  7€c  (which  includes  the 
termination payment, retail costs and a reasonable return) at the retail level for the recovery of 
costs plus a reasonable return.  

This produces the following price ceilings over the period of regulation: 

2009 

2010 

2011 

2012 

Sending - 
Retail 
Sending - 
Wholesale 
Receiving – 
both retail 
and wholesale 

15 

8 

0 

15 

8

0

15  

8 

0 

15 

8

0

ERG  did  not  suggest  a  glide  path  for  the  future  trend  of  these  price  ceilings.  In  fact,  as  the 
wholesale cap takes into consideration termination rates which are not regulated, it could be 
difficult to estimate an evolution for these termination rates. 

ERG  has  indicated  that  this  model  has  some  drawbacks.  Firstly,  SMS  termination  rates  are 
unregulated and set at a high level compared to real cost. Secondly, there is at the moment no 
complete  SMS  termination  benchmark  which  can  be  used  for  this  purpose,  as  the  ERG 
benchmark exercise does not include all countries. This Report on SMS termination rates does 
however contain data from most Member States.  

4.3.  Option 3 - Retail price ceiling at 11 cents 

The  second  method  proposed  by  ERG  for  regulating  wholesale  and  retail  SMS  roaming 
charges uses NITA's SMS price and cost analysis (option 1) as a basis but is more generous 
that the pure NITA approach in terms of the ceilings proposed.  

Under  this  option,  wholesale  costs  (including  origination,  international  transit,  interconnect 
costs  and  billing  costs  plus  a  reasonable  return)  would  not  exceed  2€c  per  SMS  for  any 

EN 61 

EN 

 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
European operator. As in option 2, ERG also added an allowance for the unrecovered cost of 
termination. Using this method, it is concluded that the total wholesale cost should not exceed 
4€c per SMS. It should be noted that the equivalent figure under the pure NITA approach is 
0.8€c.  

At retail level, the price cap is calculated on the basis that termination is payable by the retail 
operator  at  an  average  rate  of  4.4€c  (i.e.  using  a  similar  method  to  option  2).  ERG  indicate 
that  it  is  not  necessary  to  allow  more  than  7€c  to  cover  the  home  operator's  costs  plus  a 
reasonable return (includes a termination charge of 3.4€c54  plus retail costs and a reasonable 
return).  

This formula would lead to the following SMS price ceilings:  

Sending - 
Retail 
Sending - 
Wholesale 
Receiving – 
both retail 
and wholesale 

2009 

2010 

2011 

2012 

11 

4 

0 

11

4

0

11

4

0

11

4

0

The advantage of this approach is that it gives a realistic estimate of the actual costs faced by 
operators at wholesale and retail levels for example by reflecting the real average termination 
rate in the EU27 (4,4€c) instead of the average termination of 2,68€c in Denmark only (used 
in  option  1).  ERG  did  not  prescribe  any  glide  path.  Unlike  the  case  of  voice,  where 
termination  rates  are  regulated,  it  is  difficult  to  predict  a  significant  downward  trend  for 
underlying SMS roaming costs. It is therefore reasonable not to include a glide path for SMS 
price ceilings.  

5.  SMS IMPACT ANALYSIS 

It  is  important  to  bear  in  mind  issues  that  differentiate  the  voice  and  SMS  roaming  market.  
SMS  termination  rates  are  only  regulated  in  France,  while  for  voice,  termination  rates  are 
regulated in all Member States. Therefore, when evaluating options for voice regulation, the 
use  of  the  average  regulated  termination  rate  as  a  benchmark  for  wholesale  prices  provided 
transparency,  simplicity  and  certainty.  However,  as  this  is  not  the  case  for  SMS,  the  use  of 
unregulated termination rates when setting IOT charges would not provide the same benefits. 
Furthermore,  at  the  moment  there  is  no  complete  SMS  termination  benchmark  that  can  be 
used for this purpose. The ERG Benchmark Report on SMS termination rates does however 
contain data from most Member States.  

Option  3  is  considered  an  effective  method  given  that  it  reflects  a  meaningful  relationship 
between  the  wholesale  SMS  cap  and  the  underlying  costs  of  providing  these  services. 
However, as stated above, it should be noted that the retail price ceiling has to cover the real 

54 
the average termination payment can be calculated to 3,4€c (4,4€c*75% + 0,5€c*25%).  

 Assuming that a mobile operator will terminate in average 25% of the SMS traffic on-net. On this basis 

EN 62 

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average cost of termination as this is in fact a cost incurred by the home operator whenever a 
roaming customer sends an SMS.  

On the other hand, it should be borne in mind that option 1 is based on the relatively low SMS 
termination  rate  in  Denmark,  and  therefore  it  is  considered  that  it  would  produce  price 
ceilings  which  are  too  aggressive  for  practical  application  in  almost  all  Member  States. 
Furthermore, termination rates for SMS (which are to be borne by the home operator) are not 
regulated and presently stand at 4.4 cent on average with considerably higher rates applying in 
some countries.  

The main objective of regulation is to eliminate excessive prices while retaining flexibility for 
operators  to  compete  below  the  levels  of  the  caps.  Option  1  above  would  result  in  SMS 
roaming caps that would be significantly below equivalent average domestic price levels in all 
Member  States.  For  this  reason,  option  2  and  3  allow  more  space  for  competition  as  the 
difference  between  the  retail  price  ceiling  and  the  wholesale  cap  is  higher  in  both  of  these 
options. 

At wholesale level, option 3 is preferred over option 2 because it provides a better reflection 
of the wholesale costs actually incurred while at the same time proving greater flexibility than 
the approach advocated under option 1. At retail level, option 3 is clearly preferable from a 
consumer  perspective.  Like  option  2,  it  still  allows  a  generous  margin  above  the  wholesale 
cost and, unlike option 1, it reflects the real costs of termination payable by home operators.  

In  terms  of  coherence  with  the  EU  telecoms  regulatory  framework  and  consistency  of 
approach  options  2  and  3  would  score  equally.  However,  as  noted  above  it  is  considered 
option 3 would be more effective and more efficient in terms of consumer benefits but would 
be equal in terms of administrative burden.  

5.1.  Social welfare 

The Commission has modelled the options proposed by ERG (see Annex II for details).  

For option 2 (15 cents), the Commission’s economic model suggests that as a direct result of 
regulation  consumer  welfare  could  be  increased  by  approximately  €0.707  billion  to  €0.995 
billion  for  every  year  of  the  regulation.  The  precise  change  would  depend  on  the  elasticity 
scenario regarded as the most realistic one. In this option, total economic welfare gains could 
be estimated to range from €0.639 to €1.301 billion, depending on the elasticity scenario. 

In  the  case  of  option  3  (11  cents),  the  economic  model  suggests  even  a  higher  level  of 
consumer welfare increase. In fact, in this case in every year of regulation the model yields a 
consumer  welfare  between  €0.884  billion  and  €1.243  billion,  according  to  the  elasticity 
scenario. As for the social welfare, this option would result in an estimated gain ranging from 
€0.716 billion and €1.514 billion. 

EN 63 

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6.  COMPARISON OF OPTIONS 

In  the  table  below,  the  options  are  measured  against  the  pre-defined  criteria  described  in 
Chapter 5. Each scenario is rated between "---" (very negative impact), "=" (no change) and 
"+++" (very positive impact). 

       Criteria 

Effectiveness  Competition  Efficiency 

Consistency  Coherence 

Scenario 

+ 

+ 

Option  1  – 
NITA 

Option  2  –  
(price  ceiling 
of 15) 

++ 

Option  3  –  
(price  ceiling 
of 11) 

.  

- 

+ 

+ 

+ 

+ 

++ 

+ 

+ 

+ 

= 

= 

= 

EN 64 

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CHAPTER 9.  DATA ROAMING POLICY OPTIONS 

1.  REGULATION OF DATA ROAMING SERVICES 

In contrast to SMS roaming, prices for data roaming have shown significant movement over 
the last year. There is evidence to suggest that such movement is not just the result of political 
pressure but that there is also a genuine recognition on the part of operators that prices need to 
be reduced as a response to consumer concerns over ‘bill shock' and to exploit the untapped 
potential  for  growth  in  the  market.  While  prices  at  wholesale  and  retail  levels  remain  high, 
there is a downward trend and, given that this is a developing market, the movement in prices 
that has occurred suggests that regulatory intervention to control prices needs to be considered 
very cautiously.  

Before taking action, regulatory or otherwise, to resolve a particular problem the possibility of 
‘doing nothing’ should be considered.  

1.1.  No policy change  

In  this  case  the  option  of  ‘no  policy  change’  would  mean  no  regulatory  intervention  i.e. 
allowing  market  forces  to  work.  As  noted  above,  the  retail  prices  for  data  roaming  services 
have declined from €5.81 per MB in Q2 2007 to €3.50 per MB in Q1 2008.  

This price trend may therefore suggest that the market should be allowed to develop without 
regulatory  intervention  particularly  as  growth  of  these  services  in  terms  of  volumes  and 
revenues  is  also  very  much  in  evidence.  Competition  from  WiFi  services  may  put  further 
pressure  on  prices  for  mobile  data  usage  while  roaming.  Moreover,  as  more  users  take-up 
such services at home, in many cases by subscribing to monthly flat rate fees, the pressure on 
data roaming  prices could continue to grow.  

On the other hand, the continuing discrepancy between domestic data prices and roaming data 
prices  remains  high  with  a  diverse  pattern  across  Member  States,  leading  to  the  ongoing 
possibility of ‘bill shock’ for consumers. As noted in Chapter 2, prices have increased in some 
Member States. While average wholesale prices may be falling, operators have reported that 
extremely high charges still exist leading to problems developing competitive retail offerings. 
Lack of transparency remains a key problem and it is far from certain that recent efforts by 
some operators to enhance transparency for this service will ensure that the problem of ‘bill 
shock’  is  eliminated  in  all  Member  States  particularly  while  retail  and  wholesale  prices 
remain at current exorbitant levels. Therefore, while regulatory intervention should be treated 
cautiously, it is  considered that measures  of  some form will still be necessary to tackle this 
problem. 

1.2.  Transparency regulation only 

Lack  of  transparency  is  a  key  element  of  the  problem  and  for  data  roaming  services  and 
consequently  measures  to  improve  transparency  must  be  part  of  the  solution.  There  are 
various  approaches  that  could  be  considered for  improving  transparency  starting  from  basic 
information  provision  requirements  to  more  prescriptive  measures.  The  main  aim  of  such 
EN 65 

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measures  should  be  to  improve  price  transparency  for  data  roaming  consumers  by  giving 
consumers  the  tools  to  control  their  expenditure  for  these  services  and  also  to  inform  them 
about the charges that apply when ‘roaming’ in the internal market. Targeted regulation in the 
form  of  improved  transparency  is  therefore  desirable.  The  options  for  achieving  this  are 
considered further below.  

As  noted  in  the  problem  definition  section,  'bill  shock'  for  data  roaming  services  is  a 
significant problem particularly for high volume users. It is also becoming evident that high 
volume  users  are  not  necessarily  business  customers  but  also  residential  customers  who  are 
increasingly accustomed to using mobile broadband services at home. While many operators 
have  recognised  this  problem,  concrete  transparency  measures  are  necessary  to  address  this 
problem. The question is whether such measures on their own would be sufficient to address 
the  key  underlying  problems  in  this  market  or  whether  these  measures  need  to  be 
supplemented with either wholesale or retail regulation.  

Transparency  measures  will  help  to  address  the  problem  of  'bill  shock'  by  increasing 
consumer  awareness  of  the  retail  charges  and  by  giving  consumers  the  tools  to  control 
expenditure.  However,  while  helping  to  increase  consumer  awareness,  such  measures  are 
unlikely to address the extreme levels of the prices at either the retail or wholesale levels. The 
merits  of  wholesale  and/or  regulation  are  considered  below.  Options  for  transparency 
regulatory measures are considered in more detail later in section 4 of this Chapter.  

1.3.  Wholesale regulation 

High  wholesale  charges  (particularly  on  non-preferred  networks),  combined  with  traffic 
steering  difficulties  for  data  roaming,  are  causing  a  lack  of  predictability  for  operators  in 
relation  to  their  wholesale  costs,  which  translate  into  difficulties  with  providing  transparent 
retail  offers  and  clear  information  to  consumers.  If  operators  can  have  greater  certainty  and 
control over wholesale costs this is likely to enhance transparency at retail level particularly, 
for  example,  by  allowing  for  more  flat-rate  offers  or  for  lower  per  MB  charges.  Such 
extremely  high  rates  arise  when  traffic  cannot  be  steered  onto  preferred  networks  which 
would  normally  offer  reasonable  rates.  Some  operators  have  indicated  that  these  high 
wholesale prices limit their capacity to offer lower retail tariffs and note  that,  even in cases 
where  just  one  operator  in  a  given  Member  State  retains  a  high  wholesale  rate,  this  has  a 
negative impact on end-user prices.  

The  problem  is  caused  by  the  relative  ineffectiveness  of  traffic  steering  which  results  in 
operators  having  to  pay  exorbitant  rates  for  the  remaining  traffic.  In  the  first  place,  not  all 
networks  are  homogenous  and  the  different  speed  of  roll-out  of  3G  networks  and  HSPA  in 
particular  means  that  there  are  quality  issues  that  are  not  prevalent  for  voice  or  SMS. 
Moreover,  these  technological  constraints  mean  that  it  is  more  likely  that  traffic  is  diverted 
onto  non-preferred  networks  than  for  voice,  thus  incurring  higher  wholesale  charges  than 
would otherwise apply. Voice still remains the most important element in the negotiations for 
wholesale  roaming  and  hence  an  operator  is  likely  to  steer  all  traffic  to  his  preferred  voice 
partner, irrespective of the wholesale price for data services.  

A  wholesale  cap  would  eliminate  these  excessive  charges.    It  is  therefore  considered  that 
some  form  of  wholesale  regulation  (in  combination  with  transparency  measures  as  per  the 
previous section) is necessary. 

EN 66 

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1.4.  Retail regulation only 

The imposition of price ceilings for data roaming services at the retail level would be effective 
in  ensuring  reductions  in  prices  for  consumers.  However,  as  explained  in  the  problem 
definition section, the imposition of such a cap at retail level would require a corresponding 
reduction at wholesale level if all operators are to be in a position to offer the service without 
a suffering a loss. 

Therefore,  this  solution  could  prevent  even  efficient  smaller  operators  from  being  able  to 
provide these services and this alone suggests that retail regulation only would not achieve the 
desired objectives.  

1.5.  Wholesale and retail regulation 

Wholesale and retail regulation may be necessary if there is lack of competition at both levels. 
However, action to reduce the level of the wholesale charges is likely to have a positive effect 
on  retail  prices.    Current  levels  of  wholesale  prices  (as  described  above)  constrain  market 
players  (particularly  smaller  players)  from  competing  at  retail  level  e.g.  particularly  their 
ability to offer flat-rate packages at retail level.  

Unlike voice and SMS roaming, data roaming face potential competition from other forms of 
access,  such  as  wireless  access  (WiFi)  and  broadband  access  from  fixed  locations  (e.g.  in 
hotels).  Indeed,  it  appears  that  this  kind  of  access  is  generally  developing  and  spreading. 
Another  option  is  for  the  roaming  customer  to  use  a  local  domestic  mobile  broadband  SIM 
card which is a more attractive option than for voice or SMS because there is no numbering 
constraint  associated  with  the  usage  of  data  services  i.e.  the  customer  is  not  worried  about 
losing  their  number.  The  fact  that  data  services  are  not  linked  to  a  mobile  number  also 
increases  the  possibility  that  customers  will  shop  around  for  more  attractive  data  roaming 
packages without severing service with their current domestic provider.  

This  option  therefore  should  not  be  considered  at  this  stage  of  the  development  of  the  data 
roaming market. 

2.  SUMMARY CONCLUSION ON REGULATORY APPROACH 

Returning to the evaluation criteria set out in Chapter 5 the choice between regulatory options 
can be summarised as follows: 

Effectiveness 

A combination of transparency measures as well as some form of wholesale regulation is the 
optimal way to ensure an effective outcome. Retail regulation, either alone, or together with 
wholesale regulation for data services is extremely difficult in view of the fact that there is a 
very  wide  range  of  services  which  would  need  to  be  addressed.  Moreover,  different 
consumers  have  different  needs  suggesting  that  a  one-size  fits  all  approach  would  be 
extremely  restrictive  and  highly  ineffective,  at  least  at  this  stage  of  development  of  the 
market. Moreover, retail regulation alone could lead to margin squeeze for smaller operators. 

EN 67 

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This  leads  to  the  conclusion  that  regulation  should  be  imposed  at  wholesale  levels  to 
encourage  competition  in  the  market  while  also  ensuring  that  transparency  measures  are  in 
place to protect consumers. 

Competition 

Data  roaming  services  are  negotiated  between  operators  together  with  voice  and  SMS.  For 
many years, there was little emphasis on prices for data roaming in these negotiations at the 
wholesale level since the main emphasis was on voice. By tackling the high prices which exist 
on non-preferred networks, intervention at the wholesale level will help stimulate competition 
at the retail level. 

Efficiency 

A  combination  of  transparency  measures  as  well  as  some  form  of  wholesale  regulation  for 
data  services  would  not  cause  any  major  administrative  burden.  For  example,  the  ERG 
Benchmark Data Reports on international roaming already covers data services.   

It  is  important  to  reiterate  that  national  regulators  believe  that  the  ongoing  administrative 
burden  arising  from  the  Regulation  is  relatively  light,  as  the  Regulation  is  largely  self-
enforcing, as a consequence of its design.  

The  Commission  is  aware  that  operators  will  incur  costs  resulting  from  the  introduction  of 
tariff transparency measures. However, as recognised by all respondents including operators 
in  their  submissions  to  the  public  consultations,  the  implementation  of  such  transparency 
measures is needed.    

Consistency 

One of the key benefits of the current Regulation is consistency of approach at wholesale and 
retail levels and in terms of uniform basic transparency requirements. Regulatory intervention 
was required because no NRA on its own could tackle the problem since it could not control 
the wholesale charges imposed on its own operators by operators from another Member State. 
Equally,  if  an  NRA  had  been  able  to  intervene  to  control  wholesale  charges  within  its  own 
Member State, this could only have benefited consumers in another Member State and then 
only if pass-through had occurred. These issues are equally valid for data roaming. In the case 
of data roaming, a consistent approach to transparency would do much to eliminate bill shock 
for consumers. 

Coherence 

A  combination  of  transparency  measures  coupled  with  a  form  of  wholesale  regulation  will 
preserve flexibility for competition while at the same time protecting consumers and, as noted 
above, providing a consistent approach. These are all key principles of the general regulatory 
framework.  This  extension  gives  a  similar  role,  for  example,  in  terms  of  monitoring  and 
dispute resolution, to NRAs as exists in the general framework.  

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3.  COMPARISON OF OPTIONS 

In  the  table  below,  the  options  are  measured  against  pre-defined  criteria.  Each  scenario  is 
rated between "---" (very negative impact), "=" (no change) and "+++" (very positive impact). 

       Criteria 

Effectiveness  Competition  Efficiency 

Consistency  Coherence 

Scenario 

- 

policy 

No 
change 

Transparency 
only 

+ 

++ 

Wholesale 
regulation 
plus 
transparency 

+ 

+ 

Retail 
regulation 
only 

Wholesale 
and 
regulation 

retail 

- 

+ 

+ 

-- 

= 

= 

+ 

+ 

= 

= 

- 

+ 

- 

+ 

++ 

++ 

+ 

++ 

- 

= 

4.  DETAILED OPTIONS FOR TRANSPARENCY REGULATION 

The options for transparency regulation are as follows: 

4.1.  Provision of basic pricing information 

The  first  time  that  a  roaming  customer  initiates  a  data  roaming  service,  his  home  provider 
should  provide  him  automatically  with  personalised  tariff  information  on  the  charges 
applicable  to  that  roaming  customer.  The  customer  should  have  the  right  to  opt  out  of 
receiving  such  information.  This  service  should  be  provided  free  of  charge  to  consumers. 
While for those with a mobile device such an obligation could take the form of an SMS, for 
laptop users initiating a data roaming session, this could either take the form of an SMS, email 
or a welcome page which informs the customer of the costs that apply.  

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4.2.  Cut-off and warning limits  

Mobile operators should offer all their roaming customers, free of charge, an opportunity to 
specify in advance a maximum financial limit for their outstanding charges for data roaming 
services (the "Cut-Off Limit").  

Mobile  operators  should  also  ensure  that  an  appropriate  warning  message  is  sent  to  the 
roaming customer's mobile telephone or other device when one or more intermediate charge 
limits,  agreed  between  the  customer  and  the  home  provider  in  advance,  are  reached.  This 
warning message could inform the roaming customer of the approach of the "Cut-Off Limit" 
and  of  the  procedure  to  be  followed  by  the  customer  if  he  or  she  wishes  to  request  the 
continued or renewed provision of those services.  

Such  an  approach  would  enable  consumers  to  determine  in  advance,  how  much  they  are 
willing to spend, before the mobile operator cut-offs the service temporarily unless they opt-in 
again. This approach would also directly tackle the problem of ‘bill shock’ since a customer 
would have to decide in advance of his spending limit and then is again informed when this 
limit is reached. 

4.3.  Real time expenditure information 

Some  operators  are  already  developing  real-time  expenditure  information  systems  or  near 
real-time  systems  particularly  for  laptop  users.  Other  operators  are  also  in  the  process  of 
developing  such  systems  which  enable  customers  to  determine  the  exact  amount  of  volume 
and  price  that  is  being  charged  for  their  data  roaming  sessions.  Such  a  measure  may  take 
longer  to  implement,  particularly  for  smaller  operators  who  do  not  have  the  economies  of 
scale required to develop such systems. It still has to be seen whether such an approach would 
be feasible for handsets since software developments may be required on existing devices. 

4.4.  Flat rate offer  

A further safety measure could be that of imposing an obligation on operators to offer a flat-
rate  tariff  in  view  of  the  fact  that  many  customers  are  becoming  used  to  flat-rate  tariffs  for 
domestic  use  of  data  services.  mobile  operators  should  make  available  to  their  roaming 
customers  a  flat-rate  tariff  for  the  provision  of  data  roaming  services  up  to  a  specified  ‘fair 
use’ volume limit. Such an offer should be provided on an ‘opt-in’ basis since such offers may 
not be attractive to some consumers. 

While all of the options above have merit, it would be disproportionate to require all operators 
to  introduce  all  of  these  measures  by  means  of  regulatory  intervention.  It is considered that 
the provision of basic price information is essential for consumers and should be considered 
further  as  a  possible  regulatory  measure.  Equally,  allowing  the  consumer  to  choose  cut-off 
limits would provide a very effective tool for dealing with the problem of 'bill shock'. While 
flat rate offers are an important market development which lead to improved transparency, it 
is unnecessary to require operators to provide such an offer by means of regulation. Real time 
expenditure information is clearly beneficial but, in light of the potential costs of developing 
such systems, particularly for smaller operators, this option should be discarded in terms of a 
possible regulatory measure.  

EN 70 

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5.  DETAILED OPTIONS FOR WHOLESALE REGULATION 

5.1.  Option 1 – Aggressive Wholesale cap linked to best market offers 

To  date,  there  has  been  little  work  done  by  NRAs  on  costing  approaches  for  data  services. 
However, the Danish NRA, NITA, has noted that unit costs for downloading or sending 1MB 
of  data  on  a  visited  network  are  approximately  the  same  as  those  at  national  level.  The 
average of Danish company’s costs of downloading or sending 1 MB of data is 61 cents for 
GPRS  and  37  cents  for  UMTS  technology.  The  weighted  average  cost  is  39  cents  per  MB 
while international transit is €0.0671. Therefore, according to the NITA figures, the total cost 
per MB for the visited network is estimated at 45 cents. However, many operators are already 
offering wholesale services at even lower levels.  

At present according to information received from operators, there are offers in the market of 
25  cents  and  50  cents  on  a  reciprocal  basis.  According  to  the  ERG  the  average  wholesale 
charge per MB for 'group' companies is around 50 cents per MB. This raises the possibility of 
establishing a benchmark cap at a much lower rate (for example, 25 cents per MB is already 
being offered on a reciprocal basis). 

A wholesale cap, set at say 25 cents, could act as a strong catalyst for further competition at 
the  retail  level  in  the  short-term.  However  it  might  also  be  too  close  to  costs  and  therefore 
hinder operators' flexibility to compete at the wholesale level.  

5.2.  Option 2 –Wholesale cap set at safeguard level 

An alternative approach to wholesale regulation could be to set a wholesale cap which would 
eliminate extreme prices which in many cases can exceed €10 per MB. Such a cap should be 
set well above the more recent market offers (e.g. 50 cents and 25 cents) and also above the 
average group rate per  MB which is  currently at around 50 cent per MB. The latest figures 
from  ERG  indicate  that  the  average  EU  price  per  MB  for  non-group  operators  has  dropped 
from  €2.56  in  Q4  2007  to  €2.00  for  Q1  2008.  The  relatively  high  non-group  average  is  a 
direct result of the traffic steering problem noted above.  

While it is likely that this price per MB will fall by the time the regulation enters into force, 
many operators will continue to face the problem of relatively high charges on non-preferred 
networks.  An  average  ceiling  of  €1  per  MB  is  not  a  direct  intervention  on  charges  and  is 
sufficiently  above  some  current  market  offers  (the  effects  of  which  will  not  yet  have  been 
seen in the ERG data) to avoid disruption of competitive forces and therefore minimises the 
risks  that  prices  should  cluster  around  the  cap.  It  is  also  low  enough  to  have  a  meaningful 
impact on the 'bill shock' problem at retail level. It is anticipated that at current rates of growth 
the impact of such offers will drive down the average per MB charge to well below the €1 per 
MB mark.  Equally it would eliminate the extreme wholesale charges which currently hinder 
the development of competition at retail level. 

5.3.  Option 3 – A new wholesale model 

A  more  radical  change  to  the  wholesale  model  could  also  be  considered.  For  example,  the 
charging  system  could  be  changed  from  the  current  per  MB  structure  to  a  time-based 

EN 71 

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approach.  While  this  may  lead  to  greater  transparency,  further  study  would  be  required  to 
assess whether such an approach is feasible. For example, it is uncertain how such a charging 
practice would affect some devices which are permanently online but which do not consume 
high volumes.  

Another  approach  could  be  to  move  to  a  pure  wholesale  model  based  on  a  yearly  volume 
commitment  by  the  home  network  which  would  enable  retail  flexibility  while  allowing  the 
visited  network  to  receive  guaranteed  revenue  to  cover  its  investments  in  capacity  and 
coverage.  

While  these  approaches  have  merit,  it  would  be  overly  prescriptive  to  specify  detailed 
charging structures given the developing nature of roaming data services' charging models.  

The  ERG  has  suggested  that  a  possible  alternative  approach  which  could  induce  more 
competition in data roaming services might be for the roaming user to use a domestic mobile 
data service in the visited country. Because of potential technical difficulties, it is considered 
that  this  is  not  an  option  in  the  short  or  even  medium  term  but  is  worthy  of  further 
consideration as a possible long term development.  

6.  ANALYSIS OF THE IMPACTS 

Having  looked  at  the  options  for  data  roaming  services  and  concluded  above  that  retail 
regulation  is  not  necessary  at  this  stage,  the  following  section  examines  the  impacts  of  the 
remaining options for transparency and wholesale regulation.  

6.1.  Transparency 

As noted in section 4 above it is considered that two measures could be imposed, namely, the 
provision of basic price information and the requirement to offer consumers the possibility of 
choosing a cut-off limit.  

6.1.1 

Industry impact 

The obligation to provide basic price information  to customers and the obligation to enable 
them  to  specify  cut-off  limits  with  warning  mechanisms  should  be  sufficient  to  inform 
customers of the differences that apply when roaming and also ensure that the problem of ‘bill 
shock’ is addressed. Given that the relatively more onerous obligations of including a flat rate 
offer  and  real  time  updating  have  been  discarded,  it  is  considered  that  the  impact  on  the 
industry  of  the  remaining  two  options  is  very  limited,  particularly  in  the  context  of  the 
consumer  benefits.  The  provision  of  basic  price  information  when  roaming  is  a  basic  pre-
requisite for the consumer to be informed. For the cut-off limits, a one year time lag would be 
allowed to enable market players to develop the necessary systems.  

6.1.2  Consumer impact 

Consumers  should  be  able  to  opt-out  of  transparency  systems  and  opt-in  again  within 
reasonable timeframes. The transparency measures proposed will consumers that are informed 
about prices and that have a choice to decide on how much they would like to spend before 

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having the service cut-off, are more likely to use services particularly if they are not likely to 
be aware of the price and hence refrain from using such services. 

6.1.3 

Administrative burdens 

The  first  chosen  transparency  measure  to  provide  basic  pricing  information  can  be 
implemented  in  a  relatively  short-time  frame.  The  second  chosen  transparency  measure,  to 
provide for a cut-off may require more administrative work for operators but in the medium-
term  should  enable  them  to  save  time  dealing  with  complaints  from  customers  that  have 
accumulated  ‘bill  shock’.  Moreover,  such  measures,  particularly  for  laptop  users,  could  be 
applied  at  the  point  when  a  first  data  roaming  session  is  started  and  therefore  would  not 
require prior contacting of the customer for example. The implementation of this measure is 
not  likely  to  involve  significant  additional  costs  given  the  stated  intention  of  many  market 
players to implement measures to address the problem of 'bill shock'. 

6.2.  Wholesale regulation 

Having  discarded  option  3  (new  wholesale  model)  in  the  previous  section,  it  is  therefore 
necessary  to  look  at  what  impacts  the  remaining  two  approaches  would  have  both  on 
consumers and on operators.  

Data  services,  in  particular  data  roaming  services,  are  still  in  the  early  stages  of  market 
development.  Given  that  this  market  is  characterised  mainly  by  early  adopters,  it  would  be 
very difficult to assess elasticity of demand particularly since it is not clear at this stage what 
impact  a  decrease  in  price  would  have  on  uptake  in  the  market.  While  voice  and  SMS  are 
relatively  mature  markets,  the  same  cannot  be  said  for  data  roaming  services.  Not  every 
mobile user has a handset that is capable of making use of data services. For these reasons, the 
Commission  services  believe  that  the  inclusion  of  roaming  data  services  in  the  economic 
model in the Annex to this document would produce uncertain results.  

6.2.1 

Industry and consumer impact 

Option 1 

Under  option  1  a  price  cap  at  25  cents  per  MB  would  bring  the  wholesale  prices  down  by 
more than 85% of what is currently being paid on average for non-group traffic. While not all 
operators  have  access  to  such  wholesale  rates,  setting  such  a  low  cap  could  encourage 
operators to price these services at the cap, thereby potentially not leaving sufficient scope for 
competition. 

As stated above, it is still early to determine the elasticities of demand that price decreases can 
bring. It would therefore be unrealistic to try to forecast what the increase in volume would be 
if the price was to decrease to cost levels. However, the  impact on  the industry  of option 1 
could be such as to limit long-term competition since for mobile broadband to develop in the 
internal market, the current wholesale model may need to be changed. Therefore a wholesale 
price cap based on initial cost-based work may prove to be detrimental in the long run. 

From  a  consumer  point  of  view,  it  may  be  argued  that  large  operators  already  offer  their 
customers  packages  that  are  based  on  the  equivalent  wholesale  rates,  particularly  where  the 
traffic  is  within  the  group  network.  However,  while  volumes  are  increasing,  there  is  little 

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evidence to indicate that prices at the retail level have yet reached a level that is close to what 
is being paid for the same service at home.  

Option 2 

While it is equally difficult to model the financial impact of option 2 it can be concluded that 
the  impact  on  the  industry  may  be  deemed  to  be  minimal,  as  the  overall  industry  average 
wholesale charge per MB will decline to levels below the safeguard cap. Nevertheless for that 
proportion  of  traffic  which  cannot  be  steered  effectively,  it  is  unlikely  that  operators  would 
reduce  their  wholesale  rates  unilaterally.  For  such  traffic  operators  have  no  incentive  to 
reduce  prices  since  they  would  receive  this  traffic  irrespective  of  the  price  that  is  being 
charged.  

Such  a  safeguard  approach  will  give  operators  more  control  of  their  wholesale  costs  and 
should  therefore  enable  them  to  focus  on  retail  prices  that  are  of  benefit  to  consumers. 
Together  with  transparency  therefore,  consumers  are  expected  to  benefit  from  lower  retail 
prices for data roaming services and hence use the service more. Moreover, spillover effects 
for  specific  data  services  are  deemed  to  be  negligible  since  operators  are  at  the  moment 
offering data services at attractive prices domestically to encourage take-up.  

6.2.2  Competition and impact on smaller operators 

Under option 1 smaller operators will have access to lower wholesale prices but if such prices 
are set at levels which could be close to cost this will limit competition at the wholesale level. 
The aim of regulation should be to maximise flexibility for competition to occur while at the 
same time eliminating the extreme charges.  

Option 2 preserves the possibility for competition at wholesale level while at the same time 
ensuring  that  operators  will  no  longer  have  to  face  extreme  charges  on  non-preferred 
networks.  This  will  facilitate  greater  certainty  and  consequently  enhanced  competition  at 
retail level.  

6.2.3 

Administrative burden 

In terms of the administrative burden, the two options above do not vary considerably since 
both  will  require  changes  to  wholesale  agreements  between  operators.  The  first  option  may 
result  in  fewer  wholesale  agreements  needing  to  be  amended  than  under  the  second  option. 
However,  in  this  regard,  as  the  ERG  said  in  its  submission  to  the  public  consultation, 
wholesale regulation of such services would be largely self-enforcing. In terms of impact on 
national  regulatory  authorities,  the  burden  is  likely  to  be  limited  since  data  collection  of 
wholesale  prices  is  already  one  of  the  regulatory  activities  arising  from  the  regular  ERG 
Benchmark Data Reports. 

7.  DURATION 

As shown earlier, data exhibits many of the same structural problems as in the case of voice 
and  SMS  although  with  significant  differences  also  apparent.  Market  and  technological 

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developments which might render the need for regulation unnecessary are unlikely to occur in 
the short to medium term. There is a strong case for aligning the period of regulation with that 
of voice and SMS. This would ensure certainty for both consumers and market players while 
allowing  sufficient  time  for  real  competition  to  develop  over  that  period.  Therefore  the 
Regulation should be amended to include wholesale regulation and transparency measures for 
data roaming services with effect from 1 July 2009 for a period of four years to 30 June 2013.  

8.  COMPARISON OF OPTIONS 

In summary therefore it is considered that the transparency measures (basic information plus 
cut-off  limits)  together  with  option  2  (safeguard  approach)  for  wholesale  regulation  is  the 
preferred approach. This is summarised in the table below:    

       Criteria 

Effectiveness  Competition  Efficiency 

Consistency  Coherence 

Scenario 

Option 1 

+ 

+ 

Wholesale 
cap 

Option 2 

+ 

++ 

Safeguard 
approach 

+ 

+ 

+ 

+ 

+ 

+ 

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CHAPTER 10. EVALUATION AND MONITORING 

Extension of the mobile roaming regulation will continue to be monitored very closely both 
by the NRAs and the Commission. Already under the current roaming regulation, NRAs were 
required to collect data not only on retail and wholesale voice tariffs but also on SMS charges 
and data roaming charges. The data collection exercise went smoothly and did not create any 
significant  additional  administrative  burden  compared  to  the  situation  before  the  regulatory 
intervention. This was due to the fact that NRAs had already in place the necessary basic tools 
to gather and analyse information since market data on roaming was already assembled under 
Article 5 of the Framework Directive. Data collected by the NRAs and the Commission and 
presented collectively by the ERG provided a very useful and timely input for evaluation of 
the  effectiveness  of  the  current  regulation  and  for  assessment  of  the  policy  options  for  its 
possible extension.  

The  Commission  services  therefore  consider  that  data  collection  of  similar  scope  and 
frequency  should  continue  to  be  carried  out  also  during  the  time  span  of  the  proposed 
extension.  NRAs  will  be  asked  to  collect  data  on  retail  and  wholesale  voice,  SMS  and  data 
roaming services every six months. They will also regularly report to the Commission on the 
progress of implementation of the extended roaming regulation in individual Member States. 
The  Commission  can  supplement  the  national  regulators’  data  collection  by  its  own  ad  hoc 
studies  or  surveys  on  main  market  and  technical  developments,  charging  systems,  contract 
conditions,  business  vs.  residential  customers  tariffs,  etc.  in  order  to  get  a  more  complete 
picture of the  actual impact of the  extended regulation  once  it  is  implemented.  At  the  same 
time, the Commission will continue to monitor the entire mobile market as such, as part of its 
regular  monitoring  of  the  implementation  of  the  regulatory  framework  for  electronic 
communications.  This  monitoring  exercise  as  well  as  various  studies  on  specific  issues  in 
electronic  communications  markets  commissioned  regularly  by  DG  INFSO  will  provide  a 
sufficiently broad overview of the context in which the roaming regulation operates and will 
also inform other Commission services in the next review exercise.  

In  relation  to  enforcement  and  compliance  it  is envisaged  that,  as  in  the  case  of  the  current 
Regulation, NRAs will continue to be charged with the tasks of monitoring and supervising 
compliance  and  may  intervene  on  their  own  initiative  to  ensure  compliance  in  accordance 
with the terms of the amended Regulation. 

With respect to evaluation of the extended roaming regulation, it is considered that a similar 
approach  to  the  current  regulation  can  be  adopted,  i.e.  evaluation  of  the  effectiveness, 
efficiency and relevance of the roaming regulation will be carried out towards the end of its 
three-year  duration  as  part  of  the  review  exercise.  An  interim  evaluation  does  not  seem 
practical  due  to  a  relatively  short  overall  duration  of  the  regulation  and  lack  of  up-to-date 
information and data in the middle of its implementation.  

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CHAPTER 11. CONCLUSIONS – OVERALL IMPACTS OF 

THE PREFERRED OPTIONS 

This impact assessment has identified and assessed different policy options for strengthening 
the  single  market  for  mobile  roaming  services.  In  particular,  it  examined  the  question  of 
whether the current roaming regulation should be extended in time and in scope. Based on a 
careful assessment of the available data and evidence, the impact assessment has concluded 
that extension of the  roaming regulation both in time and in scope is necessary because the 
underlying causes of the problem of insufficient competitive pressure in the mobile roaming 
market still remain valid.  

The  impact  assessment  focuses  on  four  key  problem  areas:  voice  roaming,  voice  billing 
unitisation,  SMS  roaming  and  data  roaming  services.  In  each  case,  a  variety  of  different 
regulatory  and  non-regulatory  approaches  have  been  considered  and  the  most  important, 
mainly economic impacts have been assessed. Qualitative argumentation and assessment has 
been supported and enhanced by quantitative economic modelling for the detailed regulatory 
options  related  to  voice  roaming  and  SMS  roaming  services,  focussing  in  particular  on 
consumer  impact,  industry  impact  and  the  overall  social  welfare.  Finally,  options  in  each 
problem area have been assessed against evaluation criteria such as effectiveness, efficiency 
or coherence in order to provide a straightforward link to the main objectives of this initiative.  

Based on the detailed qualitative and quantitative assessment of the alternative approaches to 
regulation, this impact assessment has identified an overall preferred option which consists of:  
wholesale  and  retail  regulation  for  voice  with  wider  gap  between  wholesale  and  retail 
ceilings, wholesale and retail regulation for SMS with retail price ceiling at 11 cents, modified 
per second billing unitisation and a wholesale safeguard cap plus transparency measures for 
data roaming services. While the impact analysis focused on each individual problem area and 
the  corresponding  set  of  options  separately,  it  can  be  demonstrated  that  the  policy  mix  will 
provide for a balanced overall outcome.  

The individual options for voice, SMS and data are complementary and mutually supportive, 
as  they  all  contribute  to  the  general  objective  of  lower  roaming  prices  and  stronger  single 
market  in  mobile  communications.  The  estimated  overall  social  welfare  of  this  policy  mix 
would  be  the  highest,  compared  to  the  other  alternatives,  with  relatively  low  impact  on 
industry  profits.  As  for  data  roaming  regulation,  a  cautious  approach  of  setting  a  safeguard 
wholesale cap coupled with transparency measures would allow market forces to play while 
providing sufficient information and guarantees for the consumer.  

With  respect  to  the  specific  objectives  outlined  in  Chapter  4  of  this  impact  assessment,  the 
preferred policy mix has emerged from the analysis as the most effective one. The extension 
of  the  voice  roaming  regulation  will  ensure  that  there  is  no  return  to  excessive  retail  and 
wholesale  voice  roaming  prices.  The  specific  regulatory  solutions  ensure  furthermore  that 
prices  for  roaming  services  (voice,  SMS  or  data)  are  not  significantly  higher  than  domestic 
prices and that transparency of those prices will improve. On the operator’s side, regulation at 
the  wholesale  level  should  provide  sufficient  safeguards  for  operators  to  compete  at  retail 
level and avoid margin squeeze for small operators in particular.  

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The  billing  unitisation  regulation  will  ensure  that  customers  do  not  pay  for  more  than  they 
consume  while  allowing  operators  to  cover  the  cost  of  setting  up  the  call.  The  impact  on 
industry  profits  (the  extent  of  which  very  much  depends  on  the  demand  elasticity  for  the 
roaming  services)  can  have  some  negative  effect  on  investment  but  taking  into  account  the 
size  of  the  mobile  market  as  a  whole,  the  effect  is  expected  to  be  limited.  In  terms  of 
administrative burdens, the preferred option does not add significantly higher administrative 
costs  on  public  authorities  and  operators,  as  it  does  not  create  additional  information 
obligations.  Finally,  the  preferred  policy  mix  provides  for  a  consistent  and  harmonised 
approach across Member States and is fully in line with internal market principles.  

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ANNEX I 

1.  INTRODUCTION 

This  annex  provides  some  details  of  the  Commission's  data  collection  exercise,  which  was 
undertaken  in  preparation  of  this  impact  assessment  and  the  Commission's  regulatory 
proposal. The sections below focus on the derivation of key parameters (such as market size 
and unit prices) for the voice, SMS and data roaming segments. 

Complementing  the  work  undertaken  by  the  European  Group  of  Regulators  (ERG)55,  the 
European Commission on the 19th March 2008 invited national regulatory authorities (NRA) 
to  submit  detailed  operator-specific  roaming  data  on  a  confidential  basis.  Following  this 
request, data were collected from 27 NRAs, comprising more than 120 operators (including 
MVNOs). 

This impact assessment is based on comprehensive data sets for Q2:2007, Q3:2007, Q4:2007 
and Q1:2008. As the (Eurotariff) retail price caps set by Regulation (EC) No 717/2007 came 
into  force  on  30  September  2007,  the  Commission's  data  collection  exercise  yields  'clean' 
price and volume information (i.e. not yet directly influenced by regulatory intervention) for 
Q2 and Q3:2007. 

The task at hand in the context of this impact assessment was then to estimate 'clean' values 
for Q1:2007 and Q4:2007 in order to derive hypothetical figures for the whole of 2007 (i.e. 
figures on an as-if-basis, showing what key parameters such as market size would have been 
in the absence of regulation). The 'clean' values for 2007 were then used as the base case or 
point of comparison for evaluative purposes in the economic model (see annex 1).      

2.  VOICE – MARKET SIZE AND OTHER KEY PARAMETERS 

2.1.  Estimation of volumes 

Outgoing roaming calls 

The starting point for estimating the corrected values for Q1:2007 and Q4:2007 (corrected for 
the  impact  of  regulation)  was the  annual  distributional  pattern  of  tourist  and  business  travel 

55 ERG (07) 85 - International Roaming Report 

http://www.erg.eu.int/doc/publications/erg_07_85_intl_roaming_rep.pdf and ERG (08) 36, available at 
http://www.erg.eu.int/doc/publications/erg_08_36_intern_roam_rep_080812.pdf 

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flows  in  the  EU,  as  approximated  by  the  percentage  distribution  by  quarter  of  total  'nights 
spent by non-residents' within the EU27 (table below).56 

Q1:2007 

Q2:2007 

Q3:2007 

Q4:2007 

19% 

26% 

37% 

18% 

Percentage 
of 
Nights  spent  by 
non-residents  by 
Quarter 

As  can  be  seen,  the  peak  of  EU-wide  tourist  and  business-travel-related  activity  (and  by 
extension  of  EU-wide  roaming  activity)  occurs  in  the  third  quarter.  By  taking  the  available 
roaming data for Q2:2007 and Q3:2007 to represent 26% and 37% of the annual total, the two 
missing  quarters  can  be  estimated  and,  for  the  sake  of  plausibility,  compared  to  the  actual 
figures (though 'contaminated' by regulation) of Q4:2007 and Q1:2008. The resulting data for 
2007 are as follows.  

Actual  volumes  for  outgoing  roaming  calls  in  the  EU  for  Q2:2007  and  Q3:2007  were, 
respectively,  1.296  and  1.751  billion  minutes  (based  on  operator-specific  information 
submitted by NRAs), yielding a total of 3.047 billion minutes for the two quarters, and 63% 
of the annual traffic. Hence, total volume for outgoing calls made in 2007 would have been 
around 4.836 billion minutes in the absence of regulation (with quarterly figures for Q1:2007 
and Q4:2007 of 0.920 billion and 0.871 billion minutes respectively). 

Incoming roaming calls 

Actual  volumes  for  incoming  roaming  calls  in  the  EU  for  Q2:2007  and  Q3:2007  were, 
respectively,  0.908  and  1.282  billion  minutes.  Accordingly,  total  volume  for  incoming  calls 
made in 2007 would have been around 3.477 billion minutes in the absence of regulation. 

2.2.  Estimation of revenues 

For the estimation of total revenues, it was assumed that average prices for both outgoing and 
incoming  roaming  calls  would  not  have  changed  throughout  2007  in  the  absence  of 
regulation. 

According  to  EC  data,  the  average  EU  price  per  minute  in  Q2:2007  was  €0.7692  for  an 
outgoing roaming call and €0.4179 for an incoming roaming call.57 Combining this with the 
assumption of unchanged pricing practices throughout 2007, total revenues for outgoing calls 

56 Source: Eurostat. Nights spent by non-residents - world geographical breakdown - monthly data 

http://epp.eurostat.ec.europa.eu/portal/page?_pageid=1073,46870091&_dad=portal&_schema=PORTAL&p_
product_code=TOUR_OCC_NINRMW 

57 It should be noted that the EC economic model looks at actual volumes rather than to billed volumes, since this 
will  allow  a  more  precise  calculation  of  price  elasticities  in  future  reports.  Thus,  the  average  price  as  derived  in 
this impact assessment cannot be directly compared to the average price as estimated by ERG in its reports of 
January and August 2008, in which average prices were derived based on billed volumes. 

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would have been around €3.72 billion58 if the absence of regulation. The equivalent figure for 
incoming calls would have been about €1.45 billion59.  

3.  SMS - MARKET SIZE AND OTHER KEY PARAMETERS 

3.1.  Estimation of volumes 

As  SMS  roaming  prices  are  not  currently  regulated,  the  EC  data  collection  exercise  yields 
'clean' figures for three quarters of 2007 (Q2:2007 to Q4:2007). This can be complemented by 
the collected figures for Q1:2008 to derive the whole of 2007. However, the Q1:2008 figures 
would need to be corrected for the annual growth rate of SMS services of approximately 6%.  

According to the EC data collection, the number of roaming SMS sent was as follows: 

Q2:2007 

SMS (million) 

594.4 

Q3:2007 

888.3 

Q4:2007 

541.8 

Q1:2008 

611.62 

Combining  these  figures  (and  the  assumed  growth  rate)  with  the  seasonality  pattern  of 
roaming services in the EU (explained in section 2 above), about 577 million roaming SMS 
can assumed to have been sent in Q1:2007 (yielding a total for 2007 of 2.6 billion). 

3.2.  Estimation of revenues 

As  for  an  estimation  of  SMS  revenues,  it  was  assumed  that  the  average  price  of  a  roaming 
SMS was unchanged from Q1:2007 to Q2:2007. Total revenues for roaming SMS in the EU 
were thus approximately €0.8 billion in 2007. 

4.  DATA SERVICES 

4.1.  Estimation of volumes 

The  EC  data  collection  exercise  also  provided  actual  price  and  volume  information  for  EU 
data roaming for the period from Q2:2007 to Q1:2008.  

Thus,  analogous  to  the  method  used  in  section  3  above,  there  was  a  need  to  estimate  the 
values for Q1:2007. However, unlike SMS, demand for data roaming services is growing very 
dynamically. For this reason, Q1:2007 was estimated using a backwards forecasting method 
(i.e.  backwards  extrapolation).  Extrapolation  was  based  on  four  sequential  observations  at 
known points in time (Q2:2007 to Q1:2008). Inspection of the data shows a clear linear trend 
in the logarithms of the volume data i.e. a stable growth rate with only  very small seasonal 
deviations. 

58 4.83624 billion minutes * €0.76.92 per minute 

59 3.47749 billion minutes * €0.41.79 per minute 

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Q2:2007 

Q3:2007 

Q4:2007 

Q1:2008 

Volume (1000 
MB) 

18209.8 

27141.9 

33815.6 

45852.1 

The regression of the natural logs of volume data on time (t) give the results as shown in the 
following graph:      

Logarithm Volumes and linear regression

y = 0,299x + 9,2485
R2 = 0,9936

11

10,5

10

9,5

9

8,5

1Q2007

2Q2007
Log Volumes

3Q2007

4Q2007
Linear regression (volumes)

1Q2008

Extrapolation gives a value of 14.010 GB for data roaming volumes for the first quarter 2007. 

The table below presents the estimated volumes for 2007: 

Q1:2007  Q2:2007  Q3:2007  Q4:2007 

Volume (1000 
MB) 

14010.2 

18209.8 

27141.9 

33815.6 

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4.2.  Estimation of revenues 

The estimation of revenues for Q1:2007 was made using the same methodology as above; the 
resulting figures were €0.117 billion for Q1:2007 and € 0.559 billion for the year 2007. 

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ANNEX II 

Model – Welfare Impacts of Regulatory Options 

1.  INTRODUCTION TO THE MODEL 

The purpose of the model is to provide a quantitative analysis of the economic impact of the 
various regulatory options considered in this impact assessment. The model focuses on static 
welfare impacts, using the standard definition of social welfare as the sum of consumer and 
producer  surplus.  It  builds  on  one  of  the  main  findings  of  welfare  theory,  namely  that  any 
deviation  from  a  competitive  equilibrium  will  reduce  social  welfare  in  the  static  sense. 
Various policy options considered in this impact assessment will be evaluated in accordance 
with  this  principle  –  in  other  terms,  we  will  ask  which  policy  option  results  in  the  greatest 
overall welfare gains for society (industry profits and consumer welfare). 

The  model  enables  us  to  understand  the  aggregate  effects  of  regulatory  intervention  on 
international roaming prices. This means that an analysis of the effects on individual operators 
is  not  the  primary  objective.  Clearly  for  purposes  of  the  impact  assessment  the  aggregate 
impact on the industry and on their customers as a whole is what matters most. The nature of 
the  problem  at  hand,  involving  as  it  does  confidential  information  on  volumes  and  prices, 
precludes a disaggregated analysis. In the course of the preparation of this analysis EU mobile 
operators  were  asked  by  the  European  Commission  and  the  ERG  to  provide  detailed 
information on roaming prices, costs and volumes.60 The data received is used by the model 
inter alia for the quantitative description of the status quo. 

An  impact  assessment  complying  with  the  internal  best  practice  rules  of  the  European 
Commission  requires  an  analysis  of  several  policy  options.  Various  policy  options  are 
considered  in  this  impact  assessment;  the  quantitative  welfare  analysis  is  focussed  on  the 
following regulatory options: 

1.  Voice roaming regulation as proposed by the ERG 
2.  Voice roaming regulation as proposed by the Commission 
3.  SMS roaming regulation as proposed by the ERG 
2.  SMSroaming regulation as proposed by the Commission 

One major prerequisite of the welfare analysis of the international roaming regulation is the 
formulation of a demand model for international roaming services. The model developed for 
this  purpose  analyzes  the  demand  for  three  different  international  roaming  services:    active 
calls from the foreign country, received calls in the foreign country, SMS sent from the visited 
country. 

Unfortunately, there are no valid scientific results on the demand elasticity of these services. 

60 See annex 2 of this impact assessment. 

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As a consequence, scenario techniques have to be applied to arrive at a more reliable picture 
of  the  possible  quantitative  effects  of  the  regulation.  Three  different  elasticity  scenarios  for 
the reaction of customer demand on price changes are developed and will be applied to the 
three policy options under consideration. 

The  first  scenario  –  referred  to  as  the  “industry  scenario”  (elasticity  scenario  1)  –  reflects 
opinions  of  the  mobile  industry  and  some  financial  analysts  with  regard  to  demand 
elasticities. The sources referred to imply that the relevant demand elasticity is rather small, 
significantly smaller than one (in absolute terms). This would mean a significant decrease of 
roaming revenues as a reaction to a drastic reduction of end user prices induced (or enforced) 
by the proposed regulation. 

The second scenario is called the “minus one scenario” (elasticity scenario 2). As the name 
of the scenario suggests, a value of minus one for the demand elasticities is assumed for all 
services. A demand elasticity of minus one implies constant revenues as prices change. This 
scenario  allows  a  closer  look  at  the  redistribution  of  consumer  and  producer  surplus  as  a 
consequence of regulation. 

The  third  elasticity  scenario  -  the  “optimistic  scenario”  (elasticity  scenario  3)  -  reflects  a 
more optimistic vision of demand elasticities. In particular it reflects recent experience drawn 
from the data on the international roaming markets collected by the ERG. Accordingly, such a 
scenario forms one part of the model. 

The tables below display the most important parameters and variables as used by the model: 

Table 1: 

€ million, aggregate EU roaming retail market (estimate for 2007) 
Outgoing roaming calls 
Incoming roaming calls 
Roaming SMS 
Roaming data 
Total 

3719.90 
1453.39 
804.32 
559.15 
6536.76 

Table 2: 

€, Prices per minute, aggregate EU level (estimate for Q1/Q2:2007) 
Outgoing roaming calls 
Incoming roaming calls 
Outgoing roaming SMS 

Average EU Retail 
Price 
0.77 
0.42 
0.31 

EN 85 

EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
Table 3: 

€, Prices per minute, aggregate EU level (Eurotariff as of 
Q4:2007) 
Outgoing roaming calls 
Incoming roaming calls 
Outgoing roaming SMS 
*to be decreased to 0.46/0.22 and 0.43/0.19 in 2009/2010 respectively 

Average EU Retail 
Price 

0.49* 

0.24* 

0.31 

Table 4: 

Price elasticities / Scenarios 1-3 
EPSx1p1 
EPSx2p2 
EPSx3p3 

Pessimistic  Minus One Optimistic 

-0.55 

-0.55 

-0.55 

-1.00 

-1.00 

-1.00 

-1.20 

-1.20 

-1.20 

The  second  building-block  of  the  evaluation  model  is  the  cost  function.  For  the  impact 
assessment it is assumed that unit costs of the services under consideration are constant in the 
relevant range. In other words, constant total average costs are assumed. The most important 
cost factors considered are: 

•  Origination and termination costs 
•  Transit costs 
•  Directly  attributable  costs  of  international  roaming  (concluding  and  maintaining 
roaming  contracts,  technical  and  software  provisions  for  international  roaming,end 
customer and inter-carrier billing. 

It should be stressed again that the model is an aggregate model, i.e. it takes a consolidated 
view of revenues and costs. All inter-carrier payments such as IOTs and MTRs will therefore 
drop out, and only the underlying factor-consumption and related costs will be considered.  

The model itself calculates the relevant wholesale payment flows, but they are only used for a 
plausibility check of the results. 

2.  DEMAND MODEL 

The  starting  point  for  the  quantitative  analysis  of  the  demand  side  is  a  system  of  demand 
functions for international roaming services, which is appropriately disaggregated to allow the 
following markets to be separated out: 

1.  Market for 'outgoing calls' while roaming within the EU 
2.  Market  for  'incoming  calls'  (market  for  calls  received  from  callers  located  in  an  EU 

country, while roaming within the EU) 

3.  Outgoing calls to countries other than EU member states 

EN 86 

EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4.  Incoming calls from countries other than EU member states 
5.  Active and received calls of roamers from outside the EU 
6.  SMS sent while roaming in the EU to another EU country 

Of particular interest are the first two markets, because they constitute the bulk of the roaming 
market in the EU. Markets 3, 4 and 5 are not of significant interest here and are accordingly 
not further considered. In addition to international voice roaming, SMS roaming is added as a 
relevant roaming market. 

The  demand  model  used  for  the  impact  assessment  attempts  to  model  direct  (“own”)  price 
effects. For the purpose at hand cross price effects and possible effects on demand introduced 
by arbitrage opportunities for end users and created by the regulation are disregarded. Since 
we  expect  mobile  operators  to  know  their  markets,  we  can  safely  assume  that  their  pricing 
policy would avoid substitution of active calls by received calls and SMS. The demand model 
explicitly  takes  into  account  the  demand  for  'outgoing  calls  (x1)',  'incoming  calls  (x2)',  and 
'SMS sent (x3)'. Roaming SMS received are not considered here, as – unlike for voice services 
– they do not constitute a direct revenue source for operators (the price for receiving a SMS 
while roaming is zero).  

Mobile operators indicate that consumers might follow a two-step procedure for making their 
roaming  decision.  In  the  first  step  they  decide  whether  they  want  to  roam  and  which 
conditions they are willing to accept. In the second step they make and receive their roaming 
calls.  The  “to  roam  or  not  to  roam”  decision  is  assumed  to  depend  on  the  frequency  of 
travelling  abroad,  and  on  roaming  prices,  predominantly  o  calls  home  and  received  calls 
prices.  We  can  safely  assume  that  a  high  frequency  of  journeys  abroad  will  yield  a  higher 
propensity of roaming customers to roam, and that high roaming prices will reduce it. For a 
high-level  study,  this  two  step  procedure  can  be  simplified  and  regarded  as  a  one-step 
decision  where  the  determinants  of  the  basic  decision  are  represented  in  the  respective 
demand functions. 

It is assumed that the demand for x1, i.e. for outgoing roaming calls, can be described by the 
following demand function (with similar demand functions for x2 (incoming) and x3 (SMS)):  

(1)  

x
1

=

αα 1
p
0

(2)  

x

2

=

ββ 1
p
0

(3)  

x

3

=

γγ 1
p
0

φ
j
y

j

∏

j

φ
j
y

j

∏

j

φ
j

j

y

∏

j

where  p1,  p2,p3  are  the  prices  for  outgoing  roaming  calls,  incoming  roaming  calls  and  sent 
roaming  SMS  respectively;  y  represents  a  vector  of  other  variables  influencing  customer 
behaviour such as income levels, frequency of journeys abroad, prices of international calls on 
the fixed network, call prices at hotels; parameters Φ express the respective elasticities. 

EN 87 

EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
The demand functions for the different components of international roaming are assumed to 
be  linear  in  logarithms,  in  order  to  simplify  the  process  and  as  a  first  approximation  of  the 
virtually  unknown  characteristics  of  the  functional  form  of  the  demand  functions  for 
international roaming. Therefore parameters α0,β0 and γ0 function as scaling parameters. The 
parameters  α1,β1  and  γ1  are  the  direct  price  elasticities,  which  are  used  to  describe  the 
reactions of consumers to changes in the relevant roaming prices. Reactions to the variables in 
y do not affect behaviour in the short run, and are themselves not affected by roaming prices, 
so they will be assumed to be constant. 

Without  any  scientifically  valid  results  for  the  roaming  demand  functions  this  choice  of  the 
functional form allows a direct evaluation of welfare effects for given price elasticities. The 
available data as collected by the ERG do not yet allow an econometric (panel) analysis of the 
roaming  demand  functions,  which  would  support  the  social  welfare  analysis  by  better 
estimates  of  elasticities  and  reasons  for  the  choice  of  the  functional  form  for  demand 
functions.61 

3.  COST FUNCTION 

For  the  practical  purpose  of  this  analysis  one  can  use  the  experience  of  the  European 
Commission  and  many  NRAs  as  regards  mobile  call  termination  analysis  to  gain  a  better 
understanding  of  the  costs  of  international  roaming.  The  costs  of  mobile  call  termination  in 
the  EU  have  been  analysed  in extensive  detail  over  the  past decade,  and  may  be  taken  as  a 
good proxy for modelling the costs of international roaming services. For a start, the costs for 
originating  a  mobile  call  may  roughly  be  equated  to  the  costs  of  terminating  a  mobile  call. 
Furthermore,  regulated  call  termination  rates  in  the  EU  include  a  whole  array  of  unit  cost 
positions which are relevant in the present context, such as labour costs or costs of capital. To 
arrive  at  a  complete  picture,  roaming-specific  costs  (for  instance  for  the  marketing  and 
retailing of roaming services) can then be added to these proxy results.  

Costs of three categories of calls will be analysed: 

• Incoming calls 
• Outgoing calls 
• SMS 

All other categories will be disregarded for the purpose at hand. 

Outgoing calls typically involve the use of network resources for: 

• Call origination 
• Transit to the home country (if applicable) 
• Call termination, which may be on 

• the network of the roaming customer 
• another mobile network 

61 However, the academic literature suggests elasticities for mobile voice services to be significantly greater than 
the elasticities for long-distance fixed voice services, and perhaps greater than one. See for instance Rahul 
Telang, An Empirical Analysis of Cellular Voice and Data Services, NET Institute Working Paper #04-10, 
October 2004.    

EN 88 

EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
• a fixed network or 
• a mobile network in an EU member state other than the home country 

In inter-carrier relations, origination costs are compensated by a per-minute payment of IOTs 
to  the  host  network.  The  use  of  network  resources  for  signalling  is  included  in  the  cost 
parameters described above. 

In addition to these costs there are other directly attributable costs of international roaming, 
such  as  costs  of  contracting,  billing,  inter-carrier  billing,  software,  attributable  marketing 
expenditure and others, which are integrated as additional cost parameters to the model. Since 
call  origination  and  call  termination  as  well  as  transit  prices  typically  cover  all  cost  factors 
such  as  energy,  labour,  depreciation,  costs  of  capital  (including  a  risk  premium),  frequency 
use,  no  mark-ups  onto  these  costs  will  be  made.  Using  the  terminology  and  concepts  of 
economics rather than the respective concepts of accounting is required to be able to make the 
required welfare comparisons. 

Incoming calls typically consume the following network resources: 

• Domestic switching 
• International transit (if applicable) 
• Call termination on the foreign network of the roaming partner 

The  calling  party  pays  principle  is  applied  to  the  calling  party,  which  means  that  the  caller 
pays  call  origination  and  call  termination.  Therefore  the  majority  of  associated  costs  are 
already  covered  by  these  payments.  The  costs  actually  incurred  by  the  home  operator  will 
exceed the termination fee of the home network, due to differences in MTRs, transit costs and 
the other directly attributable cost. This in turn means a small net cost to the home network, 
which is far below the resale price for received calls in international roaming. In addition to 
these  costs,  the  other  directly  attributable  costs  mentioned  above  will  be  integrated  as 
additional cost parameters to the model. 

Costs of (international and roaming) SMS have been studied recently by NITA and ARCEP. 
The  very  detailed  cost  study  underataken  by  NITA  will  be  used  for  this  social  welfare 
assessment.  NITA  arrives  at  costs  per  roaming  SMS  of  approximately  3.4  eurocents.  This 
value will be used throughout the study. 

The following unit costs were assumed and used for the calculation of the economic effects in 
all regulatory options and all elasticity scenarios: 

Table 5: 

EN 89 

Costs per minute (€ cents) 

Cost type 
Termination costs 
Origination costs 
Transit costs 
Special roaming costs 
Roaming marketing costs 
*EU average MTR 2007; projected (compound) annual reduction factor until 2013: 19.73% 

10.51* 

10.51* 

2.00 

1.00 

1.00 

EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The assumed values for call origination and call termination are the average termination costs 
per minute in the EU (as they are projected to develop over the period 2007–2013); the other 
cost  figures  are  estimates,  emerging  from  several  discussions  with  mobile  operators  and 
results of the public consultation. 
These  figures,  which  represent  the  monetary  equivalent  of  the  resources  used  up  for 
international  roaming  calls,  are  to  be  contrasted  with  the  IOTs  as  intercarrier  payments 
covering  parts  of  the  resource  consumption  in  relation  to  international  roaming.  In  a 
consolidated  view  of  the  EU  mobile  communication  sectors  the  IOTs  will  cancel  out.  The 
model will use the resource consumption, valued by the cost per minute figures shown above 
to calculate average costs of international roaming. 

The model is not designed to deal with capacity constraints of mobile networks. Changes in 
demand in general should not be seen as creating difficulties when elasticities are assumed to 
be low – demand reactions will be small in relation to total call volumes. When elasticities are 
assumed  to  be  higher,  capacity  constraints  could  become  an  issue  at  specific  points  in  the 
network.  For  present  purposes  it  may  safely  be  assumed,  however,  that  in  general  intense 
competition between mobile networks in terms of both prices and quality has led to a situation 
where there is sufficient overall excess capacity. 

To sum up, the model provides a static welfare analysis of three different regulatory options. 
The model’s focus is on aggregate industry and consumer outcomes. The model yields results 
that enable us to select the policy option that maximizes overall welfare (industry profits and 
consumer welfare). 

4.  WELFARE 

IMPACTS  OF  EC  REGULATION  717/2007  (THE  VOICE 

REGULATION) 

The voice roaming regulation established wholesale caps and Eurotariff retail caps by means 
of two different glide paths for the period 2007–2010 as shown in the following table: 

Table 6: 

Price Caps, € cents 
Retail 
Voice outgoing  
49 
46 
43 

Retail 
Voice incoming 
24 
22 
19 

Wholesale 

30 
28 
26 

EN 90 

EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
 
 
The  impacts  of  this  regulation  may  be  analysed  in  terms  of  changes  in  consumer  welfare, 
industry  profits  and  social  welfare  compared  to  the  status  quo  ante  regulation,  i.e.  to  the 
performance of the EU voice roaming market in 2007 in the absence of regulation.62 

The following comparative statics results can be derived from the model: 

Table 7: 

Pessimistic 
Scenario 
€ billion (Delta δ) 
δ Consumer Welfare 
δ Profits 
δ Social Welfare 

Minus One 
Scenario 
€ billion (Delta δ) 
δ Consumer Welfare 
δ Profits 
δ Social Welfare 

Optimistic 
Scenario 
€ billion (Delta δ) 
δ Consumer Welfare 
δ Profits 
δ Social Welfare 

2007-08 
2.265 
-1.167 
1.098 

2008-09 
2.570 
-1.074 
1.495 

2009-10 
2.953 
-1.070 
1.883 

2007-08 
2.578 
-.621 
1.958 

2008-09 
2.991 
-.414 
2.577 

2009-10 
3.550 
-.292 
3.258 

2007-08 
2.741 
-.337 
2.404 

2008-09 
3.215 
-.063 
3.152 

2009-10 
3.879 
.133 
4.012 

Graphically, these results may be displayed as follows: 

Chart 1: 

62  Please  refer  to  annex 2  for a  more  detailed  discussion  of  this  methodological  approach  and  the  quantitative 
derivation  of  the  base  case  or  reference  scenario  of  2007.  All  welfare  calculations  in  the  sections  of  this 
annex are based on such comparison. 

EN 91 

EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
 
 
 
 
  
  
  
 
 
 
 
  
  
  
 
 
                                                 
3.500

3.000

2.500

2.000

1.500

1.000

500

0

-500

-1.000

-1.500

Chart 2: 

4.500

4.000

3.500

3.000

2.500

2.000

1.500

1.000

500

0

-500

-1.000

Welfare effects of roaming regulation
Pessimistic elasticity scenario

2.265

2.570

2.953

1.495

1.883

1.098

07-08

-1.167

08-09

-1.074

09-10

-1.070

δ Consumer Welfare

δ Profits

δ Social Welfare

Welfare effects of roaming regulation
Optimistic elasticity scenario

3.879

4.012

3.215

3.152

2.741

2.404

-337
07-08

-63

08-09

δ Consumer Welfare

δ Profits

δ Social Welfare

133

09-10

For  the  sake  of  completeness,  one  can  explore  the  impact  of  the  roaming  regulation  upon 
industry  in  some  more  detail.  In  particular,  first,  one  may  ask  how  voice  roaming  revenues 
have developed following entry into force of the regulation (viz. are projected to develop over 
the next years): 

EN 92 

EN 

 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
Table 8: 

billion € 

Baseline 

2007 

Current 
Regulation 
2008 

Optimistic 
Pessimistic 

5.173 
5.173 

5.694 
4.169 

5.775 
4.040 

2009 

5.880 
3.883 

Expressed  in  percentage  terms  relative  to  the  baseline  scenario,  industry  revenue  changes 
would be as follows: 

Table 9: 

% changes 

Baseline 

2007 

Current 
Regulation 
2008 

2009 

Optimistic 
Pessimistic 

5.173 
5.173 

10.1% 
-19.4% 

11.6% 
-21.9% 

13.7% 
-24.9% 

As  can  be  seen  from  the  above,  the  change  in  roaming  revenues  varies  according  to  which 
regulatory option is selected, and according to which elasticity scenario holds true (although 
the choice of the preferred option is not based on this).  

Depending  on  these  parameters,  and  compared  to  the  base  line,  industry  could  either  look 
forward,  for  the  period  2009-2010,  to  an  increase  of  13.7%  in  voice  roaming  revenues,  or 
would have to deal with a decrease of 24.9% in voice roaming revenues.  

Second,  one  may  also  ask  how  these  potential  changes  in  industry  voice  roaming  revenues 
and profits compare to broader market parameters. The 13th implementation report estimated 
total EU mobile communications revenues to have reached €137 billion. Thus, a decrease of 
€1.29  billion  in  voice  roaming  revenues  in  the  pessimistic  scenario  in  2009-2010  (or  an 
increase of €0.71  billion in  the optimistic scenario)  would correspond to an overall  revenue 
reduction of approximately 0.94% (or an overall increase of 0.52%). Similarly, if one assumes 
an  average  EBITDA  margin  for  the  EU  telecommunications  industry  of  roughly  35%63, 
overall profits are approximately €50 billion. The profit impact in 2009-2010 would then lie 
somewhere between a decrease of 2.14% and an increase of 0.27%. The impacts on industry 
are thus rather small.    

63 This is a reasonable assumption for instance for the constituents of the Dow Jones SXKP Telecoms Index, a 
broad measure containing most listed large- and mid-cap European firms which may be taken as a proxy for 
the  sector  as  a  whole  (both  fixed  and  mobile).  Stand-alone  mobile  EBITDA  is  likely  to  be  even  higher 
(further mitigating the impact discussed here). 

EN 93 

EN 

 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
  
 
 
 
  
   
 
 
 
  
  
  
  
 
 
 
  
 
 
 
 
                                                 
5.  WELFARE IMPACTS OF REGULATORY OPTIONS 

5.1.  Voice roaming regulation as proposed in Option 1 

Under option 1 the proposed price caps are as follows: 

Table 10: 

Price Caps, € cents 
Retail 
Voice outgoing  
49 
46 
43 
40 
37 
34 

Retail 
Voice incoming 
24 
22 
19 
16 
13 
10 

Wholesale 

30 
28 
26 
24 
22 
20 

The model yields the following welfare results for this option in the three different elasticity 
scenarios  (results  compared  to  2007;  results  until  2009-10  driven  by  the  existing  roaming 
regulation; thereafter by the regulatory option here analysed):64 

Table 11: 

Pessimistic 
Scenario 
€ billion (Delta δ) 
δ Consumer Welfare 
δ Profits 
δ Social Welfare 

Minus One 
Scenario 
€ billion (Delta δ) 
δ Consumer Welfare 
δ Profits 
δ Social Welfare 

Optimistic 
Scenario 
€ billion (Delta δ) 
δ Consumer Welfare 
δ Profits 
δ Social Welfare 

64 See note 3 above. 

EN 94 

2007-08 
2.265 
-1.167 
1.098 

2008-09 
2.570 
-1.074 
1.495 

2009-10 
2.953 
-1.070 
1.883 

2010-11 
3.376 
-1.116 
2.260 

2011-12 
3.856 
-1.213 
2.644 

2012-13 
4.425 
-1.366 
3.060 

2007-08 
2.578 
-.621 
1.958 

2008-09 
2.991 
-.414 
2.577 

2009-10 
3.550 
-.292 
3.258 

2010-11 
4.223 
-.227 
3.997 

2011-12 
5.075 
-.229 
4.846 

2012-13 
6.241 
-.327 
5.914 

2007-08 
2.741 
-.337 
2.404 

2008-09 
3.215 
-.063 
3.152 

2009-10 
3.879 
.133 
4.012 

2010-11 
4.710 
.274 
4.984 

2011-12 
5.814 
.344 
6.158 

2012-13 
7.420 
.300 
7.719 

EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
 
 
 
 
 
 
  
  
  
  
  
  
 
 
 
 
 
 
 
  
  
  
  
  
  
 
 
 
 
 
 
 
  
  
  
  
  
  
 
                                                 
Graphically, this may be depicted as follows (for two different elasticity scenarios): 

Chart 3: 

5.000

4.000

3.000

2.000

1.000

0

-1.000

-2.000

Chart 4: 

9.000

8.000

7.000

6.000

5.000

4.000

Welfare Effects – Option based on ERG work - Pessimistic Elasticity 

3.376

2.953

2.260

1.883

2.265

2.570

1.495

1.098

4.425

3.856 

3.060

2.644

07-08

08-09

09-10

10-11

11-12

12-13

-1.167

-1.074

-1.070

-1.116

-1.213

-1.366

? Consumer Welfare

? Profits

? Social Welfare

Welfare Effects – Option based on ERG work - Optimistic Elasticity 

7.719

7.420

6.158

5.814 

4.984

4.710

3.879

4.012

3.000

2.741

2.404

3.215

3.152

2.000

1.000

0

-1.000

EN 95 

-337

07-08

-63 

08-09

133

274

344

300

09-10

10-11

11-12

12-13

? Consumer Welfare

? Profits

? Social Welfare

EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5.2. Voice roaming regulation as proposed in this impact assessment – Option 2 

The  regulatory  option  favoured  in  this  impact  assessment  proposes  to  extend  the  roaming 
regulation beyond 2009, and to adapt the wholesale and retail glide paths in accordance with 
changed  demand  and  costs  conditions;  in  particular,  the  proposal  is  more  stringent  at 
wholesale level. The proposed price caps are as follows: 

Table 12: 

Price Caps, € cents 
Retail 
Voice outgoing  
49 
46 
43 
40 
37 
34 

Retail 
Voice incoming 
24 
22 
19 
16 
13 
10 

Wholesale 

30 
28 
26 
23 
20 
17 

The model yields the following welfare results for this option in the three different elasticity 
scenarios  (results  compared  to  2007;  results  until  2009-10  driven  by  the  existing  roaming 
regulation; thereafter by the regulatory option here analysed):65 

Table 13: 

Pessimistic Scenario 

€ billion (Delta δ) 
δ Consumer Welfare 
δ Profits 
δ Social Welfare 

Minus One Scenario 

€ billion (Delta δ) 
δ Consumer Welfare 
δ Profits 
δ Social Welfare 

Optimistic Scenario 

€ billion (Delta δ) 
δ Consumer Welfare 
δ Profits 
δ Social Welfare 

2007-
08 
2.265 
-1.167 
1.098 

2007-
08 
2.578 
-.621 
1.958 

2007-
08 
2.741 
-.337 
2.404 

2008-09 
2.570 
-1.074 
1.495 

2009-10 
2.953 
-1.070 
1.883 

2010-11 
3.533 
-1.205 
2.328 

2011-12 
4.126 
-1.359 
2.767 

2012-13 
4.800 
-1.559 
3.241 

2008-09 
2.991 
-.414 
2.577 

2009-10 
3.550 
-.292 
3.258 

2010-11 
4.460 
-.289 
4.171 

2011-12 
5.520 
-.337 
5.183 

2012-13 
6.898 
-.467 
6.431 

2008-09 
3.215 
-.063 
3.152 

2009-10 
3.879 
.133 
4.012 

2010-11 
4.996 
.232 
5.228 

2011-12 
6.371 
.270 
6.641 

2012-13 
8.264 
.210 
8.474 

Graphically, this may be depicted as follows (for two different elasticity scenarios): 

65  See  note  3  above.  Owing  to  the  increased  retail  margin  implicitly  granted  by  this  option,  actual  retail  price 

levels of slightly below the Eurotariff price caps have been assumed.   

EN 96 

EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
 
 
 
 
  
  
  
  
  
 
 
 
 
 
 
 
  
  
  
  
  
 
 
 
 
 
 
 
  
  
  
  
  
 
                                                 
Chart 5: 

6.000

5.000

4.000

3.000

2.000

1.000

0

-1.000

-2.000

Chart 6: 

9.000

8.000

7.000

6.000

5.000

4.000

Welfare Effects - IA Glide Path - Pessimistic Elasticity 

4.800

4.126

2.767 

3.241

3.533

2.328

2.265

2.570

1.098

2.953

1.495

1.883

07-08

08-09

09-10

10-11

11-12

12-13

-1.167

-1.074

-1.070

-1.205

-1.359

-1.559

? Consumer Welfare

? Profits

? Social Welfare

Welfare Effects - IA Glide Path - Optimistic Elasticity

8.474

8.264

6.641 

6.371

5.228

4.996

3.879

4.012

3.215

3.152

3.000

2.741

2.404

2.000

1.000

0

-1.000

EN 97 

133

232

270

210

-337

07-08

-63

08-09

09-10

10-11

11-12

12-13

? Consumer Welfare

? Profits

? Social Welfare

EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5.3. SMS roaming regulation as proposed by the ERG 

The  ERG  has  proposed  to  extend  the  scope  of  the  roaming  regulation  to  include  prices  for 
SMS  roaming.  One  of  its  proposals  would  set  a  Eurotariff  retail  price  cap  of  15  eurocents 
combined  with  a  wholesale  price  cap  of  8  eurocents  for  a  period  of  four  years,  starting  in 
2009. 

The  welfare  impacts  of  this  would  be  as  follows  for  two  different  elasticity  scenarios 
(calculated as consumer and overall welfare gains as a result of SMS regulation in addition to 
the existing voice regulation, see section 4 above): 

Table 14: 

Pessimistic 
Scenario 
€ million (Delta δ) 
δ Consumer Welfare 
δ Social Welfare 

Optimistic 
Scenario 
€ million (Delta δ) 
δ Consumer Welfare 
δ Social Welfare 

2009-10 
707 
639 

2009-10 
995 
1301 

The expected drop in industry profits - in the worst-case scenario - would be €68 million, and 
thus sufficiently outweighed by the expected benefits from regulation. 

5.4. SMS roaming regulation as proposed in this impact assessment 

This  impact  assessment  proposes  to  extend  the  scope  of  the  roaming  regulation  to  include 
prices for SMS roaming, and to set a Eurotariff retail price cap of 11 eurocents combined with 
a wholesale price cap of 4 eurocents for a period of four years, starting in 2009. 

The  welfare  impacts  of  this  would  be  as  follows  for  two  different  elasticity  scenarios 
(calculated as consumer and overall welfare gains as a result of SMS regulation in addition to 
the existing voice regulation, see section 4 above): 

EN 98 

EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
Table 15: 

Pessimistic 
Scenario 
€ million (Delta δ) 
δ Consumer Welfare 
δ Social Welfare 

Optimistic 
Scenario 
€ million (Delta δ) 
δ Consumer Welfare 
δ Social Welfare 

2009-10 
884 
716 

2009-10 
1243 
1514 

The expected drop in industry profits – in the worst-case scenario - would be €168 million, 
and thus sufficiently outweighed by the expected benefits from regulation.

EN 99 

EN 

 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
A comparison with the ERG proposal shows that for SMS both consumer welfare and social welfare 
gains are more pronounced in the regulatory option favoured by this impact assessment. 

Welfare Effects SMS regulation
pessimistic elasticity scenario 

884

707

716

639

δ Consumer Welfare

δ Social Welfare

ERG Proposal CEE Proposal

Welfare Effects SMS regulation
 optimistic elasticity scenario 

1243

1301

1514

995

Chart 7: 

1000

900

800

700

600

500

400

300

200

100

0

Chart 8: 

1600

1400

1200

1000

800

600

400

200

0

δ Consumer Welfare

δ Social Welfare

ERG Proposal CEE Proposal

EN 100 

EN