International Mobile Roaming -

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1 Return Address: Department of Regulatory Affairs, Nørregade 21, 0900 Copenhagen C, B 216 The European Commission Directorate-General for Information Society Infso-roaming@cec.eu.int 11 May /7 pek International Mobile Roaming - TDC s response to the Commission s Second Phase Consultation regarding: a Proposal for an EC Regulation of Mobile Roaming Services in the Single market. 1. Introduction TDC has with great interest looked into the Commission s proposal for an EC Regulation of mobile roaming services in the EC single market. TDC acknowledges: (1) that there is a need to provide transparency in the market for roaming services in the single market, (2) that there is a need to protect consumers from paying excessively high prices for the use of international roaming services when travelling abroad, and (3) that both consumers and providers of roaming services in the single market jointly will be better off, if the consumer surplus and the surplus of providers of mobile roaming services are better balanced against each other. At the same time, however, TDC shall express strong reservations to the scope and methodologies presented by the Commission in its proposal for an EC Regulation of mobile roaming services in the single market. These reservations will be expanded in the following. TDC A/S Nørregade 21 DK-0900 Copenhagen C Tlf Fax Regulatory Affairs Nørregade 21 DK-0900 Copenhagen C Tlf Fax Internet: jhau@tdc.dk TDC A/S CVR-nr København

2 2 2. TDC s views regarding the Commission s proposed approach regarding an EC Regulation of mobile roaming prices TDC has particularly noted, that the Commission is proposing a regulatory approach where retail prices for mobile roaming services should be the starting point of price regulation. Subsequently, when a model for fixing the retail prices at a (politically decided) low level is agreed, it is the Commission s proposal that a regulatory model should be established in relation to those various wholesale service elements that are intrinsically associated with the provision of roaming services within the EC Single Market. However, TDC does not support the Commission s view starting with regulatory intervention in the form of the fixing of retail roaming prices, and subsequent price fixing of wholesale roaming prices will ever work in a real day-to-day market environment across 25 member states. First, tight double regulation of both retail and wholesale prices without reference to real underlying costs and allowance for a reasonable minimum profit mark-up on each roaming service provided could represent a (legal) price squeeze and will take away most freedom of mobile operators to make relevant financial decisions to establish reasonable forward looking business cases and ultimately avoid loss. Remaining seem only to be managerial freedom to decide whether to engage into agreements to provide international roaming services between mobile networks where losses cannot be avoided by other means, or to limit existing offerings of mobile roaming services (to own subscribers) on networks in other member states, where this in a forward looking perspective seem the only way forward to make a sound business case without cross subsidisation to loss giving services. Second, investment incentives in new roaming services will most likely be severely weakened, contrary to the interest of consumers, which the new regulation was aimed to protect. Last, if the retail prices a roaming consumer is paying for roaming services to his home-country mobile operator in country A, when visiting a specific country B, is lower than the retail prices that are prevailing to national consumers in the roamed country B, there is a high risk, that national consumers in country B will find themselves better off, if they become mobile subscribers to the mobile operators in country A. To such cases of market anomaly, TDC has the view that regulatory failure has occurred, and this regulatory failure will inevitably lead to unacceptable market distortions. Accordingly TDC finds that the Commission s proposed concept of regulating (i.e. fixing) retail prices for roaming services based on a concept of homecountry retail pricing parallelism is likely to be a serious mistake.

3 3 Instead TDC shall encourage the Commission to find ways forward, where mobile network operators on all types of roaming services are secured a reasonable margin between its retails prices against consumers and wholesale charges payable to mobile network roaming partners in other member states, thereby stimulating market dynamics on a sustainable basis. 3. TDC s views regarding an appropriate approach to an EC Regulation of mobile roaming prices in the single market. As mentioned, TDC acknowledges that some intervention regarding the roaming market may be needed in case the market cannot by itself correct the failures. In this case TDC finds that the most appropriate way forward in a forthcoming EC regulation should take its starting point in methodologies and principles already established in the current Regulatory Framework. The basic principles in the current regulatory framework is that retail regulation should be imposed only to the extent that remedies imposed to correct wholesale market failures show not to lead to an efficient, competitive retail market outcome. TDC therefore believes, in line with the European Regulator Group 1 (ERG), that some kind of a single EU uniform wholesale benchmark cap applied consistently (in space and time) across all EU member states and where no Mobile Network Operator (MNO) in any member state is allowed to charge higher wholesale roaming prices to other MNOs than prescribed by the unified cap would be the most straight forward and transparent approach to bring down mobile roaming prices to an appropriate level. The European regulatory Group (ERG) has suggested that the level of a single EU uniform price cap on an end-to-end wholesale international roaming service could (initially) be set to the double of an average mobile termination rate (MTR) in the community. TDC can support the proposed wholesale regulation mechanism proposed by ERG, where it is the same uniform price ceiling (cap) that is used across all member states. Conversely, TDC cannot support a ceiling system, where each member state uses its own national mobile termination rates to calculate own national wholesale price ceilings. The latter will result in varying wholesale prices from member state to member state due to variations in national mobile termination rates. High roaming prices would be carried over to consumers from other member states, and would therefore be detrimental to their interest. At the same time the approach would lower the transparency of the wholesale markets across all the 25 EU member states. 1 See the ERG response to the European Commission s call for input o nits proposed EC Regulation in the international roaming market. Dated 22 March 2006.

4 4 4. TDC s views regarding the Commission s proposal of abolishing retail charges for receiving calls while roaming Where TDC supports the views of the Commission that it is important that consumers are not charged excessively high retail charges for receiving calls while roaming in another EU member state, and that there may be a need to establish a regulatory concept to prevent this to happen, TDC does not support the proposal of the Commission that those retail charges should be completely abolished. TDC believes the abolishment, if imposed, will lead to a distorted, inefficient mobile market outcome. In explanatory terms, the Commission s proposal implies, that the mobile network operator (MNO) in the consumers home country A cannot get cost coverage for those wholesale termination charges the country A MNO is payable to the visited MNO in country B. On top of that, the MNO in country A can neither get cost coverage for those wholesale charges he is payable to fixed network transit operators. At the same time the Commission s proposal regarding the abolishment of retail charges to consumers for receiving calls while roaming can be expected to greatly distort traffic patterns in the EU roaming market between member states. If it from a retail perspective becomes cheaper to terminate an international call from a consumers home country than it is to originate the same international call on the visited mobile network (i.e. opposite direction), a new market based on the concept of directional arbitrage (i.e. call-back) may arise. If for this reason termination of international traffic in visited mobile networks abroad will generally substitute originated roaming calls in the same visited network, the provision of roaming services will most likely cease, as revenues will no longer provide cost coverage. TDC believes, this scenario is relevant to consider relative to the Commissions proposal for a regulation, where terminated calls are free of charge to the roaming consumer. Further it is worth to consider relative to above scenario, that to the extent it arises, and to the extent mobile operators do not cease service, mobile operators will experience a situations of cross subsidy from the businesses of national mobile services to the businesses of international roaming services. TDC finds, that above mentioned detrimental market effects should be considered unacceptable, and consequently the concept of abolishing retail charges for receiving calls while roaming should be replaced by either a costplus based price regulation model or a price-ceiling at a level that will not give rise to distortional effects including cross-subsidisation between services.

5 5 5. TDC s views regarding considerations of national circumstances before decisions on regulating retail roaming prices In line with the European Regulatory Group (ERG) TDC has the view that retail mobile markets are competitive in many of the EU member states. Certainly the Danish Mobile market where TDC has its base - is one of the most competitive national mobile market within the EU with constant competitive rivalry not only among four mobile network operators but also among a great number of mobile service providers with varying mobile network operator affiliation. On that background, there is no reason to expect that the market forces in the Danish mobile market should not deliver passthrough of reductions in wholesale international roaming prices to the retail prices consumers are paying. With reference to above - i.e. national circumstances - and with reference to the general rule of proportionality, TDC cannot support a view supporting that retail international roaming prices should be regulated on an ex-ante basis and without a preceding appropriate regulation at the wholesale level. Sincerely Jens Hauge Senior Vice President Regulatory Affairs