Mobile roaming rates can be so much lower

Telecom operators make a huge profit on international mobile roaming rates. During my last visit to The Netherlands AT&T told me that the roaming data rate was $19.95 / MB. These rates are higher than what I paid for my internet connection is 1993.

In Europe Neelie Smit Kroes – European Commission vice president for the Digital Agenda – has introduced caps on international roaming costs within the EU. She determined maximum rate for roaming costs and set a schedule to bring the costs down in 2 years. In her opinion the market is not working in this area because there are only limited number of telecom operators in the EU. I think that is a fair assessment. Though I do not agree with her solution. Her proposed costs are still much higher than you would expect based on the actual costs charged.

The European Commission has tackled this problem before in another area namely the costs for money transactions within the EU. Here they set the benchmark that money transfers should be treated the same in the complete EU. In practice most money transactions are gratis within the EU countries. Since banks did not want – or could not change – the associated transactions costs it meant that for most Europeans money transfers are free. This is very close to the actual cost of a transaction. Free money transfers are a great thing to have. I see that every day going wrong here in the United States where the banking system is still in the stone ages compared to Europe.

I think a similar solution for roaming costs can work as well. The costs of mobile phone calls is largely associated with building the infrastructure, length or usage of the connection and connection distance point-to-point. A fair cost structure should cover all three in some way. That got me thinking about a price model which works better and is more fair to consumers.

All mobile phone users have a subscription plan which is aimed at the country they live in. They pay a certain amount for partiular types of call – mobile or fixed line etc. In case of roaming they should pay the same when they are in their own country given that the call is local to the country where they are roaming. The same applies for a call to a mobile who is also roaming and is in the same country. All incoming calls should be free like it is in your own country as well. In this manner the cost follows the actual cost structure much closer and it makes the costs much more logic for the user.
The same can be applied for data roaming. Telecom operators let the roaming data users enter the internet via the local telecom operator. There is really no reason why that is more expensive than in your own country using your own telecom operator.

I think there is ways to go to make roaming data costs much cheaper than they are today. Telecom operators abuse their market power to keep prices high. There is no competition on international roaming costs. They compete in their local markets and the international roaming market is just too small for them to pay attention. But from economic perspective it is good to facilitate some market mechanisms to enable this. We are currently in a catch-22 – the market is small due to the large costs and without any steps the market will stay small.

Of course this proposal only works in the concept of the EU. As an international user I am not helped by that. But it is a good first step.