We recently sat down for a chat with Robert Mourik, Telefónica's Director for Regulatory Policy Europe, to talk about the issue of international roaming. Here is a transcript of the interview:
Public Policy (PP): Hi, thanks for taking the time to talk about the thorny issue of roaming. At the Mobile World Congress in Barcelona several operators launched new price plans for data roaming. Many sceptics believe this is a cynical ploy of the industry to ward off regulation, but is there more going on: might the unthinkable be true? Might the data roaming market be competitive?
Robert Mourik (RM): Let’s not try and hide an obvious fact: data roaming rates have traditionally been very high when compared to domestic rates. Prices of more than €5 per Mb were not unusual. However, for years there has been little demand because mobile phones just didn’t really allow users to use data. Pricing was set for usage in very small quantities.
PP: but is it just about historical facts about usage? Isn’t there a deeper problem in the way in which the market is set up in the first place?
RM: Lawmakers and regulators say that there is a structural problem in the roaming market.
They believe that the pressure to compete is limited because when customers buy their mobile subscription, they do not take roaming prices into consideration. Most consumers only compare domestic prices and handsets, and operators compete mainly in that area. For many customers the use of roaming is sporadic, so roaming is just not a main concern.
Another characteristic of the roaming market has always been that lower rates don’t make people phone more. So a price drop means revenue loss for the operator. Purely from a business point of view there hasn’t been a real incentive for mobile operators to lower roaming prices.
Unless regulatory action is taken, regulators say, operators won’t reduce prices.
However, Telefónica believes that for data roaming this doesn’t appear to hold true – this market has different dynamics. Like the body of European Regulators (BEREC) in a recent report, Telefónica thinks that the market is becoming competitive. Where we disagree with BEREC is that we think a competitive data roaming market is something coming about not in the future, but now.
PP: Why do you think that is?
RM: In short: because with data roaming customers do care.
Demand for data roaming is radically changing. The number of smartphones on our network has grown dramatically, and the use of dongles has also increased. This means that there is a lot of potential demand for data services.
And the number of smartphone users continues to growing rapidly. People want to be always connected. Not voice but data is what drives people to buy a smartphone. People want to continuously get the latest updates from their social networks, receive emails and tweets. Instant messaging is rapidly replacing SMS as the preferred way to send short messages. Data applications have embedded themselves in the lives of young people in particular, in a way that voice telephony never has. Being deprived of connectivity, of their life online, is for many people not an option anymore, even when travelling or on holiday.
Networks are competing to attract these smartphone users to their network and not only the price of voice minutes but also that of data has become crucially important.
And the need to be connected doesn’t stop at the border. When travelling, people often rely more on their smartphones because they don’t have easy access to a computer. Customers care about being able to use their smartphones abroad and this is reflected in their buying decisions by switching to packages that include better data roaming rates.
Yet at the moment people often still have data roaming switched off when travelling. They are afraid of being stung by the high prices. Mobile networks are under pressure to do something about that and to entice these customers to use data roaming. What is helping, and what is very important, is that we believe that in data roaming there is positive price elasticity. In other words, when operators lower rates the revenue loss will be compensated for by higher volumes.
PP: So, there is an economically viable business model to be made for data roaming? How can you tell?
RM: There are clear signs that the market is changing. In the voice roaming market, for various reasons, we still see relatively little price movement. In data roaming on the other hand we have seen wholesale rates decline by 50% year on year since 2008. [In 2008 an Mb would cost more than €1.50 on the wholesale market, but pricing levels in 2012 look like being less that to €0.10.] Now that cost levels are lower, retail rates have started to come down now too, often quite dramatically. We see all major operators now offering special price plans for smartphones, for mobile broadband customers, etc. For example, customers can now often get cheap data roaming for a daily rate of a few euros, or a monthly add-on.
PP: And what is Telefónica’s plan? How do they plan to compete in this new and growing market?
RM: Of course we can’t divulge our plans but Telefónica too is planning to launch various new price plans for data roaming over the coming months. We are in the final phase of customer testing in many countries.
These price declines are market driven. The fact that it is in our interest to lower prices is the best guarantee the market will develop. Telefónica believes that mobile data roaming could actually become one of the good news stories from the sector.
PP: Thanks very much Robert.