Have been catching up on some essential reading on my return from the beach (not as crowded at our end). I see Richard reports on the outcome of the EU roaming rules.
Some background is in order. Like the US, licensed spectrum was auctioned off in a bit of a patchwork quilt. Unlike the US, the shape of the patches was fixed to national (state) borders and a minimum mandated level of population coverage was the norm. (Correct me if I’m wrong, please!) This mean some inefficiency in network build-out to cover rural areas. In compensation, the operators took it upon themselves to perform some vigorous price discrimination. Rich people travel and have friends and associates abroad more, so soak the buggers for all they’re worth. Or something to that effect, but printable in posh type.
In the meantime, Vodafone got acute megalomania and started buying up anything that had “wireless” on the outside of the tin. As with the US situation, there was a strong incentive to form contiguous “on net” blocks from Atlantic coast to Ural mountains. Businesses in particular valued the simple pricing and configuration, and as your high-margin customers their money talked.
This squicked the EU competition folk when it came to the Mannesmann take-over, who had a panic and imposed a 3-year moratorium on Vodafone offering pan-European price plans. Thus the raison d’etre (German equivalent, anyone?) of the transaction was annulled. The regulators had assumed that the competition would simply sit on its hands, fail to merge or re-negotiate wholesale rates, and Vodafone would become unassailable. Personally, I think that’s tosh and we’d have ended up more like the US with maybe 3-4 pan-European operators and a host of struggling unaligned fourth and fifth players in various markets.
Eventually the 3 years pass, and high wholesale and retail roaming fees persist. So there’s another round of political introspection, at the end of which it is decided to trade some votes for operator shareholder capital. (One ‘n’ in ‘cynical’, in case you ask.) Et voila! Roaming fees come tumbling down.
That said, you shouldn’t shed too many tears for the operators. A foundation stone of the post-war European political landscape is the free movement of capital and labour, low internal barriers, and non-discrimination based on nationality. Since residence and nationality are so closely correlated, you’re sailing close to the political wind whever you try to impose some geographic price discrimination on any type of movable good. In this case the point of sale of the service was fixed, but the point of consumption is not. The operators made a political miscalculation and got burned, but not until after they’d gorged themselves for a decade.
Some additional blame should be heaped upon the government who sold those licenses. Social and polticial considerations can legitimately be built into the operating conditions, and routinely are. The international aspects were simply ignored by the national regulators, and the EU was only called in after the event. There never was a win-win situation once the initial mess had been created.
I think there are two take-aways for readers.
The first is that on-net traffic is a big deal. Many of the telecom mega-mergers are nothing to do with efficiency per se, but more about being in the best position to negotiate termination and interconnect rates, whilst elmininating internal settlement costs. Where the vertically integrated model of telecom persists (voice, SMS, MMS) it being propped up by increasing market power of an ever smaller pool of players. This part of the system will become more unstable over time, increasingly enmeshed in political wrangling, and ever less like a real competitive market.
The second is that even well-meaning and smart people make a lot of mistakes. Me included. These systems are often too interconnected and emergent to predict and design outcomes. So the best overall system of regulation is one where several different models can compete. For example, maybe have one slice of spectrum with strong pan-EU management; some nationally managed, but licensed to specific uses and policies; some nationally managed and free from restriction; and several different modes of unlicensed spectrum. We simply put too many eggs into one regulatory basket. “Global System for Mobile Communications” hit a rough patch with the “Local System for Spectrum Allocation and Management”. Ecosystem diversity is the antidote to uncertainty and complexity.
(PS - Jounalists who contact me for a rent-a-quote hate this last one: “Nobody really knows and we should hedge the risk by trying several of the options” is never what anyone wants to hear from any alleged expert…)
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raison d’etre: You're looking for "[der] Sinn und Zweck", Martin.
Posted by: at July 16, 2006 11:07 PM