Will European mobile users be paying for receiving calls? It seems unlikely, despite a move to cut the rates mobile operators charge each other and move to a bill-and-keep system
Caller party pays was long reckoned to be of the reasons GSM made such quick ground over other markets, such as the USA, when mobile first became popular. But the European industry has recently raised the possibility of European mobile phone users having to pay US-style charges for receiving calls – after Viviane Reding, the EU telecoms commissioner, said she was prepared to accept the industry changing its longstanding business model.
Ms Reding has alarmed mobile operators with her efforts to seek steep cuts in the wholesale charges operators take from each other for terminating calls on their networks. The industry has responded by hinting such a move might necessitate a move to called party pays -whilst simultaneously denying it has any such plans.
For instance, some operators have been reported as warning that one consequence of her efforts could be an increase in mobile charges for customers. And one operator said Ms Reding's moves could result in the introduction of the principle that Europeans pay for receiving calls – as well as making them – which is the norm in the US and some Asian countries, including China and Singapore.
The words that sent tremors came when Reding was asked whether she would like to see the introduction of the principle that Europeans pay for receiving calls, Ms Reding said: "Why not? The whole market is developing, so we should not stay on the rules that have been in place 10 years,"
Ms Reding attacked European mobile termination rates as "guaranteed money" that created "real distortion" in the EU single market.
She will publish proposals this month that will encourage national telecoms regulators to cut termination rates across the EU. The average EU mobile termination rate is 8 euro cents a minute, although the rates vary markedly between member states, and Ms Reding wants to see them cut to between 1 euro cent and 2 euro cents by 2012.
There was however, some concession in the follow up comment, "I think the business models are not for the European commissioner to decide. Business models are for the operators to decide." Of course, faced with an obligation to cut termination rates, there aren't many business models for operators to follow, other than either swallowing the losses, or passing on the costs to the users.
There is an argument that the practice of asking users to pay for receiving calls has resulted in low mobile termination rates, with US consumers enjoying lower mobile charges compared with Europeans. However, the absence in Europe of the principle that consumers pay for receiving calls is regarded as a key factor in why many EU countries have higher mobile ownership levels than the US. The industry certainly argues that there must be a clear consumer benefit in the current model, given widespread penetration rates of voer 100%, and a clear lead in service innovation in the market.
So what happens now – will the whole system of interconnect billing and termination rates face a radical shake- up, or is this something the industry will be able to fight?
Certainly, there does seem to a will at the Commission level to do something about termination rates. Following Reding's comments, her spokesman Martin Selamyr said that in his view, 'Clients are paying costs that are avoidable', Martin Selmayr, spokesman for EU telecoms commissioner Viviane Reding told reporters.
Reding will present a recommendation before the end of the month to lower regulated MTRs 'to a level that would make it interesting for operators to move to a less bureaucratic system of bill-and-keep in the long run', Selmayr said. Bill-and-keep is another term for the system employed in markets that employ called party pays models.
He underlined that this is 'a long-term perspective for Europe's mobile communications market', adding that it would 'in the long run mean less red tape, more competition and lower charges for consumers'.
John Blakemore, Director of European Regulatory Affairs at Hutchison's 3 Group, did agree that a move to bill-and-keep could bring prices down for consumers.
'In the U.S. there are no termination rates, and retail prices are lower', he told Thomson Financial News. Under the existing rules, operators pass the cost to connect a call to another network on to their consumers. 'One of the problems of high termination rates is that calls are more expensive', Blakemore said. But whether large operators, whose revenues are boosted significantly by MTRs, will want to move to a bill-and-keep system remains to be seen.
Companies are allowed to charge the effective cost of connecting calls to their network, but the Commission has doubts as to what the real costs are, given the lack of consistency across the European Union.
'Some [MTRs] are calculated by regulators at around 2 euro cents per minute, others at around 19 or 20', Selmayr said.
The Commission now wants to do away with widely divergent MTRs, set by national regulators, and some faer that it sees bill-and-keep as a possible solution.
So what will the impact on operators be? Britain's operators have all rejected the likelihood of a major pricing shake-up. With official guidance to individual regulators on the issue due to be issued early next month, a spokesperson for Vodafone said that the chances of "new radical pricing is pretty slim", and could only repeat other statements that the operator had "no plans to introduce such a pricing model at the moment".
In the UK, BT and 3, the UK's smallest operator and of course one without its own 2G network, already have a case with the Competition Commission alleging that the practice, which once mad, is now obsolete. But 3 itself said in a statement that "there is no reason for the EC recommendation to result in receiver pays".
An Orange spokesperson said only that the operator "has no intention to introduce charges for [its] customers to receive calls domestically". T-Mobile's said it too had no plans for called party pays, and O2's pointed out that moving to called party pays would need to take place across the EU at once.
Meanwhile, Reding's office said that the very suggestion of called party pays was a red herring, designed to introduce a worst case scenario resulting from regulatory pressure on mobile termination rates. This, of couse, is slightly at odds with earlier messages that Bill-and-Keep could be a long term option, to support lower termination rates.
The unmentioned aspect, so far, has been that mobile operators in Europe have set up billing systems that face the customer on a called party pays basis, with mediation and interconnect between themselves. They are currently in the process of moving many of these systems to deal with data roaming, as well as the cost of moving large amounts of data across different networks. Although voice is a mature technology, investment decisions in these areas have been made with the current billing model in place.
It is understandable that regulators want to address termination rates where they see they merely keep prices artificially high, but tacitly placing pressure on the whole billing structure of how money goes around in the industry is something that needs very careful attention indeed.