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Bets on Europe Ending Data-Roaming Charges Exaggerated

Photographer: Chris Ratcliffe/Bloomberg

Vodafone Group Plc, Europe’s biggest wireless company, and Germany’s Deutsche Telekom have roaming charges everywhere outside of their home markets. Close

Vodafone Group Plc, Europe’s biggest wireless company, and Germany’s Deutsche Telekom... Read More

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Photographer: Chris Ratcliffe/Bloomberg

Vodafone Group Plc, Europe’s biggest wireless company, and Germany’s Deutsche Telekom have roaming charges everywhere outside of their home markets.

Among the dirty words in today’s telecommunications world, few are more reviled than “roaming charges.” In Europe, because the mobile phone industry is so fragmented, they’re an expensive fact of life.

Neelie Kroes wants to change that. Kroes, the European Union commissioner drafting rules to stimulate the continent’s lagging phone networks, says roaming charges have to be eliminated in the region.

“As a matter of principle, you just can’t have roaming,” said Ryan Heath, a spokesman for Kroes, in charge of the digital agenda at the European Commission, the EU’s executive arm. “We haven’t done this to take money away from people. We’ve done this to untangle the mess of fragmented markets.”

If a New Yorker flies to California -- about 2,500 miles -- and posts shots of celebrity sightings to her Facebook account, chances are she’ll pay as much as at home. If someone from Britain goes to France -- about 21 miles across the Strait of Dover -- each patisserie photo upload will cost an extra 1.40 pounds ($2.15).

Roaming charges make accessing the Internet expensive when traveling internationally, which can be very short distances in Europe. That hinders consumers from using data plans, one of the key areas of growth for the industry, and hurts businesses that work across borders, Kroes has said in speeches this year.

Maltese Market

Europe lags behind the U.S. and Asia in developing faster fourth-generation networks, and carriers have less money to invest in fixing that as price wars deter them from raising tariffs. The real barrier isn’t roaming, it’s that hundreds of providers operate across the bloc, driving down prices and making new customers scarce, chief executives of companies including Orange SA (ORA) and Telefonica SA (TEF) have said. Malta -- just 316 square kilometers (122 square miles) -- has three mobile operators and more than 100 percent penetration.

Kroes’ goal is to create an environment in which carriers can build networks and sell plans across the EU without getting tied up by conflicting regulations, and where customers can use their phones anywhere without running up terrifying bills or finding services like Skype blocked. Her Europe would be more like the U.S., where networks are faster and more people use data plans to access the Web on mobile devices.

Kroes’ proposals for a unified European telecommunications landscape are due in September. Heath declined to comment on specific points in the draft, which is still private. Then the European Parliament will discuss them and decide what to adopt as part of efforts to spur job growth and overhaul the regulatory framework for technology companies.

Wary Carriers

Getting support from a struggling wireless industry wary of anything that may cut off a revenue source and the dozens of local regulators eager to keep control over their phone networks is proving difficult. Regulations that cut the prices that carriers can charge for roaming or the wholesale prices that competitors have to pay to access their networks are already a burden, the companies have said.

“Price regulations have become a permanent feature of the market and are hampering investments,” the industry body ETNO said to the commission in June in a letter signed by the CEOs of Orange, Telefonica, Telecom Italia Spa (TIT), Deutsche Telekom AG (DTE) and others, provided to Bloomberg by a person directly involved with the negotiations. “The current framework is not adequate to allow operators to generate sufficient cash flows to foster investments in new state-of-the-art network infrastructure.”

Telekom Austria lost 2 percent to 5.16 euros at 10:51 a.m. in Vienna as Deutsche Telekom dropped 0.7 percent to 9.13 euros in Frankfurt. Orange fell 0.5 percent 7.37 euros in Paris.

Commissioners’ Opposition

It has also been hard to get other commissioners on board. Cabinet advisers to EU Justice Commissioner Viviane Reding and Algirdas Semeta, the tax commissioner, have given negative initial opinions on Kroes’ plan, people familiar with their thinking said, without detailing why.

Before the proposals can be submitted in September, they’ll need sign-off by the 28 commissioners, typically reached by consensus rather than a strict vote. Once submitted, they’ll need the backing of lawmakers in the European Parliament and EU nations before it’s made law across the 28-nation bloc.

Spokeswomen for Reding and Semeta declined to comment on the consultations.

The commission has already imposed caps on roaming charges that took effect July 1. Under Kroes’ new proposal, the ceiling would drop lower as of July 2014.

Roaming Alliances

Consumers can mitigate roaming charges by signing up for special packages, which offer roaming at a discount. Vodafone Group Plc (VOD), Europe’s biggest wireless company, based in Newbury, England, lets customers mitigate these charges by signing up for special packages, which offer roaming at a discount.

Eliminating roaming completely in the EU could hurt phone companies, encouraging users to practice phone-plan arbitrage by buying a cheap plan in one country and then returning home to roam permanently at no extra charge, Sanford C. Bernstein analyst Robin Bienenstock said in a note to investors.

“Roaming is the most surprising and potentially the most disruptive aspect of the draft regulation,” Bienenstock said, calling it “highly unlikely” the plan will create the pan-European regulatory coalition that Kroes envisioned.

“Instead, the regulation seems more likely to erode high data prices near term and cap any upside long term,” she said.

The commission will discourage arbitrage and encourage carriers to form alliances, reducing the incentives for people to shop around across the EU, Kroes spokesman Heath said.

Besides, Heath said, it’s not all bad news for the carriers, pointing to Kroes’ goals to make it easier to operate across borders and navigate local regulatory frameworks.

“Access to more and cheaper spectrum and our efforts to make the rollout of a network simpler” will offset some of the lost roaming revenue, Heath said. “It’s all got to be put into that perspective. It’s not us brushing the operators away.”

To contact the reporter on this story: Amy Thomson in London at athomson6@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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