Who will benefit from the new EU telecoms regulation?

Not the old telcos and maybe not even customers

Removing mobile phone roaming charges in the European Union may prove more expensive for customers in the long run, a telecoms expert has warned.

E.U. Digital Agenda Commissioner Neelie Kroes proposes doing away with roaming charges, with legislation due to be presented in September. Although consumer groups have cautiously welcomed the idea, she has faced huge opposition from the telecommunications industry.

Paul Reynolds, director of the Competition Economists Group, on Tuesday said that removing roaming charges may not even be great news for customers. CEG economists provide economic and financial advice on competition and regulation.

"Removing the difference between roaming and domestic call charges does not simply mean that roaming charges will disappear, we may see domestic prices go up," he said. "So although customers who roam a lot may get better value, others could well see their bills increase."

Telecoms operators who are forced to remove their roaming charges may also decide to rethink prepaid phones, he said. "Operators have multiple costs, and if they can't cover them through roaming charges, they're going to get the money somewhere else and a monthly contract would be more attractive to them," he said.

Orange estimates the drop in roaming tariffs would dent the group's margin by €300 million (US$395 million).

The new legislation would also aim to standardize wholesale products, something that has larger mobile phone operators worried. According to a recent report in the Financial Times, Kroes and her team are open to rethinking this section of the legislation.

Under the proposed rules, a new pan-European "passport" would allow telecoms operators regulated in one member state to trade in any other within the E.U. With wholesale prices drastically reduced, there would be nothing to stop new leaner companies competing across the E.U. without having to make any significant capital expenditure through investment in infrastructure.

Some estimates put the arbitrage cost between the existing domestic tariffs and rival offers based on the proposed wholesale tariff as high as €7 billion a year.

But according to the European Competitive Telecommunications Association (ECTA), which represents those leaner rival companies, there is no evidence that departing from the current competition model would be beneficial for the European economy or end-users.

"Challenger telecoms operators have not only been the leading product innovators but also made broadband affordable for consumers, which in turn has led to accelerated investments and take-up in broadband," said Tom Ruhan, chairman of ECTA.

However, the European Telecommunications Network Operators' Association (ETNO), representing the older owners of network infrastructure, commissioned a study by The Boston Consulting Group (BCG) that had an opposite finding.

"Europe's consumers may find themselves in the position of paying relatively low prices for online access but largely missing out on advanced services and experiences that next-generation access networks provide," said Wolfgang Bock, senior partner of BCG.

European investment in telecommunications infrastructure has declined by approximately 2 percent a year over the last five years, meaning that €3.5 billion less was invested in 2012 than in 2008. Europe's ability to invest in next generation networks may fall further as revenue in the European telecommunications sector continues to contract according to BCG.

Follow Jennifer on Twitter at @BrusselsGeek or email tips and comments to jennifer_baker@idg.com.

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Jennifer Baker

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