The European Parliament voted in last May to cap roaming charges. New
"Eurotariffs" capped at 49 cents a minute for foreign calls made to
other countries and 24 cents for calls received outside the country of
residence were thus set to take effect last summer. The hope of the EU
Telecoms Commissioner Viviane Reding was that "Europe's internal market
will finally become truly borderless, even for mobile phone bills."
But how can this feat be accomplished by a bureaucratic measure that
runs totally counter to the very nature of the market process where
prices reflect supply and demand?
As customers, we may lament that international rates – which in some
cases were as expensive as one euro a minute – were higher than national
rates. But unlike a genuine price drop resulting from increased
competition, regulatory imposition of maximum prices has its own
perverse effects. It amounts to putting the cart before the horse.
The new regulation certainly benefits some consumers who make
international phone calls. However, in the longer term, such price
controls will end up causing harm to all consumers.
Imposing prices in this way makes it less rewarding to produce or invest
in the regulated service. It creates incentives for resources and
production factors to leave the sector where such controls apply. The
direct outcome then is to cause a shortage of the regulated goods or
services, or to prevent or delay their improvements. The new roaming
regulation may cause for example mobile operators to delay deploying,
increasing capacity or replacing networks, especially in remote areas or
in places where it costs more to do so and where roaming is a major
income source.
Moreover, far from intensifying competition, the decision by European
authorities will actually reduce it. On the one hand, the new regulation
risks leading to artificial consolidation in the industry by pushing
mobile operators most sensitive to price controls out of the market.
On the other hand, bureaucratic capping of roaming prices also affects
related sectors that may offer similar communication services. For
example, voice over Internet (VoIP) and Wi-Fi technologies provide
mobile wireless communications at the local level, with calls then
routed over various types of wired networks.
These technologies are already available in several places and can
provide alternatives to traditional mobile phones for calls anywhere in
the world. Companies like the VoIP service provider Mobiboo, or others
such as Netgear or Skype, promote their offerings by showing how much
consumers can save compared to higher-priced international mobile calls.
Those alternatives and all the others that could emerge one day are made
less attractive by downward price controls. Down the road, consumers
could thus be deprived of options they might otherwise have benefited
from.
Price controls are definitely not the answer to high roaming charges.
The new regulation is made all the more dangerous by creating a
precedent for European authorities to institute other controls of the
same type. What has become "borderless" in the EU is not the market but
price controls instead.
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