Exclusive Interview with Commissioner Reding

Telecoms.com meets Viviane Reding to discuss roaming, the mobile industry and the furore her proposals have caused in Europe.

A year ago, few within the European mobile industry would have been familiar with EU Information Society Commissioner, Viviane Reding. But in 2006 she has become one of the most familiar – and controversial – faces in the business.

In recent months she’s achieved near ubiquity in the press, as she spearheads a crusade to slash the international roaming charges faced by mobile users within the European Union.

The carrier community’s response to Reding’s series of proposals – formalised this week – has run the gamut from discreet support to vitriolic dismissal. Broadly, the most powerful European GSM operators are resolutely opposed to intervention (at both wholesale and retail levels) and are collectively threatening lobbying efforts and litigation, should Reding press onwards.

Some smaller operators are more receptive to some of her proposals, given the dominance enjoyed by their larger competitors in the roaming market.

But at the UK headquarters of the European Commission, just behind London’s Parliament Square, Viviane Reding is in unrepentant mood. “End users don’t know how much roaming is going to cost them. And it’s a proven fact that the industry has exploited this situation, and maintained roaming retail prices that are incredibly high compared to other services,” she says.

“Prices for all other services have been going down in line with cost. Different services must cost different amounts, of course, but there is an obvious anomaly here. Mark-ups on roaming costs can be as high as 500 per cent.”

Unmoved by the protestations of industry, Reding expresses frustration at the carriers’ responses. “We anticipated this reaction but it has been disappointing. There has been little or no movement [on pricing] and the announcements about reductions have only come after we made it clear that we would not wait any longer.”

Reding has not been mollified by the sudden moves to cut roaming termination charges made by operators in the wake of her announcements in the spring. “There has been very little positive development. In some marginal cases, prices have even increased. In a few cases there have been some downward movements but it’s a small minority,” she says. “So now the industry is complaining but I feel that end users are entitled to see the benefits of the downward trend in mobile pricing in this particular area of roaming.”

The Commissioner has always maintained that she regards regulatory intervention as a last resort, however, even her supporters have baulked at her plans to legislate for retail charges, which are widely perceived as, at the very least, unusual. So why would the reluctant regulator target retail?

Reading between the lines, it is clear that her office does not trust the operating community to pass any savings it might make onto its customers. It’s a viewpoint that is justified, she says, by the fact that retail prices have remained static despite a shift in wholesale inter-operator tariffs (IOTs).

“Some of the IOTs have moved. And yet this movement has not resulted in lower prices for the end users,” she says. “Since 2003, operators have had the ability to control traffic flows [through steering of roaming]. This has been done but is has done nothing to affect the retail price. We have seen nothing in the past that would suggest retail competition will follow wholesale intervention.”

Incensed at the prospect of an intruder rifling through their private affairs, the European carriers have at times suggested that the EC’s perception of the roaming market lacks the requisite depth. It’s an assertion that Reding shrugs off. “We’ve been working on this for some years. We’ve had plenty of meetings with the stakeholders and we’re fully aware of the costs involved.”

Within the industry, operators and commentators alike have raised concerns over the potential damage that Reding’s roaming crusade could have on the European business. The Commissioner argues that the cost of roaming in itself could be damaging other industries within the European Union. “We realise the force of the [mobile] industry and we’re fully aware of the financial implications of this measure for the industry. But we have to take the considered decision that there are also other interests at play. Especially the small businesses, because the larger companies have a buying power that enables them to have much better deals,” she says.

“We want to develop an internal market here in Europe. We tell a small businessman in Northern France that his counterpart in California can make a call to New York and pay only a national charge. But the Frenchman travels 60km into Belgium and suddenly the price of the call goes up by three or four hundred per cent just because he has crossed one of many national borders.”

It seems odd that, if the cost to business is a primary motivator, data roaming charges are conspicuous in their absence from Reding’s plans. She claims that it would be wrong to regulate such a nascent sector and that, because there is no evidence of national regulation on roaming charges, it would be inappropriate for the EC to step in. But she won’t rule out intervention down the road.

“On voice calls we had to intervene because we had at least five or six years of work behind us with no change. With data services we are giving the operators a chance. I hope that they understand that, in this respect, the new EU regulation is a warning shot.”

Outwardly her stance may be perceived as one of stony immovability, but Reding has progressively relaxed her proposals in the last six months – some say, to appease the operators. She initially intended to cut out incoming call charges for roamers altogether. These she now intends to cap, rather than abolish. So is this adjustment designed to soothe the disgruntled operators?

“It was very tempting, very appealing, to abolish that charge altogether. It would have met with the expectations of many citizens, who don’t pay to receive domestic calls. But we realised that there is a cost in providing this service and, while in political terms this is a cost that we would have liked to lose, we felt it was appropriate to have a small cost,” she says.

It matters not whether this was an attempt at appeasement, though, because the operators are still fired up with free market indignation. Roaming is huge business for some of these players – a large operator could be making well in excess of E1bn from roaming each year. The smaller players, meanwhile, say the large players’ domestic offers are heavily subsidised by roaming, making competition difficult.

Reding argues that simultaneous regulation across the EU would actually promote competition since it would hit the beneficiaries of roaming harder than the smaller operators who claim exclusion from this most lucrative aspect of the carrier business. “We will establish a balance situation where the burden of the reduction is spread over all of the companies,” she says.

In response to Reding’s proposals, several operators have indicated that, should these cuts be forced upon them, they will adjust domestic charges to compensate for their losses. Reding sees this as an empty threat, claiming that the national regulatory bodies are on lookout for any untenable hikes to domestic pricing. “Perhaps the handset subsidies will become less generous,” she says, ” but we do not expect any generalised increase in prices or significant impact on national pricing.”

In the end, her message is blunt. Operators are going to have to swallow a substantial drop in revenues. “Initially they will be making less money but then they can probably expect to see their business going up because with lower prices, people will be using their phones abroad much more.”

But the carrier community is no pushover, having wriggled out of regulation on more than one occasion. The lobbying and legal action they are threatening had its precursor in attempts to have Reding’s proposals cut down on her own territory. Trade Commissioner Peter Mandelson was lobbied by industry and weighed into the debate, adopting a contrary stance to his fellow Commissioner.

“There were many opinions,” says Reding. “But by consensus the commission as a whole has adopted the proposal. It now carries implicitly the signature of all 25 Commissioners.”

But are all those Commissioners happy with the proposal?

“There may be different degrees of happiness and unhappiness,” she says. Much as there will be within the industry and the end user community as Viviane Reding seeks to push her proposals through the European Parliament.