EU Roaming Cap Could Raise Domestic Rates

Mon, Apr 23rd 2007 11:01am — Carlo Longino

Back when the EU first said it wanted to take steps to cap the international roaming rates European mobile operators could charge their customers, we called it "balloon squeezing" -- meaning that they'd push rates down in one area, just to send them higher in another. Last week, Derek Kerton pointed out that this was likely to happen as operators simply raised rates for non-European roamers, but now a trade body of mobile operators says its members are looking at a 2.5 billion euro shortfall from the new price cuts, and could make it up by raising domestic rates. That would be the perfect outcome: the EU's action lowers rates for international travelers, but raises the rates everybody pays at home. Then what? More regulations, of course, leading to the EU establishing price controls for every single type of call.

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Derek Kerton (profile), 23 Apr 2007 @ 11:01am

Sounds Fair
Funny, I'm actually in favor of this balloon expansion. What the carriers are saying is that if they are prevented from gouging roamers in order to balance their books, they will lose a subsidy they have used to underwrite their domestic business. They will charge very slightly more for domestic, spread out over the relatively larger amount of domestic calls. Hmmm, sounds like allocating prices based on costs. Sounds fair. It's just too bad that it took regulation for the carriers to allocate more appropriate prices to their services. At Techdirt, we'd rather not see regulations whenever competition can do the trick, but one of the reasons that competition wasn't working for international roaming is that very few customers shop for their phone service based on the roaming rates. They shop based on phone design, and domestic pricing. Then when the go abroad, they are surprised to find they are gouged. Since it is not something customers care much about at the point of purchasing a phone, all carriers engage in the gouging. Since they all do it, there is no option for the few customers (me!) who actually care. Economics, competition, etc. all depend on perfect markets with perfect information. This never translates to the real world 100%. In the case of roaming minutes of use, it is a very imperfect market.
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