nEUrosis

Thanks a lot, Vivianne!

April 26th, 2007 by Viktor Dimitrov

Viviane Reding is my hero. She takes decisive steps to promote fair and market-oriented rules in telecommunications, a sector which has always been a favourite playground for greedy monopolists and national champions. Slashing roaming charges is a brave step towards librealisation and it is a matter of principle – these fees simply contradict the idea of a common EU market. In Europe, the total revenue from roaming charges is EUR 8.5 billion, so such a massive cut means a lot. Telecom operators will be unhappy but they will survive, don’t worry about them. Will they attempt to compensate that by increasing prices domestically? In theory that should not work, after all, prices are set by supply and demand, aren’t they?

How would this affect Central and Eastern Europe? Given that roaming does not contribute so much to mobile operators’ revenues, the effect should not be too dramatic. In fact, what telecoms in the region should fear a lot more is Viviane’s next target – the push for liberalisation of the whole industry.
Today, most telecom markets in the region are characterised by low competition, high prices and inadequate services in terms of quality and sophistication. Usually you have the former state-owned fixed-voice operator privatised by a strategic investor from Western Europe. EU rules are in place and promote competition on paper, but technical and regulatory issues make it unthinkable for alternative operators to challenge the monopoly of the incumbent operator (with the possible exception of Croatia). Mobile penetration is pretty high, often above the EU average, but due to the lower living standards revenue per client has enormous growth potential. More and more people use broadband internet and have access to services like Skype and GoogleTalk. Given the background of CEE countries, what is the likely outcome of Viviane’s battle against the greedy telecoms?

Mobile operators in the region will not suffer much. Roaming charges have pretty much been a limiting factor for price-sensitive Central and Eastern Europeans to use their cellphones abroad. Thus, more minutes out will somewhat compensate the lost revenues of mobile operators. Further liberalisation is not really such an issue in the mobile segment because it is already fairly liberal in most countries. Only number portability might be an issue, as we see in some countries (take the example of Bulgaria, where the biggest mobile operator is trying in all possible ways to delay the process – they will be the big losers from number portability) but gradually it will be resolved, EU rules are clear about that.
The big losers will be incumbent fixed-voice operators. They will completely lose international traffic revenues because many people will be happy to use their cellphones abroad now that roaming charges are lower. However, large portion of this revenue source has already been exhausted with the advent of VoIP and other technologies – try to remember the last time you picked up your landline phone at home and dialled an international number. So, Viviane’s push for further liberalisation is much more of a threat. Incumbents will face decreasing revenues in the future as a result of increased competition in the segment and by losing clients to mobile operators. Fixed operators adapt by diversifying their sources of income – mainly by aggressively pushing ADSL roll-out and alternative technologies, such as IP TV.
Again, Viviane Reding is cool – she acts out of principle and in order to promote fair market competition. In Central and Eastern Europe the changes brought about by her efforts will only act as a catalyst of a process which has already started. The telecom market will change dramatically – fixed-voice operators will fade away and communication will gradually become cheaper as technology is getting more and more sophisticated. The speed with which things will change matters a lot though – if a telecom is obstinate enough, it can delay the implementation of certain decisions for years and in this time they can make enormous money to justify all of their efforts. If you are unfortunate enough (textbook case for being absolutely under the rule of your incumbent telecom: Macedonia), lack of adequate communications at a decent price can delay economic growth for years. So, thank you, Viv.

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