What is the next roaming strategy for EU Operators? New rules. New game. Introduction New Rules, new Game. Several questions arise from the new roaming regulation Over many years, roaming has been a significant measures and the new competition that comes into play revenue source also for German mobile operators. starting July 2014: Under the changing EU regulations this additional stream of income will potentially vanish soon. Approxi- • Will innovative roaming offers and tariffs become a mately 5 to 6% of the operator`s previous revenues are key differentiator among operators? at great risk. • For how long are operators able to protect the roaming cash cow? Dr. Andreas Gentner If approved by the EU council, the European parliament • Has the European Union finally won its fight against Partner vote for the end of roaming charges by December 2015 roaming charges? TMT Leader will have enormous impact on the mobile industry. In • Are we truly heading towards a connected continent? Germany and EMEA effect this regulation could transform the existing mobile landscape into one single European market. The present study examines the upcoming market and regulatory trends and elaborates on potential strategies Until that time, there is rising competition among for operators to protect the value of roaming, disrupt operators within their countries with disruptive “Roam the market, attract customers or even generate new like Home” offers also being launched in Germany. In revenues. addition, there is the possibility of Alternative Roaming Providers coming to market, facilitated by the EU regu- lation enabling service providers to proactively attract inbound roamers. 2 What is the next roaming strategy for EU Operators? Regulatory pressure and intense competition are severely jeopar- dizing the roaming revenues for Mobile European Operators. All players are now facing the crucial question of what strategy will best protect the relatively high value of roaming services while satisfying extremely demanding travelers, yearning for affordable connectivity. Roaming prices in Europe are now up to 90% lower “Roam like Home” plans now include voice, SMS and than in 2007. But in the meantime, the volume of the data for both national and EU communications, at a flat- data roaming market has been multiplied by more than rate, close or even equal to rates of traditional national six1. Operators’ revenues are consequently at risk and bundles. This means that communicating when travel- most operators already see their revenues decreasing. ling across the EU is now simply part of your contract. Theoretically, European customers will be able to stay Disruptive “Roam like Home” offers connected without paying more than when staying at Orange, Bouygues Telecom and Free in France, Base and home. Deutsche Telekom in Germany, Three and EE in the UK, as well as Comviq in Sweden have all recently decided Interestingly, this trend in Europe matches the extremely to change the way they charge roaming services to their radical move of T-Mobile in the US, who decided to customers when they travel within the EU. These opera- include voice and SMS roaming in more than 110 coun- tors adopted a radical approach by launching so-called tries at prices comparable to national rates in its Simple “Roam like Home” offers. This unconventional value Choice plan. Data roaming is also included even though proposition is straightforward in a way that pleases the connection will be severely reduced in speed by European mobile consumers: one should always be able T-Mobile and its partners, which makes it less attractive to communicate and connect when travelling within the for demanding users. EU as if they were at home. In other words, no more prohibitive roaming bills. Change in paradigm for roaming charges These developments imply a real shift of the paradigm. Fig. 1 – Volume of retail roamimg data usage in the EU Most operators traditionally offer various daily packages (2008 = 100) at a much higher price per minute, SMS, or megabyte of data than the services included in bundles for national usage. Consequently, the majority of customers do not 630 subscribe to these packages and continue paying very CAGR: high standard roaming tariffs. +58% 359 However, “Roam like Home” does not necessarily indicate that roaming prices will finally become simple, 223 transparent and affordable for those users, contrary to 150 what the European Commission had hoped. Roaming 100 arguably remains one of the most obscure and fright- ful services in the eyes of mobile users. Restrictions 2008 2009 2010 2011 2012 and loopholes have not completely disappeared with these new “Roam like Home” plans. Whether they 1 Amdocs: European Roaming Regulation: Opportunity, not consist of a limited amount of days per year (Orange, Obstacle; 2013 What is the next roaming strategy for EU Operators? 3 Bouygues), designated destinations only (Free, Three), Mobile users drastically adapt their telecommunication a specifically capped additional data package (Orange, behaviours when travelling across the EU. The natural Bouygues, Free), complex roaming bundles sized accord- demand for continuous and affordable connectivity ing to the value of the national bundle (Orange), the when travelling is limited by current offerings. necessity to pay a monthly fee to benefit from the new offer (Base) or services limited to calls and SMS to your Almost half of EU citizens would never use mobile data home country (Bouygues), the first disruptive moves abroad. Around 90% of them limit their usage of basic of European operators seem to flourish in a chaotic, services like e-mails or social networks, whereas more feverish way, often at the expense of a clear under- than 25% prefer to simply switch off their smartphone standing by European customers. abroad. Only 8% say they use their phone in the same way as at home.2 In July 2012 Eurocomms estimated Decreasing average revenue per roaming user that travelers use on average three hundred times less It is however undeniable that these new offers will data when roaming.3 significantly diminish the risks for EU mobile consum- ers of facing the famous bill-shock. These operators are Impacting Business across Europe sacrificing the roaming revenue they used to generate Corporate customers represent a highly significant part by launching significantly more attractive offers. Indeed, of the roaming market, since business travelers tend to such a disturbance will, without any doubt, limit the be less sensitive to prices as connectivity is often neces- average roaming revenue per customer travelling within sary for enterprises. The impact of high roaming tariffs the EU. is two-fold for European companies. On the one hand it reduces the amount that employees communicate Unsatisfied demand for continuous connectivity when they are travelling abroad, causing damages while travelling to the company in terms of efficiency, flexibility and The main reason why operators would give back its ability to leverage business opportunities. On the roaming value to their customers lies in the regulatory other hand, when communicating abroad is absolutely constraints that the European Commission has been necessary, companies face expensive bills that burden imposing on operators for many years. A new wave of their business performance. In 2012 43% of mobile price and competition pressure coming from regulation workers globally received an expensive data roaming is set for July 2014. In order to better understand the monthly bill in 2012, culminating on average at $1089. war that the EU is fighting against operators on behalf Consequently, more than 4 out 5 companies said that of the European consumer, a number of differences roaming tariffs are too high.4 Neelie Kroes, European between national and roaming usages should be high- Commissioner for the Digital Agenda, sees this as a lighted. key reason to fight high roaming tariffs: “It’s not just a fight between holiday-makers and telecoms compa- nies. Millions of businesses face extra costs because of roaming, (…) Roaming makes no sense in a single 300x market – it’s economic madness”.2 less data usage when roaming 43% of mobile workers US$ received an expensive data roaming bill in 2012, the average of the highest being 1089 2 European Commission: e-Communications Household Survey and Telecom Single Market Survey Results; 2014 3 European Communications: EU roaming regulation – what next for the operators?; 2012 4 iPass: Mobile Workforce Report; 2013 4 Enormous regulatory pressure in favour of Unprecedented impact in the EU-market European mobile customers New price caps and potential ARP entries will create a The European Commission (EC) has regulated roaming strong impact on the EU-market for roaming, whose services since 2007, expressing the desire to reduce current value is estimated at €4.8 billion.5 Customers will international roaming charges by 2015 to the level at benefit both from lower standard roaming prices and which the cost of using a mobile phone abroad (within from potential new offers made by ARPs. Moreover, the Europe) is the same as the cost of using it in the sub- latest moves from home operators towards “Roam like scriber’s home country. Home” plans could even mark the end of the roaming game. Simultaneously, competition and its impact on The European Parliament approved a new roaming prices will jeopardize mobile operators’ revenues. regulation in June 2012 (“Roaming III”) that set new caps for roaming charges. The last cut will take place The heaviest disruption: prices and the end of EU in July 2014. This means that both the retail price that roaming users pay for making and receiving calls while abroad, Regulated price caps will affect roaming revenues of and the wholesale rates that network operators charge European operators. Operators might prefer the benefits each other for providing roaming services will decrease from “Roam like Home” over the decreasing roaming again.