July 12, 2006, 11:55 AM — The European Commission unveiled a plan Wednesday to force mobile-phone operators to slash the roaming charges subscribers pay when they use their phones abroad, but it also agreed to give the companies some breathing space before lower retail prices must kick in.
The Commission has accused mobile phone operators of racking up huge profits off margins of between 300 percent and 500 percent on roaming calls for over six years.
"We promised to tackle excessive costs on roaming and today we are delivering," said Commission president Jose Manuel Barroso in a press conference.
However, the proposal has been softened slightly by granting phone operators a six-month delay in implementing the changes to retail prices.
Once the European Parliament and the national governments of the 25 member states in the European Union agree to the proposed law it will become effective, forcing phone operators to cut the wholesale prices they charge each other for handling the calls of subscribers outside the countries they are registered in.
The commissioner in charge of telecom policy, Viviane Reding, said she hopes that the reductions in wholesale prices will filter through to retail prices. But instead of insisting this happen immediately, the Commission plan gives the companies six months to cut their retail prices themselves before being forced to.
The six-month delay in forced retail price cuts is expected to allow phone operators to charge excessively next summer, the peak season for roaming as many people travel south to holiday in the popular tourist destinations in countries including Spain and Greece.
With 147 million people using their phones abroad in the Union, the profits the phone makers can generate from another summer season of high prices amounts to millions of euros for them.
But despite this concession to the phone operators, they were still unhappy with the Commission proposal.
"The European Commission ... proposals still amount to a straitjacket that will stifle innovation, dampen competition and ultimately harm consumers," said Rob Conway, chief executive of the GSMA trade association.
Wednesday's proposed law aims at setting a formula for wholesale roaming charges based on the average cost of terminating a phone call made abroad.
Termination costs are one of three costs incurred when a phone is used outside the country it is registered in. The other two are the originating cost and the sending cost.
The Commission believes that two or three times the termination cost gives a rough estimate of the total roaming cost incurred during a local or international call. The Commission is the E.U.'s executive and regulatory body. The draft regulation then allows operators to charge their customers another 30 percent -- roughly the profit margin enjoyed by operators on domestic calls at present.