Where the Bureaucrats Roam

I write my column Where the Bureaucrats Roam in TCS Daily on 2 May 2006.

The European Commission's plan to re-regulate mobile telecommucations will distort the market

Europe, which not so long ago de-regulated its telecommunications sector, is considering re-regulating it.

Viviane Reding, the EU commissioner for information society and media, is looking at forcing mobile phone firms to stop charging travellers a higher price for making calls abroad. The Commission thinks a mobile phone call made from abroad should cost as much as a domestic call.

Of course these higher costs are due to mobile phone companies having to pay to use a foreign telephone network. Reding argues that too much of this cost is passed on to the consumer when he or she is "roaming." She argues that in a "unified" Europe these extra charges are one of the few signs that one is travelling abroad, and that in a true single market for communications roaming rates should be no higher than national charges.

It's true that there are wild price differences for making mobile phone calls between different European countries. The European Commission's "name and shame" list reveals that Maltese customers are charged €12.70 for a four-minute phone call home from Latvia, while those calling back to Finland from Sweden just pay €0.20 more than they would at home. Mobile phone companies could certainly be more open with presenting their roaming tariffs to the consumers, but a price control edict from the Commission is not what is needed. Better to have a market solution.

The proposed regulation will illustrate the effect of von Mises law -- namely that every government action will bear an unintended consequence, and will bring calls in turn for further government action intended to remedy the unintended consequence of the first government action.

Regulating international roaming charges will not eliminate the companies' costs; telecoms will still have to make profits to cover them. They'll likely be forced to compensate for their losses due to the regulation by raising national tariffs for everybody. Particularly in southern Europe prices will rise, as tourism has made operators near the Mediterranean net beneficiaries of roaming payments and they will be hit hard by the regulation. A new study by the consultancy CRA International found that the Commission's proposal to regulate international roaming services could create major market distortions and may force consumers across Europe to pay higher prices for domestic services or switch to mobile accounts that prevent them from roaming.

Telecom companies may be divided in their response to the regulation, but while Reding's law is being drafted they are already coming up with their own solutions. That consumers face high prices opens up opportunities for the market to create low-cost alternatives. One ingenious such alternative is Vodafone passport. By paying a one-off connection fee subscribers are charged the same rates abroad as they are at home, with a discounted flat rate on text messages sent from abroad. The plan covers a wide range of networks and European countries and is the telecom industry's equivalent to the low-cost airlines' version of travelling light.

Regulations, and the remaining government monopolies, gave us high telecom prices in the first place. Left to their own devices, operators will find business opportunities to lower costs in order to gain customers. Enjoying the common market should mean having a market in the first place, not distorting it with unneeded regulations.