From Iceland — Lower Phone Bills – by Law

Lower Phone Bills – by Law

Published August 10, 2007

Lower Phone Bills – by Law

On May 23, the European Parliament passed the Eurotariff law, which caps the cost of mobile telephone calls made and received in another European Union country. The law was a last resort, after years of mobile operators failing to react to charges of excessive and anticompetitive pricing for roaming calls.

Receiving a call in another EU country cannot now cost more than €0.24 (about 20 ISK), plus VAT. Making a call from one EU country to another cannot cost more than €0.49 (about 41 ISK), plus VAT. These caps will decrease in 2008 and again in 2009, when they will reach €0.19 and €0.43.

While Eurotariff does not extend to Iceland, Norway, or Switzerland, it probably will soon. The EEA Joint Committee is currently working on extending Eurotariff to the EFTA countries. Iceland would then have to formally adopt it into Icelandic law. This process will take at least until the beginning of 2008.

Though EU operators have until September to fully implement the new tariffs, a few already have, such as Germany’s largest operator, T-Mobile. When roaming in Europe, German T-Mobile customers now pay the equivalent of 24 ISK per minute to receive a call, and 49 ISK per minute to place a call (including VAT).

High Prices Persist in Iceland
In contrast, Síminn customers roaming in Germany currently pay 39 ISK to receive a call and most commonly 99 ISK (actually 79–169 ISK) to place calls to European countries. Vodafone customers pay 40 ISK to receive a call and 59–128 ISK to place a call. (Vodafone offers a “Passport” plan which can reduce these rates, but only under very particular circumstances.) Sko customers pay 40 ISK to receive a call and 90–160 ISK to place a call.

It is of historic significance that the roaming situation got so bad that the European Parliament had to pass special legislation to stop it.

And even if the Eurotariff doesn’t formally apply to Iceland yet, one might think it would be a signal to Icelandic mobile operators that their game is up. After all, it is hard to defend charging Icelandic customers almost double the roaming rates that other Nordic customers pay.

Instead, Icelandic telephone companies seem to be trying to pretend for as long as possible that the Eurotariff doesn’t exist. Both Síminn’s spokesperson, Linda Waage, and Vodafone’s spokesperson, Hrannar Pétursson, explained to me that they would not be lowering their roaming prices.

This is no surprise to anyone familiar with the behaviour of other European telephone operators. They fought bitterly against the Eurotariff and most, out of raw financial selfinterest, are waiting until the last possible moment to implement it.

Dubious Justifications from Síminn and Vodafone
Both Waage and Pétursson gave the same justification of why Síminn and Vodafone are unable to lower rates. As well as regulating the per-minute retail rate to the customer, another provision of Eurotariff caps the wholesale “settlement rate” that mobile operators pay to foreign operators to terminate a call in another country – for example, the price Síminn would pay to a German phone company for processing a telephone call to an Icelander on a visit to Berlin. This cap has been set at €0.30, or 26 ISK (due to drop to €0.26 by 2009). According to both spokespersons, the problem is that until the Eurotariff is formally extended to cover Iceland, Síminn and Vodafone’s roaming partners in Europe are not yet required to offer Síminn lower rates for terminating calls to Icelandic customers in Europe.

The flaw in this story is that it assumes that high settlement rates form a price bottleneck for Síminn and Vodafone. In fact, European Commission research suggests that high retail mark-ups have been the most substantial factor in keeping roaming rates high. Carriers whose customers receive a call while roaming in the EU pay an average settlement rate of approximately 8 ISK per minute, and charge the customer an average retail price of about 46 ISK.

These figures suggest Síminn, Vodafone, and Sko make a gross profit of 31–32 ISK per minute when their customers receive a call in Germany. The Icelandic companies’ lavish advertising, as well as their use of vanity prices (just below a round number and always ending in 9), is further evidence that their retail rates include a fat margin. The Commission’s report concludes that “the price for receiving a call is clearly an area where operators could act immediately without the need for any movement on wholesale rates.”

I asked both companies for sample costs breakdowns on roaming calls, and while Síminn originally promised to provide one, neither company ultimately responded. This was no surprise. Settlement rate agreements typically include a confidentiality clause. And publicising information about high retail mark-ups would be embarrassing.

The Beginning of the End
But the salad days are almost over for Síminn and Vodafone. Consumer displeasure is mounting, and Eurotariff shows what fair pricing would look like. It’s just a matter of how fast the end game will be. The companies will likely stall up to the very last minute.

Meanwhile, I had to laugh at Vodafone’s recent gesture towards mobile customers: a reminder to turn off their voice mail box when they are roaming. (My voice mail has been permanently turned off for several years, since pressing the “no” button on my phone to reject an incoming call in Slovenia cost me 600 ISK). More helpful and honest would be a default (or optional) setting in which voice mail would automatically turn on in Iceland and off when abroad.

A quirk of Icelandic culture is that it’s widely accepted for customers not to find out the price of a good until they pay for it. So, for Icelandic consumers, an especially positive feature of Eurotariff is that it requires mobile operators to actively inform customers about the cost of making phone calls in each country they roam to. After all, it is normal to know how much something costs before you buy it.

Eurotariff doesn’t yet cover SMS or data transfer costs, but these areas are under study. (Síminn currently charges me 49 ISK for SMSs while roaming in Europe, a substantial increase from several years ago when the average price was in the low- to mid-thirties.)

A Law Was the Only Way
Cynical and manipulative marketing, pricing, and calling plan design are typical of telephone companies all over the world. Calling plans have such intricate rules that it is often impossible to compare them. Offers like “Make six calls after six o’clock and get 60% off” are virtually impossible to manage in the practice of everyday life. Websites frequently spread information over many different pages, so that customers have trouble getting a full overview of what they have signed up for. Finding price information typically involves multiple clicks, which suggests that companies don’t want you to know the price before you decide. Getting an itemised telephone bill is often costly or complicated, which makes it hard for customers to evaluate their usage. Columbia University law professor Timothy Wu, in a recent paper called “Wireless Net Neutrality,” argues that American mobile companies have even deliberately crippled the technical development of the mobile phone system in order to protect their own revenue stream.

Similarly, once it became customary in the European mobile phone industry to give roaming users no notice of calling rates, telephone companies had no incentive to change the custom. After all, it’s in a company’s short-term interest to not bother informing customers about high costs, especially if it can argue that such notice would be an annoyance.

These smoke-in-the-customer’s-face strategies look like innocent oversights on the company’s part, but I highly doubt they are that, and they are probably carefully calculated to fall just short of what would give cause for legal action by regulators or consumer groups. And they are highly profitable. A recent article in Harvard Business Review by Gail McGovern and Youngmee Moon, called “Companies and the Customers Who Hate Them,” claims that 50% of American mobile operators’ revenue derives from penalty fees from customers who “break” the rules of their service contracts. But it suggests that such practices have gone too far, and recommends that companies move away from “corporate practices that prompt customers to make mistakes that financially benefit the company.”

In the European mobile phone industry, it is pretty clear that competition has brought many benefits, but that self-regulation is not enough. Discerning consumers saw through the roaming costs racket, but could do little on their own to change it. Some degree of outside supervision, through legislation if necessary, is the only way to bring about a truly competitive telephone market and to transform the morally obvious into the legally binding.

In the next issue, Ian will review prices for international calls and home Internet service.

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