European Regulatory Group goes against the EC on the 'home pricing principle'

Stefano Nicoletti, Service Manager

On 11 May, the European Regulatory Group (ERG) stated that the home pricing principle - the form of retail price regulation on international roaming advocated by the European Commission (EC) - will not be effective in achieving significant reductions in retail prices. The principle, proposed by European telecoms commissioner Viviane Reding, calls for, among other things, prices for international mobile phone calls made when abroad to be brought in line with domestic tariffs.

The ERG is an advisory body comprising all the European regulators. It's objective is to help the EC to implement the EU regulatory framework. What we have here is basically a body of experts saying that the Commission's proposed plans are not viable.

We believe that a revised proposal from the Commission will scrap the home pricing principle and stick to the more sensible measures proposed by the ERG: wholesale regulation plus retail benchmarks to facilitate wholesale cost reductions being passed on to end-users. 12 May 2006 was the deadline of the second round of consultation, and we expect the revised proposal to be released by the commission shortly.

The whole industry criticised the home pricing principle, alleging that it sounded good in the mouths of politicians, but was regulatory suicide. The chief criticisms were that disparities in retail prices in Europe are far too large, that bringing roaming rates in line with domestic rates is a disputable approach from the point of view of cost causality, that it is difficult to implement and that it could have perverse effects on some markets, such as pushing some operators to withdraw or restricting roaming functionalities in standard tariff plans.

In the last few days, many operators have made highly publicised roaming cuts in a desperate attempt to show Reding that the mobile industry can adopt corrective measures by itself, and thus avoid the regulatory axe falling and cutting into what is a profitable business. But it is likely to be too little, too late, and the EU will most probably go ahead with some sort of direct regulation. The issue now is exactly what action Reding decides to take.

The new commissioner has so far proven herself to be determined to hold her ground when it comes to her policy actions, and she is right in treating international roaming as an urgent matter, but we believe that on the issue of the home pricing principle she got it wrong. It will be interesting to see if she's ready to step back or will stick to her initial agenda.

Stefano is the Service Manager for the Regulation@Ovum advisory service. He is responsible for managing this service, which provides interconnect and regulation advice to more than 40 clients around the world. Stefano also contributes to projects in the area of economic regulation and interconnection.