Further Regulation of Roaming Fees Bound to Increase Prices

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The whole Czech Republic was happy over the news that the EU regulation will cut off the roaming charges. “You can call cheaper from abroad thanks to the EU.” “Do not thank us, we did it for you.” “The EU again showed how it helps people.” All these headlines appeared in the media or in the comments made by MEPs from all over the Europe on Facebook and Twitter. But, we should focus on the real impact of this regulation on the ordinary consumer. Why? Because the rise of prices is expected, not the decline.

Let’s summarize the facts. Since the summer 2017 the EU roaming charges shall be strictly regulated. Today’s regulated prices (max. 19 cents per a minute call, 5 eurocents per call received, 6 cents per SMS sent, 2 cents per one megabyte of data) will decrease from April 30, 2016 (outgoing call 5 cents, SMS 2 cents, 1 MB of data 5 cents, the price for incoming calls will be fixed) and in the summer of 2017, the differences between domestic mobile services and international services will disappear completely. No-fee regulation will have its limits (they should prevent abusing of the cheap prices of cross-border calls), first proposals are very restrictive – the maximum 40 minutes of calls and 100 text messages per year from abroad. However, it is definitely one of the biggest intervention to the entrepreneurial freedom the European Union has seen.

Two factors are problematic here: causes and impacts of regulation. The fact that MEPs currently appear to us like humanitarians, does not fall from the heaven. It has its cause – a drastic regulation of mobile operators. Due to the inflexible and inefficient set of national control measures in the past years, we can see how the regulators command:

The optimal number of operators under clerical calculations are XY.” – “More competition in the market should not enter because it would not pay off.” – “We decided we want more competitors, but only if they meet our strict conditions.” – “Mobile operator must do this and that.” – “Oligopolistic structure of the few players leads to cartel. Let’s start a new level of regulation!” – “The consumer has a right to get cheaper services.” – “Mobile operators must adapt this and that.” – “We must protect consumers.” – “Mobile operators are evil.”

The last sentence is definitely not true. Mobile operators only maximize their profits in imperfect conditions of the regulation. Inefficiently adopted legislative storm resulted in chaos, created by politicians and public officials. The current behavior of politicians is then absurd – they created a problem and now they enjoy the gratitude that they have finally “solved” it.

However, the solution will eventually bring the Peltzman effects. Roaming fees generate app. 5% of operators’ revenues. Naturally, they will want this money back. Thus, only two ways are possible: The first one is to limit the services (cut investments, stop introducing new products, reduction of services provided to clients’, limitation of branches, etc.); The second one is the increase in prices (current prices, new charges, limits for services and additional fees, data and other services FUP, charging for services in stores, more expensive calls to customer service line, etc.). A combination of both is also possible. The experiences of other industries clearly show that regulated entities often use more strict regulation as an argument for higher prices. And what would happen then? We all know the answer – more regulation.