Mallinson: Roaming charges are in terminal decline

Keith Mallinson

Our smartphones are wonderful tools that can be particularly useful when we are abroad, and international roaming is also a major operator growth opportunity in face of domestic market saturation.

Moderate pricing premiums should be sufficient to incentivise market development. Mobile operators should stop profiteering by ensnaring those who inadvertently rack up disproportionately high roaming charges because they misunderstand tariffs, miscalculate data allocations or neglect to adjust their settings through ignorance or oversight. This is bad for business.

Caveat emptor
The Telegraph newspaper recently reported that a British mathematics teacher was hit with £2,600 (€3,200/$4,400) in roaming fees after downloading a Neil Diamond album while holidaying in South Africa.

The sum represents nearly 10% of UK average annual income, and is an outrageous amount for what was clearly an inadvertent and unwanted purchase. The customer was oblivious and did not willingly agree to pay so much, regardless of what is in the fine print of her subscriber agreement, and there is clearly no operator cost justification for this price.

We all make mistakes, but this massive charge--for only one innocent incident--is disproportionately on par with the punitive costs of extreme occurrences such as road traffic accidents (for which we are largely protected by insurance), or criminal activity. Exorbitant and unexpected charges such as this are not uncommon and unwittingly running up hundreds of pounds or more in unexpected data charges is quite a widespread occurrence.

High charges were bad enough with international voice roaming, but at least the price multiple between on-net and off-net charges was typically no more than a factor of 10 or so. For example, roaming rates of approximately one dollar per minute, in comparison to single or double digit cents per minute national rates have been typical.

However, international data roaming charges of £8 per megabyte in the above example are more than 1,000 times higher than domestic rates, usually of less than £8 per gigabyte. Furthermore, calls generally have to be affirmatively received or placed and terminated by clicking on something such as an address book entry. Instead, massive data charges can be incurred retrieving email or with unanticipated software application updates while phones are stowed in pockets and bags and even when unsuspecting users are asleep.

If you live or spend your time near an international border or the coast it is even possible to be hit with roaming charges without leaving the country.

UK regulator Ofcom warns of what it calls inadvertent roaming . This term is somewhat misleading given that it occurs "when the signal from your domestic UK network is weak or unavailable and your phone picks up a stronger signal from a mast in a neighbouring country."  It is the foreign network that is encroaching abroad, not the consumer.

Such mishaps are rather reminiscent of some nonsense with national roaming in the US a decade ago. On-net tariffs, such as with Verizon Wireless' Americas Choice national network, promised users cost control. But woe betide them if they strayed into a network coverage gap, roamed off-net as a result and did not happen to notice the appearance of the tiny roaming icon at the edge of their phone displays. This was a bad experience for consumers and the operator alike with an ensuing class-action lawsuit and settlement.

Mitigation not statutory elimination
Roaming charges among neighbouring nations: for example, between the US and Canada, and within Europe, tend to be lower than for Brits visiting South Africa. Unexpected and excessive charges are largely prevented or mitigated by fitting regulatory and commercial measures. European Union roaming regulations require mobile operators to apply a cut-off once a mobile internet bill reaches €50 (£42) per month while travelling in the EU, unless and until users opt-in to use and pay more. Operators must also send alerts to consumers when they reach 80 per cent and 100 per cent of their limit.

Vodafone's Euro Traveller costs roamers an additional £3 per day to take their voice, text and Internet data allowances abroad. That is not cheap over extended periods or even just a few weeks, but once you bite the bullet by using your phone at all, it frees you up to use your smartphone to the full that day. Not bad for a foreigner taking a long weekend in Paris, for example.

So when exploring a foreign capital city, one is then no less constrained and probably far more in need of data-heavy usage, such as with mapping applications and online guides. That is valuable to consumers. It is also excellent demand stimulation for the home network operator and its roaming partner.

But regulators have unwisely gone further to regulate price levels and eliminate any premium for roaming. The industry lobby is resisting the European Parliament's agreement to end roaming charges by the end of 2015, subject to approval by EU national governments. This kind of populist intervention will harm the market. Roaming fees provide market development incentives and cover additional costs with both home and roaming network operators involved.

There is no reason why consumers should not pay a modest or moderate premium, hopefully based on the market, for the benefits of using their phones to the full in foreign countries. Maximum charges are already regulated by the EU. Roaming at around national rates will ultimately provide significant and sufficient operator rewards with substantially increased usage as consumers become completely price-indifferent to when, were and how they use their devices. But that is for the market to develop--it is not something the regulators can mandate.

However, the industry must find a better way to save consumers from themselves or from deception with unexpected and unwanted usage at unquestionably exorbitant prices, as is clearly still a problem, at least with intercontinental roaming. 

In the meantime, the only foolproof way to protect yourself from excessive charges being incurred by yourself, your spouse or your children is to go prepaid. That at least caps your maximum exposure, but with this you sacrifice other benefits including large handset subsidies, lowest airtime charges, flexibility and convenience.

Keith Mallinson is a leading industry expert, analyst and consultant. Solving business problems in wireless and mobile communications, he founded consulting firm WiseHarbor in 2007. Find WiseHarbor on Twitter @WiseHarbor.