In June 2017, “Roam Like at Home” regulation came into force in Europe whereby mobile service providers can no longer apply retail surcharges on roaming within the EU and EEA. This is good news to consumers but what does it mean for MNOs and MVNOs?
What is the Impact of the New EU Roaming Regulation on MVNOs and What Can They Do About it?
By Kiran Govekar
Roam Like at Home (RLAH) became reality in Europe on 15 June 2017 when new European Commission (EC) regulation came into force. The new rules stipulate that mobile network operators (MNOs) and mobile virtual network operators (MVNOs) are no longer allowed to apply retail surcharges on roaming within the EU and EEA. Doubtless, this has been warmly received by consumers in the EU, but, for MNOs and MVNOs, this will have a significant impact on their top lines. The EC estimates that the removal of roaming surcharges will cost European telecoms operators €1.2 billion, and Telefonica estimates that in this year alone its revenue will suffer a drop of 1.2% [i]; wholesale costs will persist for operators, making the provision of roaming potentially loss-making [ii]. Further, Grant Thornton estimates that EU roaming revenues will decline at a CAGR of 21% between 2017 and 2020[iii].
While all operators will find the new regulation painful, it will be smaller operators and MVNOs for whom this will be most acute. This is for three main reasons: firstly, large MNOs, such as Deutsche Telekom and Vodafone, have large international footprints, which they can use to serve their customers when roaming, whereas MVNOs and smaller MNOs must pay wholesale rates to visited networks. Secondly, many MVNOs may feel that they must increase their domestic prices to cover these costs, which is problematic since pricing is commonly used by MVNOs to compete against larger MNOs. Thirdly, MVNOs will have to prepare for a change in data usage behaviour from their customers: with no roaming surcharges, consumers will only become more ‘data-hungry’, further increasing MVNO costs.
The EC has prescribed that wholesale rates will fall down to €2.5 per GB by 2022 (currently €7.7 per GB)[iv], but BEREC concedes that it is a challenge to strike “a balance between wholesale charges that…protect competition and avoid significant retail price increases in the home country, and are sufficiently high to allow efficient cost recovery and return on investments to visited network operators and avoid impacts on MVNO competition in the visited markets”[v]. It therefore seems that even regulators admit there is still some uncertainty over the implications of the new legislation. So perhaps we need not see the regulation as it currently stands as final and lacking future refinement.
So what can MVNOs do about all this? Should they simply yield to this assault on their profits, employ the same business model, and watch their customer bases decline? Well, here are 10 ways whereby MVNOs can mitigate the impact of this new directive:
- Analyse customer bases and roaming behaviour. Then accordingly restructure retail tariff plans, rates and bundles to mitigate risks from high use when overseas.
- Rebalance roaming fees for travel to non-EU destinations. Customers may become less price sensitive when they become more used to roaming.
- Develop and promote specific packages to encourage customers not to switch off data when roaming beyond the EU. As customers become more comfortable with data roaming inside the EU, harness this to drive greater usage when they travel further afield.
- Approach national regulatory authorities for an exemption. The EC regulations provide for exemptions where it can be demonstrated that they will cause a material impact on margin. The Finnish regulator has allowed four MNOs permission to continue to apply surcharges for EU roaming. Similarly, a Spanish MVNO has applied to its national regulator, the CNMC[vi].
- Consider launching “domestic only” contracts, with no roaming provision. There are several customer segments that this proposition could appeal to – not everyone travels internationally.
- Speak to host MNOs. They will have already considered the impact of the new regulations, and should be willing to support their MVNOs during the implementation period. Check whether the changes to the regulation automatically trigger a renegotiation of airtime rates, and explore this option with the MNO in any event.
- Explore sponsored roaming deals. Investigate whether alternative sponsored roaming partners can offer a better deal than the host MNO.
- Guard against abusive behaviour. Ensure that you have appropriate safeguards and monitoring in place to detect abusive or anomalous usage. Agree with your host MNO or roaming partner how to identify such cases, what action will be taken, and who will bear the commercial risk.
- Encourage Wi-Fi offloading. This not only provides a mechanism to reduce MVNO costs but can enhance the user experience where mobile signal strength and/or capacity are constrained.
- Look for broader opportunities to optimise the business. For example, MVNOs can look to reduce costs, extend customer lifespan or develop new revenue streams. Click here to download Cartesian’s conference presentation MVNO Performance: Evolution, Business Models, and Optimization.
In summary, the new regulation will present MVNOs with significant challenges. Whilst it is not possible to escape these, there are several options to mitigate damage to both top and bottom lines.<>
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Over the last three decades, Cartesian has worked on over 50 MVNO-related projects throughout the US, Europe, Middle East and Asia. With over 25 years providing consulting and managed services in the communications sector, at Cartesian, we help our clients more effectively compete and manage operations by addressing their specific challenges and rapidly delivering transparent and actionable insights.
[ii] ‘“Roam like at home” is likely to be impossible in some countries’, Informa (2017)
[v] ‘Analysis of the Impact of “Roam Like At Home” (RLAH)’, BEREC (2014)
[vi] ‘“Roam like at home” is likely to be impossible in some countries’, Informa (2017)