You better call mummy on Skype

October 27, 2010

By Anna Buch, Beatriz Paúl Naya, Ana Muñoz Padrós and Anna Rydholm

Before telecommunications liberalization, the market was fragmented and calls to international phones were too expensive. However, the inclusion of this sector in the single market did not change the situation as it was expected. Contacting someone abroad could be a nightmare.

In the nineteenth century, the telecommunications markets worldwide were highly competitive. However, stimulated by the fierce belief that the large telecommunication enterprises would perform more cost efficient and deliver more social welfare, governments around the world nationalized their telecommunication providers in the 1960s.

From this moment on, until the late 1980’s relative harmony presided over the telecommunications market. The market was of no importance – and even lacked activity at the political level in Europe. However, motivated by the market reform in the United Kingdom and the United States, the telecommunications market became a major issue in the European political agenda. Deregulation of the European telecommunications market had to stimulate development of this market and eventually close the existing gap with its main competing markets, i.e. the United States and Japan.

First steps towards a European single telecommunications market

Telecommunications have been excluded from the 1992 single market program, but rapid technological changes with huge commercial implications, such as the internet, pushed the EU to liberalize this sector as soon as possible. Therefore, the Commission recommended in 1994 full liberalization for voice telephone services by January 1998. The Commission precised its proposal tackling also interconnection, interoperability, the provision of universal service and third-country reciprocity and licensing of telecommunications infrastructures, networks, and services. It pushed through also directives to liberalize the mobile telephone sector by January 1998. From this moment on, any telephone company could offer callers in most countries a local or long-distance service. The success then depended mainly on national compliance and authorities enforcing the directives in a sector still overshadowed by powerful former monopolies.

However, technological developments and the increasing convergence of access and communication possibilities pushed the Commission to create new regulations, for example those entered in force in July 2003 which led to more harmonization.

Roaming regulation to further harmonize the market

Eventually, the EU Roaming Regulation was proposed by the European Commission because the high costs of providing calling services among the EU were not justified on sale and retail levels. Member states were not able to put in force any law themselves because it is a cross-border service.

This brand new Regulation was enforced on the 30 June 2007 and required that mobile companies must have a new Eurotariff implemented within a month. This Eurotariff capped roaming charges per minute at a maximum of forty nine cents when calling and twentyfour cents when receiving calls abroad, excluding VAT.

This year, the European Court of Justice (ECJ) in Luxemburg ruled against the appeal lodged by mobile phone companies as Vodafone complaining about the EU Roaming Regulation. The Court said that the European Community “had the right to impose maximum limits” to this type of tariffs.

The ECJ also pointed that this Regulation protects consumers from abusive prizes, as before its adoption the average roaming calls cost was five times more than the real cost of the service wholesale.

A typical example – for a not harmonized market which should be harmonized

One significant example of the liberalized telecommunications sector is the German company T-mobile. Attracting over 150 million subscribers from several European countries as well as the US, the company has acquired a significant importance in the international context.

However, the history of T-Mobile began in 1989 when West Germany’s state-owned postal monopoly Deutsche Bundespost was reorganized and merged with the telecommunications sector into Deutsche Bundespost Telekom. The new company was privatized in 1996 and would be perpetually renamed during the subsequent years, before settling as T-Mobile in 2002.

Today, the company emerges as the world’s seventh largest mobile phone service provider and continues to develop. It recently became part of a joint venture called Everything Everywhere with mobile network provider Orange UK, which is actually the largest mobile operator in the UK right now.

Nevertheless, in spite of the international ambitions, roaming calls remains a fairly costly undertaking. For example-outgoing calls within the UK are debited with 25p per minute. If you decide to treat yourself with a weekend to Amsterdam, however, you better stick to your travel buddy for conversations – as the charge is 38p per minute for outgoing calls and 14p for incoming.

Although being an international company, T-Mobile is far from offering their European customers harmonized rates, and a typical example of a sector still lingering in its infancy.

For further information we recommend this master thesis about this topic.

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One Response to You better call mummy on Skype

  1. peter.verweij on November 3, 2010 at 1:46 pm

    Very good, Interesting to read about the liberalization of the Telcom market and the roaming ruling. I would open the story with the last part: what is the price now. And explain the details later. Do you have an outlook?
    The headline is a problem: where is Skype?

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