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Text messaging has been and continues to be one of the biggest rip offs in the mobile sector. While the heady days of 20p+ per message for domestic texting are over with, believes that there are still some areas where consumers are being gouged and taking a mobile phone over an international border is number one on that list.
Thanks to the actions of the European Commission, there has been a high level of media attention given to this issue in the last 12 months and the Commission’s basic position is that since EU mobile operators are not bringing down roaming rates as one would expect in a competitive market economy someone must step in and do it for them.
Grumbling N moaning
The reaction of the mobile operators themselves has been predictable (cue sounds of grumbling and moaning) but confusing. The confusing part is that last summer, when this issue was very much in the spotlight, the mobile operator’s own trade organisation, the GSMA, released a report showing that a 25% decrease in data roaming costs between April 2007 and April 2008 increased consumer usage by 75%. Or, put more succinctly, the less they charge, the more they make. The question on many minds became: ‘What then are these guys fighting against?’.
If the dynamics stay the same between mobile data roaming and text messaging, it is clear that a 50% or more drop in text messaging roaming charges will result in a very sizable uptake in usage levels. The common reasoning is that the mobile operators will have larger volumes of messages with a smaller percentage profit margin so, on the face of it, the only winner will be the user.
Yet the common reasoning is wrong; the European Commission will feel like it won a victory, the average user will feel like he won a victory and the mobile operators will be laughing all the way to the bank.
Makin evry1 hpE
The critical error in the common reasoning pertains to profit margins per message. If one examines the revenue chain for a single text message, then the common reasoning holds up. A UK-based user goes to France and sends a text message. He is charged 23p and his UK mobile operator is charged somewhere between 3p to 6p by the French mobile operator. If the end user charge is cut to 10p, then the UK mobile operator’s margin drops from 17p to 20p, to 4p to 7p, which is certainly a large change.
However, what the common reasoning omits is that mobile roaming never involves only one message and that mobile operators heavily favour bilateral roaming agreements (where the charge for one operator to use the other’s network is the same for both parties) that are based on a standard contract template provided by the GSMA. This means that virtually all mobile operators are executing mobile roaming agreements that are, for all practical purposes, identical to one another with cost levels that, if not the same, are certainly similar.
So, in a month, let’s say that 500,000 messages are sent by UK users in France. However, there are most likely 500,000 messages sent by French users roaming the UK. The net effect? Neither operator pays the other a penny, they both keep the entire ‘roaming’ fee applied to their users and the only hard cost that they incur is transporting the user’s text messages on their network.
We lov d GSMA
The fact is that the GSMA has done a great job as an industry trade organisation. It has created a closed system of companies that, from Afghanistan to Zimbabwe, address their individual markets in a similar manner and that all take part in a big zero sum game called roaming. Because there are rather few countries that are truly net exportersof roaming traffic, the whole system works to create the illusion that you, as a user, are participating in some sort of high cost behaviour (travelling to France) when, in fact, your home operator has almost no additional cost in providing you service while you are there. However, because of the perception of some underlying cost, the operators charge and the users pay exorbitant rates.
As telecom services have generally enjoyed highly elastic demand, a cut in text messaging roaming charges will most likely result in a large increase in the number of roaming messages sent. If the percentage increase in demand is greater than the percentage decrease in pricing, the mobile operators will be better off than where they are today and all the efforts of the European Commission will also come to nought. However, you’ll be paying less for your text messages and that’s all that really counted.
Vyke combines its expertise in VoIP-based communication systems, mobile data service creation, handset technology and wholesale carrier network management to provide a converged communication solution.
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