Today’s Financial Times has a story with a mildly misleading but at the same time revealing title: “Regulator demands steep cut in mobile revenues”. This is misleading in the sense that dictating mobile carriers’ revenues is hardly what telecoms regulators are meant to do, but also very revealing because this is what they’re effectively doing these days in Europe. That’s not their fault, however.
The regulator in question is the UK’s Ofcom, and its “steep cut” refers to the new mobile termination rates. Everything Everywhere, O2, and Vodafone will see their MTRs reduced by 84% over the next four years, while the separate rates that apply to Hutchison’s 3 will drop 85%. The background in a nutshell is as follows. In Europe the interconnection costs are shared by predefined charges rather than a bill-and-keep system (such as the one in US), and those charges then are set by the national regulators.
The regulators are overseen by the EU, which tries to ensure that every member state follows the same uniform (and downward) MTR trend.The cost-calculation formulae – and thus the exact level of the MTRs – are subject to some debate, but in general the EU and the national regulators are doing the right thing here. Allowing telcos to price interconnection higher than what it actually costs to them would just limit competition and artificially prop the retail prices of calls.
But what does all this reveal about the European telco space? Well, frankly: its rather sorry state. Mobile calls are like gas or electricity – a utility that can’t really be differentiated, and of which price depends largely on regulation. Quarterly reports from European carriers habitually cite “regulatory interventions” as a main reason for why life was again so difficult over the reporting period, and no wonder. As the FT’s article points out, wholesale typically accounts for 10-15% of their revenue, so the direct exposure to MTR cuts is indeed quite heavy. A further, indirect hit comes from the cuts that the lower MTRs tend to stir on the retail voice market.
Just like gas and electricity firms, Europe’s mobile operators aren’t anymore controlling their own destiny, but a good deal of it is down to such a mundane area of life as the regulation of wholesale prices. That’s another darn good reason to try making those dumb pipes of data smarter.