Hold the phone! Why the EU roaming regulation might be bad for consumers

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MEPs and Eurocrats are engaging in some circular back-patting this week, after finally achieving their long-held objective of outlawing mobile roaming charges between EU Member States. From June 2017,

“roaming providers shall not levy any surcharge in addition to the domestic retail price on roaming customers in any Member State for any regulated roaming calls made or received, for any regulated roaming SMS messages sent and for any regulated data roaming services used, including MMS messages, nor any general charge to enable the terminal equipment or service to be used abroad”.

The regulation provides that charges can continue where the provider would otherwise make a loss as a consequence of this requirement, however that provider may only charge so much as to offset that loss. Providers can also subject roaming customers to “fair usage” policies, in order to prevent permanent roaming.

Most holidaymakers will have suffered the unpleasantness of “bill shock” at some point or other, so this, on the face of it, appears to be good news for consumers. However, the EU’s relentless pursuit of a single market in telecommunications may ultimately prove to be bad for consumers in the longer term.

Immediate effects

The immediate effect of this regulation will be good for consumers. This regulation has been a long-time coming, and the costs of implementing it in the short term have probably already been anticipated by operators. The lucrative receipts from roaming charges received by operators will be no-more, with consumers benefitting while network operators suffer. However, while I’ve never run a multi-national telecommunications company, I’m reasonably sure that if forced to choose between protecting profit margins or lowering prices, I’d probably opt for the profits. This is where the regulation could well prove to be bad news for consumers. It is likely that, while the short term implementation of these rules has been priced in, in the longer term operators will seek to return to normal profit levels – which in a saturated marketplace almost inevitably means higher prices.

Most mobile users don’t roam often. And while the more limited use of our devices, and higher charges, are something of an irritant when we go on holidays – most of us, these days, opt to go without roaming services and simply hop from wireless hotspot-to-hotspot. A very small minority of users, however, will travel often around the EU, and for a small number of those users (businessmen, journalists, or Eurocrats, for example) constant connectivity is a necessity and one which they (or their employers) have hitherto paid through the nose for.

From June 2017 we’ll now all receive a service for free which most of us have learned to cope without. For the British holidaymaker in France it means keeping up with Wimbledon on Twitter. Great news! But more of a nice added bonus than a necessity. However, for the high-financier jetting around European financial centres doing deals this is a huge boon – and doubtless the primary beneficiary of this move.

So if big business consumers are celebrating, and mobile operators are – long term – likely unaffected, how should the consumer feel about this regulation? Given that from June 2017 those of us who learn to limit our mobile usage while on holidays will effectively be cross-subsidising those who previously had no choice but to pay for it; we probably shouldn’t be celebrating too much.

Long term effects

This regulation represents another step towards the EU’s stated objective of a single EU market in telecommunications. Most rational, normal, people see the attainment of a single market as a good thing when it facilitates the attainment of other objectives – such as improved competition, lower prices, and higher standards. For the EU, however, the attainment of a single market is an a priori good. This is quite evident in the field of EU competition law. It has been apparent since the decision in Consten and Grundig that the objective of attaining a single market in the EU overrides competition law objectives. This contrasts starkly with the US courts’ consumer welfare approach, heavily influenced by the Chicago School – where vertical restraints (such as geographic restraints) are only unlawful where they harm consumer welfare.

However, large single markets are not always good for consumers. This is particularly the case in sectors where barriers to entry are high. In the mobile telecommunications sector, barriers to market entry are extremely high. The nature of the product means that access is restricted by licensing schemes. The capital outlays necessary (for infrastructure) are massive, while in 2013 operators paid £2.4 billion pounds for five licenses to operate 4G services in the UK. Though these figures are eyewatering, the barriers to entering individual telecommunications markets in the EU are as nothing when contemplating what these costs might be in a single EU mobile telecommunications market.

The fragmentation of the EU’s telecommunications market is arguably good for consumers. While four big players players exist – Vodafone (UK), Telefonica (Spain), Orange (France), and Telekom (Germany), with at least one of each of these four operating in most EU countries (save Scandinavia) – many markets have smaller operators who compete effectively with these large players.

Compare, for example, France and Germany. France has a marketplace with only one of the dominant four players (Orange) as well as two domestic-origin competitors (Bouygues and Iliad) and one Dutch competitor (Altice). In contrast, all three network operators in Germany (Telekom, O2, and Vodafone) are all drawn from the big players. A SIM-only plan from Bouygues in France with unlimited calls and texts, and 3GB data is priced at €19.99 per-month. With Telekom in Germany, a plan with unlimited calls and texts and 2GB data has a normal price of €39.95. These price patterns are replicated in other jurisdictions with similar levels of dominance by big players.

There is a marked difference in price between the marketplace in which there is competition from smaller operators than in the marketplace dominated by big players. Unfortunately for the consumer, the latter is the more likely outcome if the EU’s objective of a single EU-wide market in mobile telecommunications. The nature of the technology means that there is likely only spectrum capacity for around five network operators – with only large pan-European operators the only players with the capital and infrastructure necessary to operate. We need only look to the US for an illustration of a large single market in mobile telecommunications – where prices are considerably higher than in Europe, coverage is patchy, and technology, until fairly recently, lagged behind.

So in July 2017 British holidaymakers will follow Wimbledon on Twitter as they lie on the beach in Benidorm or sip on rosé wine in Brittany, and may even drink a toast to the European Union for making that day a little bit more enjoyable. However, in years to come, we may look back to when we had to beg, borrow, and steal wifi while abroad as the good old days.

Labour should back a Basic Income

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This morning it was announced that Finland is to pilot a Basic Income as part of a far-reaching reform of tax and benefits. During the 2015 election, the Green Party of England and Wales were widely ridiculed for their policy of a ‘Citizens Income’ – more commonly known as a Basic Income. Their ridicule was, in large part, deserved primarily owing to their own obfuscation on the matter and basic failure to mount any defence of it. However, the Basic Income isn’t as absurd an idea as it first appears – which might be why the Finns (not renowned for their radical Communism) – are seriously considering its implementation.

A Basic Income is essentially money given by the state to everyone, regardless of means or need. This was ridiculed as outlandishly expensive in the run up to the 2015 election, however some back-of-the-envelope calculations demonstrate that it could actually be implemented as a relatively modest reallocation, but radical simplification, of the existing tax and benefits systems.

A basic income would simplify the tax and welfare systems, remove the stigma attached to benefits, incentivise work, and redistribute wealth (even if only modestly).

It is a reasonable surmise that most people resident in the United Kingdom will either pay income tax, or else will be living on benefits. Very few people live off savings alone – and you would expect those with sufficient resources to be able to do so to have structured their considerable finances in such away that it generates income.

The purpose of both the personal allowance for Income Tax, as well as of benefits, is to provide people with the basic means of subsistence. This is reflected in their levels. Standard Jobseekers’ Allowance + the average Housing Benefit payment = approximately £8,500, which, when you consider that Council Tax Reduction would also likely be applied, isn’t that far removed from the £10,295 someone earning exactly the personal allowance would take home.

The level at which it was proposed by the Greens – £72 a week – is approximate to Jobseekers’ Allowance. A basic income set at the level of Jobseekers’ Allowance would amount to £3,800. Abolishing the personal allowance and paying everyone, instead, this Basic Income would be equivalent to increasing the personal allowance to £19,000. This, of course, would need to be off-set by a re-calibration of rates and bands. For example – assuming that National Insurance Contributions remain constant – in order to ensure that someone earning the average salary of £26,000 takes home the same amount of money after scrapping the personal allowance and paying him or her a Basic Income of £3,800 on top of their present net salary, a rate of income tax of 26% would have to be applied to their income. Given that the present basic rate of income tax is 20%, this represents a relatively minor shift, approximate to the 25% level that existed in the 90s. In any event, they would still be taking home the exact same amount of money.

Someone earning less – for example £20,000 per year, would be £480 a year better off; someone earning slightly more, for example £30,000 per year, would be £120 a year worse off. Someone earning £7 an hour working 30 hours a week would be about £1,000 better off. This might seem like a lot, but given that that person presently pays almost no tax and is entitled to receive about £2,800 a year in working tax credit – a Basic Income actually looks quite miserly by comparison. Expressed in these terms, a Basic Income begins to look less like an incredibly generous giveaway, and more like the sort of tinkering with rates and bands that is commonplace in every budget – and exactly the sort of shift in the burden of taxation that you would hope that a Labour Government would pursue.

A basic income could remove benefits as a social wedge. Rather than being something that only certain kinds of people get, it would be something that everyone gets. While, of course, there would remain the usual grumblings about people who aren’t working, it is arguable that the basic income would greatly incentivise work.

David Cameron, arguably rightly, identified the “benefits merry-go-round” – whereby people are taxed on their income and then handed it back in the form of benefits. This is certainly the case, as someone earning above the personal allowance but still on a relatively low income will pay tax on their income and then potentially be entitled to a litany of in-work benefits: income support; working tax credits; Local Area Housing Allowance; Council Tax Reduction. Many of these benefits are designed to ensure that working is financially more attractive than not working – however knowing whether or not you will actually be entitled to them feels like guess-work to most of us. The certain knowledge that your basic income continues whether you work or not would greatly incentivise work. No longer would people fear that by going to work they’d be no better off.

Obviously costing such a reorganisation would be a considerable undertaking – and the levels at which a Basic Income would become revenue neutral might vary wildly from those discussed above. But considering that a litany of benefits could either be substantially reduced in scope, or else scrapped altogether – and the associated costs of administering such benefits (we spend £8bn a year simply administering benefits) – it may well transpire that a Basic Income of £72 a week was actually pitched much lower than necessary.

10 Questions for Nationalists

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If the SNP can adequately answer these I’ll sign up tomorrow:

  1. We know you’re anti-austerity, but you still prefer it to raising taxes, right? You may not have the power to curb austerity through borrowing, but you do through taxes – which you steadfastly refuse to do.
  2. How do you propose to redistribute wealth from some of the world’s richest people in London to our poorest people in Glasgow by throwing up sovereign boundaries between them? Does independence really make the world a more equal place? Or are you only concerned about equality within our borders?
  3. You don’t really want full fiscal autonomy, do you? I mean, even those of us who are opposed to independence accept that it’s not entirely without any merit. But FFA is all of the drawbacks of independence without any of the advantages.
  4. What have you actually done with the powers the Scottish Parliament already has to redistribute wealth from richer people to poorer people? I can think of plenty of examples to the contrary – the Council Tax freeze springs to mind.
  5. You know perfectly well that there’s no actual way in the British Constitution to make anything, permanent, right? You also surely know that if the UK ever did try to scrap Holyrood, Scotland would be independent inside a month? Isn’t this the sort of “scaremongering” that you accused unionists of?
  6. You accuse others of “breaking promises” to the people of Scotland. Whatever happened to scrapping Council Tax and paying off my student debt?
  7. You do know that a LOT of your supporters are fundamentally horrible, nasty people, right? I know, I know – there are unpleasant people like that on both sides, but there’s WAY more on yours and you do relatively little to stamp it out.
  8. You really did want the Tories to win, right? Not because you like them, but because you know perfectly well that a Tory PM is a far more frightening bogey man than a Labour one.
  9. You do accept that Alex Salmond is a proven liar and at least a bit of a sexist? Contrary to Alex Salmond’s attempted excuse, it is NOT a “Scottish saying”.
  10. Independence in Europe – bit of a logical inconsistency, no?
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