How to price technology – who will be the mobile roaming companies of the future?
Why is international data roaming so expensive?
If there is one thing that makes mobile phone users cross, it is the cost of roaming. Why, in an age where the technology is everywhere and the cost of calls so cheap does it cost more to call France from London than Newcastle – when France is nearer?
The reason is down to the way mobile phones started their pricing in the 1980s. And there is a lesson here for us all. How do you create a pricing framework for new technology products that you can adapt and grow over the years – that won’t leave your customers frustrated and perplexed in 20 years’ time?
Why is international data roaming so expensive?
Let’s first look at what happened with mobile roaming. Back in the mid-1980s there was a lot of debate in the mobile phone industry about roaming. We all sat in conferences organised by ETSI (the standards body) and talked about the future of the phone. As background, you have to remember that phones at that time were heavy brick like objects and they were expensive. Companies bought them to make their executives more efficient, rich individuals posed with them.
When we discussed the future of the phone in the 1980s we saw it as a business tool. So when the network operators looked at their cost models they saw there would be a demand from business people to take their phones abroad. It never crossed anyone’s mind that almost every man, woman and child would have a phone and would want to take it on holiday with them.
So when we looked at how to price linking the networks and linking the billing platforms, we took a big number (the cost) divided by a small number of users. That’s why roaming charges are so high – not because the mobile companies saw it as a chance to pillage their customers but because no one foresaw who would be using phones and how..
Now, with the benefit of hindsight, it is easy to say, ‘why didn’t you flex the pricing model as soon as the mobile phone became ubiquitous?’
But the problem with technology businesses is the cost of creating the infrastructure, its cost-effectiveness and managing shareholder expectations.
Roaming costs explained
With mobile phones there are a number of issues that have made a future flexible pricing model difficult
- Building the initial infrastructure – this was not done cost-efficiently in any country because essentially everyone was building networks for the business traveller, who would never need the volume of calls now being made across the world every second
- The costing model was based on ‘legs’ of a mobile phone call. Each time a call was handed over to another network, a cost was agreed for passing on that call
- When roaming costs were set up there were monopolies in every country, so BT negotiated with France Telecom, as an example. As competition arrived you had multiple network operators in all countries, still operating the ‘leg-over’ costing model as calls were passed along
- And of course, as mobile phone usage grew, phone companies found themselves sitting on cash cows that had never been predicted. No-one was brave enough to lead the way, slash the cost of roaming calls and reduce their revenue and profit streams. It was the regulators who finally did this, some say rather late. It will be interesting to see how fares – they are the first to break ranks and say no roaming costs at all
Last April, the Telegraph reported on the ban of roaming charges from December
“Members of the European Parliament have voted to ban roaming charges from 15 December 2015, as part of its wide-ranging telecoms reforms……
…. For the past seven years the EU has been forcing prices down by placing a cap on the charges operators can impose and reducing that limit each year. Current charge caps are €0.24 per minute for calls, €0.08 per text message and €0.45 per megabyte of data.
Although the removal of roaming charges could wipe 2 per cent off mobile operators’ revenues, the expected consolidation in the industry would allow greater economies of scale for the high costs of investing to build networks capable of handling ever-growing volumes of data.”
Howard Schmidt, who was the Obama administration’s cyber security co-ordinator until 2012, was recently on Radio 4 talking about today’s cyber-security problems. He said: “20 years ago, when the networks were being designed, I don’t think any of us understood where we would be today”.
Industries can rapidly be wiped out or decimated because management could not see how technology or consumers would change – the music industry is one and where are the video rental shops?
Looking back (and hindsight is such a luxury?!) at what points should the telecoms industry have done things differently? Or does it not matter that consumers are cross about roaming charges – businesses made good profits and consumers still bought and used their phones overseas?