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Doubts on push to cut roaming costs

A threat from Prime Minister Julia Gillard that telcos should stop gouging consumers on roaming charges or face new regulation has been greeted with scepticism by telecommunications experts.

On Saturday Gillard, along with her New Zealand counterpart John Key, announced at their annual summit that the two countries would give their independent regulators new powers to investigate and take action against the high cost of mobile roaming across the Tasman.

Tony Simmons, a former commercial lawyer with Telstra and British Telecom who has negotiated global roaming agreements with carriers, said roaming regimes were a "black box" and carriers were gouging consumers because there was a lack of transparency and effective regulation from governments.

"This is a captive global market where the best pricing strategy is gouging because there is very little price sensitivity when people need to access data or make phone calls." Simmons said.

"The overriding factor is convenience and access to services ... it is a seriously high-margin cash cow."

Australian and New Zealand regulators will monitor pricing and they are hoping telcos will find the threat of regulation enough to lower their prices, but consumer groups such as the Australian Communications Consumer Action Network (ACCAN) believe the governments should set price caps on global roaming charges.


Sending data can cost $20 per megabyte, meaning it can cost almost $40 to send a photo from a smartphone, while phone calls can range from $2 to $8.50 per minute, a joint government report into trans-Tasman roaming costs found.

In Australia the ACCC will be given more powers through new legislation to ensure it is able to monitor and potentially take action to regulate prices. New Zealand plans to introduce similar new powers but both countries claim that no action will be required if telcos act to lower prices themselves.

“This is just the tip of the iceberg,” Gillard's office said. “If we can drive down prices in New Zealand, we can also start to act to bring about lower prices in other advanced economies such as the European Union.”

Trans-Tasman telecommunications wholesale margins are on average above 300 per cent, while retail margins are above 90 per cent.

"The margins are well above the usual margins in the telecommunications sector of around 10 per cent to 20 per cent," Gillard's office said.

Global roaming costs for Australians are some of the highest in the world and the Telecommunications Industry Ombudsman reported in December that complaints about disputed roaming charges increased by almost 70 per cent in 2011-12 to more than 4100.

The same day the complaint figures were released, ACMA issued a new draft international mobile roaming standard that would force telcos to warn consumers of exact charges while they are roaming and provide tools to monitor and manage their usage.

Simmons, now managing director of Australian telecommunications consultancy The Full Circle Group, says roaming costs are a “black box with multiple, complex interconnection rates and contracts which are very dynamic”.

"In essence, instead of having a team dedicated to deciphering the charges and costs and making a sensible margin on the product, there is a certain amount of 'throw a blanket margin' mentality over the pricing," Simmons said.

He said telcos such as Telstra were able to take this approach because there was “no compulsion or regulation” and customers were often locked in with a contract. People frequently put high roaming charges down to a "cost of doing business".

Elise Davidson, a spokeswoman for ACCAN, said she expected global roaming to remain prohibitively expensive "for some years to come".

Simply monitoring prices would not be enough to bring them down and after years of ineffective reports into high roaming charges, the government should “set price caps”, as has been introduced in the European Union.

"Since 2008, EU price caps has seen a significant reduction in the cost of calls and texts for customers roaming in European countries last year and last year price caps were also introduced for data, which is expected to have a similar impact," Davidson said.

She said the ACCC will have the power to set price caps for Australian telcos but at this stage it was just a "threat", and action was some way off.

"The government will first need to pass legislation, then the ACCC will need to investigate prices in order to be able to set a price cap, before actually doing so," she said.

Simmons, who has in the past negotiated roaming agreements between telcos, like ACCAN is a supporter of global roaming price caps but only if the telcos don't first act on their own to reduce prices.

He said the first step would be transparency on pricing and how the charges are derived, which he believes "would no doubt lead to a chorus of outcry as we can all see the gouging taking place".

He said similar moves in the EU had reduced mark-ups from 100 times to four or five times.

"I think that transparency will shame telcos into aligning their pricing with more justifiable policing models," Simmons said.

However, he said the "fear factor" on the telcos' part may be reduced, given that the federal election date is known and a change of government may be imminent. "In the immediate term, I suspect nothing will change".

Telco analyst Paul Budde said the Australia-New Zealand announcement was a "great initiative but little incentive for operators to make real progress".

Davidson said she hoped telcos would act voluntarily, based on the threat of price caps but did not think this was likely. In the meantime, ACCAN recommends anyone going overseas to buy a local SIM card at their destination country.

"New Zealand will be a good test case to see if governments can work together to bring telecommunications providers' pricing into line but any change to pricing in Europe and other regions is years away," Davidson said.

Simmons said global roaming regimes, agreements and contracts were so different around the world that mirroring the Australia-New Zealand agreement on a global scale would be extremely complex.

Late last year Telstra said it was issuing about $30 million in refunds after discovering it had been over-charging customers for global roaming services on mobile phones since 2006.


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