BuddeBlog

Regulators expose data roaming rip-off

The EC’s Roaming Regulation entered into force in June 2007. It introduced maximum price ceilings both at the wholesale and retail levels for voice-based mobile telephony. The so-called Eurotariff has led to savings of up to 60% for consumers making use of voice roaming within the EU. From the end of August, retail prices will be reduced again – capped at E0.46 for making calls and E0.22 for receiving calls. A third price reduction is scheduled for July 2009 (to E0.43 and E0.19 respectively), though the Eurotariff will expire in June 2010 unless it is ext ended by the European Parliament and Council of Ministers.

Data services such as SMS, MMS and other data traffic did not fall within the scope of the Regulation, though national regulators have been required to monitor wholesale and retail prices for these services. The EC was also obliged to evaluate, before the end of 2008, whether the Regulation should be extended to cover data services. The first report on these cost analyses (provided to the EC and the European Regulators Group (ERG)) was published in January 2008, covering April-September 2007. The second report, covering up to March 2008, is due to be published imminently. Separately, the EC from May to July 2008 conducted a public consultation on this issue. It has not been impressed with the response from mobile operators: a commissioned report on data roaming services from Connect2Roam revealed the extent to which high roaming prices and lack of transparency have prevented mobile data services from taking off.

The ERG is cautious not to extrapolate too much from its initial conclusions, though it is evident that while prices for data services vary significantly from country to country, across the board they are far higher than can be justified by the cost incurred by operators. In a July 2008 presentation, the ERG showed that the average SMS roaming charge of E0.29 could reasonably be brought down to E0.11, while operator costs can be as low as E0.04. The average cost of sending a text message while travelling in Europe has fallen by about 18% since mid-2007 as operators have reacted to the EC’s threats to legislate, but these gestures have proved insufficient: the EC has recently proposed introducing rules in October that could cut the price of sending text messages when abroad by up to two-thirds. A roaming price has not yet been agreed upon, but is likely to be about E0.12 per text message.

Data as charged per MB also remains excessive: in most countries (with the notable exceptions of the Czech Republic , Malta , Hungary , Latvia , Poland and Slovakia ) charges fell between June 2007 and March 2008. Nevertheless, in four markets ( Iceland , Luxembourg , Poland and Slovakia ) the retail charge per MB is above E10. According to the GSM Association (GSMA) the average price for downloading a MB of data is now just over E5.

Lack of transparency remains a serious problem, in that most consumers are unaware of prices for data roaming or of the amount of data being used. This in turn has led to the ‘bill shock’ which is proving to be one of the principal brakes on customers using mobile data roaming.

A recent study by the Danish regulator is instructive, as it shows all too clearly how much mobile operators are charging against what could be charged while retaining a fair profit. The regulator showed that the tenfold price increase in sending a text message while abroad is not justified by differences in the costs involved in producing the service. Danish network operators pay an average of E0.17 to foreign mobile operators for use of their networks, while the real cost of sending an SMS is less than a tenth of a euro cent. Danish operators also charge customers almost four times more to deliver a text message than they could do while still making a profit.

SMS and MMS roaming charges ˆ’ Denmark – 2008

(Source: BuddeComm based on IT-og Telestyrelsen data)

For more information, see separate reports:

• Denmark – Mobile Market – Overview & Statistics
• Europe – Mobile Market – Mobile Data;
• Europe – Mobile Market – Overview & Statistics ;
• Mobile technology reports ;
• Global mobile reports ;
• Global – Mobile – Market Analysis 2008 .

Brazil sees major merger

In June 2008, Brazil’s telecoms regulator Anatel approved changes to Brazil’s telecoms laws so that a single telecom operator can hold two separate operating licences, effectively paving the way for Telemar, trading as Oi, to complete its takeover of Brasil Telecom (BrT). The deal is still awaiting final government approval, but should be finalised before end-2008.

To ensure that the merger would not compromise competition, Anatel ruled that companies with concessions in more than one operating region must provide services on a national basis. Besides promoting competition, this proviso should prevent telcos from cherry-picking lucrative densely populated areas at the expense of less attractive rural markets.

A merger between Oi and BrT had been brewing for years. In 2003, the two companies and mobile operator TIM Brasil were in talks to merge all three operations. At the time, any such deal was impossible as Brazil’s telecoms law prohibited the merger of incumbents.

But in 2007, merger plans gained momentum after the Brazilian government expressed itself favourably disposed to changing telecoms regulations. The fact is, it saw a merger of Oi and BrT as a way of creating a strong national player able to compete with foreign-owned giants America Movil and Telefonica. In February 2008, it accepted an official request by Oi and BrT to emend the telecoms law.

In April 2008, Oi paid R$5.9 billion (US$3.5 billion) to acquire shares in BrT through its wholly owned subsidiaries Copart 1 Participacoes and Copart 2 Participacoes, and said it would spend as much as R$6.5 billion more on buying additional shares. Oi continued to purchase shares of BrT in the following months, ending June 2008 with 8.1% of Brasil Telecom (through Copart 2 Participacoes), and 15.3% of BrT’s parent group Brasil Telecom Participacoes (through Copart 1 Participacoes).

Once the acquisition is complete and the government has given its approval, Oi plans to conduct a corporate restructure whereby Brasil Telecom Participacoes will be merged into Brasil Telecom, which will become a wholly owned subsidiary of Oi through a process of share exchange.

The Oi/BrT merger will create a company with the following market positions:

• Fixed-line market – Oi is already the market leader, while BrT is the number three operator behind Telefónica. The merged company will own approximately 57% of Brazil’s fixed lines in service;
• Mobile market – Oi is the number four and BrT the number five operator. Even adding together Oi’s and BrT’s customers, the combined firm will still only occupy the fourth position, with a market share of about 18%;
• ADSL broadband market – BrT and Oi occupy the second and third place respectively, but a combined Oi/BrT will overtake Telesp to become the market leader with a share of about 55%.

See also:

• Brazil – Fixed-Line Market and Infrastructure – Overview & Statistics;
• Brazil – Convergence, Broadband and Internet Market;
• Brazil – Mobile Operators.

Co-ordinated policies across the EU have helped to kick-start a number of smart grid projects. Many of these remain small scale. The European Commission (EC) has endeavoured to incorporate strategies within its 2008 Climate Action directive to help increase the proportion of renewable energy used across the EU, increase the market share of biofuels, and reduce overall emissions.

By 2012, between 25% and 40% of homes in Europe will be equipped with smart meters, compared to 6% currently. Italy and Sweden are leading the adoption of smart meters in Europe with 100% installation expected by 2009. Smart metering is also being introduced on a large scale in Denmark, Finland (by Vattenfall, Fortum and E.ON) and Austria. New legislation is expected to mandate smart metering in Ireland and Norway, where in June 2007 the energy authority NVE recommended legislation requiring smart meters to be installed by 2013. The Norwegian network, modelled on that of Sweden, would cost €š500 million and affect 2.6 million customers. Belgium is developing plans to introduce smart metering funded by an increase in distribution tariffs. In France, Alcatel-Lucent in June 2008 developed a smart metering solution incorporating a web interface which provides consumers with information on their power consumption.

Italy is at the fore-front of European smart grid technology and deployment. Digital smart meters have been compulsory for all electricity providers since 2006. The government’s timetable is for 65% of customers of the approximately 100 electricity companies to be on smart meters by 2009, 90% by 2010 and 95% by 2011.

The world’s largest smart meter deployment was carried out by the utility Enel which had provided meters to 27 million customers by 2005; only a further two million meters need to be replaced. The meters use Broadband Power Line (BPL) technology to communicate with Enel’s servers, enabling the company to turn power on or off remotely, read usage information, detect outages, and change billing plans. The €š2.1 billion capex provides annual cost savings of some €š500 million ˆ’ an extraordinary return on investment within five years. Enel also provides a mobile connection to meters as part of its smart grid.

Enel’s competitor Acea-Electrabel has also launched its smart meter project, in Rome, and planned to have 1.5 million meters installed by 2009. A2A in Milan is also extending smart meters to its gas network.

In the UK, providers including Centrica, Scottish and Southern Energy, British Gas and EDF have tested smart metering technology in homes for several years. In May 2007 the government set in train the requirement for energy suppliers to install smart meters in most businesses by 2012. There are no similar plans for residential smart metering (affecting about 45 million meters); the government is at present leaning towards a less sophisticated solution, proposing that suppliers install electricity display devices (EDDs) free of charge whenever a traditional electricity meter is installed or replaced. EDDS provide consumers with general information about their power consumption, but the technology falls short of smart meter capabilities. The energy regulator Ofgem has funded smart metering trials with 40,000 households, funded by with grants of £9.75 million, while the Energy Retail Association (ERA), in launching the Look Smart campaign in 2007, has called for smart meters to be installed in all homes (servicing gas and electricity) within ten years. Small scale operations include utilising renewable energy via Active Network Management in the Orkney Islands, as also utilising wind power via dynamic line rating technology and biogas energy via voltage control technology (EON Central Networks and EDF Energy).

Several smart meter trials are underway in Germany, including those in Linz and Dortmund. The DISPOWER virtual power plant set up in Stutensee provides intelligent power to 100 apartments and houses. Power is sourced from gas and Photovoltaic (PV) systems, monitored remotely and controlled by an energy management system (EMS). Intelligent load management avoids exceeding the voltage band. The EMS automatically contacts residents via SMS or email to suggest using appliances such as washing machines within a specific time frame based on high energy yield from the PV systems.

In The Netherlands, the government in September 2007 proposed that all households (running to 12 million electricity and gas meters) should have smart meters by 2013 as part of a national energy reduction plan. Companies such as Continuon and Delta Netwerkbedrijf have installed meters in a number of cities, while trials have also been conducted with water utilities.

In Sweden all four million households will have smart meters installed by July 2009. Of these, about 1.2 million large users will have meters which can be read every hour. The nationwide smart meter project was launched in 1996, principally to enable users to switch more easily between the 165 service providers. Meters have a range of built-in capabilities; including Internet access to the data generated by the meters; some 20,000 of these meters have been installed in V¤xjo. The total project cost is likely to reach €š1.7 billion. About 30 providers, serving some 825,000 customers, have combined their buying power under the name SAMS, thus reducing overall cost.

Henry Lancaster

Senior Analyst Europe BuddeComm

For more information of smart meter developments, see:

Global – Smart Grids – Energy & Environmental Issues – 2008 ;

Global – Smart Grids – Overview 2008 ;

Global – Utilities Broadband – Trends & Analyses ;

Europe – Broadband – Broadband over Power Line (BPL) .

Hot on the heels of BT’s announcement that it plans to invest £1.5 billion in a predominantly Fibre-to-the-Curb network, two of its competitors - one a large national enterprise, the other a small and innovative operator - have also extended their fibre portfolios. BT’s deployment, largely dependent on a sympathetic regulatory regime which would provide it with guaranteed returns on investments, is set at 40Mb/s in areas provided with FttC. Virgin Media has been keen to point out that its own network will provide 50Mb/s towards the end of this year and progressively into 2009. The operator’s network reaches about 50% of UK households (up to 74% in London). Rather than spending money to extent its cable footprint (triple play services in areas which it does not reach are provided through wholesale LLU), Virgin Media has upgraded its network to provide much faster speeds. In February 2008 the company upgraded connections to customers on its ‘L’ tier package from 4Mb/s to 10Mb/s, and following trials in several towns a 50Mb/s service was to be made available (compared to the current top speed of 20Mb/s). By 2012, the company expected to deliver a 200Mb/s service using existing Docsis 3.0 technology. Detractors have wondered whether there is sufficient market justification for this leap. Yet the UK’s road network provides a good example of how ‘pipes’ can be filled: extend a four line highway to eight lanes, and those additional lanes will soon become heavily used. Similarly, Virgin Media has pointed out that customers in its 50Mb/s trials soon used the capacity offered.

The smaller company with large fibre plans is H2O Networks, which is likely to beat BT in delivering FttH to consumers. The company was contracted by the ISP Ask 4 in April 2007 to deploy a fibre cable network in sewer systems, an approach commonly used in France. H2O’s Focus (Fibre Optical Cable Underground Sewer) cables lie at depths of up to five metres compared with 450mm for conventional cables, making the network less vulnerable to natural disasters and other disturbances: nine out of ten outages are caused by bulldozers and diggers breaking cables. The deployment process can be 80% faster than traditional methods. H20 is using sewers in Bournemouth (in a project costing €š£30 million), Northampton and Dundee. The network would then expand to cover all 360,000km of sewers nationally. Where the FS system is unviable the company plans to use its Blown Mini Duct (BMD) system wherein cable is set into a 20mm channel dug into roads. In Bournemouth, the company is at the point of contacting potential customers while the regulator is consulting on giving it powers to carry out co-ordinated street works. One key point of the H2O fibre roll-out is that it will be open to other ISPs to share capacity. If the UK follows the precedents established in Sweden and The Netherlands, municipalities will do all they can to encourage H2O Networks to consider including them as target cities.

For more information, see separate reports:

• United Kingdom – Broadband – Fixed Network Overview, Statistics & Forecasts ;
• United Kingdom – Key Statistics, Telecom Market & Regulatory Overviews ;
• Europe – Broadband Market – Overview & Statistics ;
• Europe – Infrastructure – FttH, NGNs & IP ;
• Europe – Regulatory Environment ;
• Europe – Broadband – Regulating fibre access .

China’s booming Internet population has surpassed the USA to become the world’s biggest, with 253 million people online at the end of June 2008, despite government controls on web use. The government goes to great lengths to block access to sites deemed subversive or pornographic. The USA had an estimated 223 million internet users in June, with an online penetration of 71%.

The June figure on internet users is a 56% increase from a year ago according to the CNNIC (China Internet Network Information Centre). The proportion of Chinese using the Internet is still only 19%, leaving room for rapid growth. The financial size of China’s online market, though, still trails those of the USA, South Korea and other countries.

China Telecom claimed a gain of 890,000 broadband subscribers giving a total of 40 million at end-June. The company however, lost 580,000 fixed-line phone users in June making it the 12th successive monthly decline and reducing its total subscribers to around 215 million.

The number of mobile phone users in China increased to 601 million at the end of June, up by 8.6 million from the end of May. China Mobile and China Unicom have cut prices and boosted investments in networks, which has crimped demand for fixed-line services. China Mobile, the largest of the operators, gained 7.55 million users in June for a total of 414.6 million.

See also: BuddeComm China reports.