The European Scandal on Roaming Charges

The European Commissioner Viviane Reding has recently proposed price controls on roaming charges. Apparently, she thinks that "in spite of many warnings and policy initiatives, roaming prices remain unjustifiably high". "It is high time that the EU's internal market delivered substantially lower communication charges for consumers and business people traveling abroad," she said. "A mobile phone customer should not be charged a higher tariff just because he - or she - is traveling abroad."

Jim Murray, director of the European Consumers' Organization in Brussels, which represents 40 consumer groups across the European Union backed her proposals: "This would definitely be a victory for European consumers. People have been getting ripped off for ages on these charges. The industry hasn't seen fit to lower them, so the government had to step in."

Why are these people simply wrong? Because they don't understand where prices come from. They don't understand that prices are not settled by industry's arbitrary whishes; they are "decided" by the law of supply and demand. If the prices are high it's because people demand that particular service a lot and there are few firms offering that particular service - in this case roaming. It's utterly absurd to speak about justified or unjustified prices.

Once one understands this simple fact about prices, it's pretty obvious that if you want the price to lower the economic conditions should be as such as the entry of additional firms on the market is easier. The price lowers when the offer increases not when some politician threatens and gives "warnings" to the phone operators.

If you want lower prices on something, the last thing you want to do is to put in place more regulation or even worse: price controls. Reding's victory wouldn't be a victory of the European consumers as it is hailed by the people constantly arguing for more and more regulations; it would be a great blow to customers interest.

And the reason is simple: when price controls are put in place, marginal firms disappear - i.e. the smaller firms and the firms that are barely trying to enter the market are the most hurt. They are the ones that cannot afford to offer such low prices as the price controls asks. (Reding might not be aware but additional costs come with roaming.) The large phone operators wouldn't be bothered too much. As Telia Sonera, the Nordic region's largest telecommunications operator, said: "roaming make up 10 percent of the company's sales volumes and any regulations would only affect overall sales by a couple of percentage points."

But that's not so in case of smaller firms, for example in the south of Europe, that profit a lot from the fact that tourists pay roaming taxes to talk home. It's no wonder that Spain doesn't endorse the price controls measures.

Moreover, the market forces already started to lower the roaming prices - this is what competition always does. It's just that Viviane Reding is awfully impatient and her economic ignorance makes her willing to put all this at risk - in fact she doesn't even realize that the measures she proposes would have a plethora of side-effects not even she would welcome.

According to Vodafone spokesman, Jon Earl, some 6 million customers had already signed on for a fee-based plan to save between 30 percent and 45 percent on calls made abroad. Most use their phones to call home from abroad and pay a preferential rate that is even lower than the international rate the EU is suggesting.

Why are people so ready to jump to conclusions and blame everything on the companies and not see that usually if there's a low offer of some product or service on the market it's precisely because government's regulation make the entry more difficult? This is how for instance the phone companies in Germany or Britain have managed to obtain a virtual monopoly. This is why some prices are "unjustifiably" high, not because the companies are evil.

"No one should speak about interventionism who has not examined the economic consequences of interventionism," wrote Ludwing von Mises in his book on the consequences of interventionism. "An end should be put to the common practice of discussing these problems from the standpoint of the prevailing errors, fallacies, and prejudices. It might be more entertaining to avoid the real issues and merely to use popular catchwords and emotional slogans. But politics is a serious matter. Those who do not want to think its problems through to the end should keep away from it."

Photo Credit: Yves Logghe