Beware of simple solutions to the challenges of regional telecommunications -they are neat, plausible, and wrong

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by David Epstein (Optus) at 8:37 AM

Recently, the ACCC announced a routine inquiry into the wholesale market domestic mobile phone roaming. This prompted some players to argue they should have regulated access to roam on existing mobile networks, such as the Optus Network. Some brands find it challenging to fund network investment in regional areas and believe regulated access to existing and expanding mobile networks might solve the problem.

As a solution to extending regional coverage, regulatory declaration of domestic mobile roaming is superficially attractive. Unfortunately, the magic elixir has some big detriments.

To paraphrase H.L. Mencken: "there is always a well-known solution to every human problem — neat, plausible, and wrong".

International experience highlights a number of issues. Vodafone's Global CEO, Vittorio Colao, and overseas regulators have been quite eloquent on the downsides in debates over mobile roaming elsewhere. According to Colao, "It's a solution that will not work, and it is the wrong solution for a legitimate request that is coming from consumers".

The likely reduction of incentives to invest in regional areas cannot be ignored. Nor can the likely high cost of providing the service. Unit costs are likely to be high as call volumes are likely to be low. An MNO acquiring roaming may have to commit to volumes to ensure cost recovery. Would they do so?

Surely protagonists are not suggesting that infrastructure operators should offer mandated roaming to competitors below cost or with significant subsidies?

Then there are the technical complexities of delivering the service with different spectrum bands in regional areas, together with intercept capabilities and other regulatory obligations.

The UK had a vigorous debate about mandated mobile roaming and Vodafone's response is instructive. It argued: "It would be technically far more complex, slow to implement and would cause serious problems with network resilience", and was quite certain it would remove incentive to invest.

Vodafone UK made the point: "national roaming would also harm the business case for further investment in rural coverage: why should any operator invest in providing better coverage for the benefit of a competitor?"

Regardless, Vodafone Hutchison Australia's Dan Lloyd argues otherwise; suggesting there are no downsides.

Chutzpah has a place, but claiming roaming arrangements in France, New Zealand, Canada and the USA are applicable to Australia’s telecommunications market takes such schtick to a new level.

There are also claims that increasing capital intensity in telecommunications markets is evidence that a comprehensive mandated roaming regime would have no effect on investment incentives. The facts say otherwise, and the claims conveniently ignore massive investments in networks driven by increased data usage, new spectrum allocations and competition by Optus in network improvement.

There is no comparable telecommunications market where the regulator sets domestic roaming prices on the basis of some of the arguments being kicked around in Australia at the moment. Nor is there any market where mandated roaming exists without local circumstances distinct from the challenges Australia faces with geography and dispersed population centres.

Globally, there are two main reasons for national roaming.

In North America, it enables national coverage in markets with regional licences (operating or spectrum). Australia only has national licensed networks. US and Canadian grounds for roaming do not apply here; there are no licensing or spectrum reasons limiting network coverage.

Elsewhere, roaming comes with obligations on access-seekers to encourage the late entry of new players, typically a new 3rd or 4th player. They usually apply for a limited time, and scope. Such are the New Zealand and French approaches.

In New Zealand roaming was provided to allow new entrant to use 2G roaming - on a Vodafone network.

This enabled the new entrant to provide services while building own network. In return, the new entrant to have at least 10% coverage, and plans to build to 65%. Roaming was retained in 2013 because of 2Degrees continued need to access 2G, only available through roaming arrangements with Vodafone.

While roaming is required, price terms are not regulated. Vodafone argued that national roaming should be removed in 2013 submission to the NZCC, and this year requested roaming deregulation in a response to the NZ Government review of the Telecommunications Act.

Then we have jurisdictions where roaming has been rejected or wound back. The UK considered and rejected national roaming. France removed roaming because it reduced investment.

In France, roaming was introduced to enable new entrant to provide services while building their own network. In May 2016, the French regulator banned long term roaming agreements, saying, "roaming can only be transitory or limited in scale, particularly given the disincentive to invest it could otherwise induce".

ACCC Chairman Rod Sims has noted risks for consumer choice may arise from an ill-judged roaming declaration undermining infrastructure investment incentives-incentives that are currently driving record levels of investment by Optus. Given this, it might be better to resolve what we expect from the wider market, before we tamper with roaming too much.

Originally published in CommsDay -29 September 2016