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The Cost of Walled-Garden Designs

The Swedish morning daily Svenska Dagbladet on their editorial page yesterday writes about the EU threat to intervene at mobile roaming costs for voice, SMS and data. The editorial is pushing the point that it’s wrong for the EU to try and price regulate the market, but instead the free market will prevail. They even seem to be indicating that the current pricing is fair and that an EU price regulation would hamper investments.

In very general terms I would agree with the editorial. Price regulation always has the risk to hamper investments and create lock-down effects on infrastructure providers. However, in this particular case I believe that the editors are writing purely out of ideology and not based on facts or understanding of how the mobilephone market works.

First of all, the assumption that there is a free and working market when it comes to cell-phone operators is inherently wrong. Instead it’s a heavily regulated and licensed market, where the European governments made fortunes on selling artificially limited radio spectrum (they could in many cases have given out more but that would have meant taking radio spectrum from their militaries in many cases). In other cases (like Sweden) they didn’t make a fortune on the licenses but instead created rules for coverage in virtually uninhabited areas in order to make sure there was high investments cost that would not pay back. As these costs will never be recovered by usage they can be written of purely as license costs.

Further, the way the cell-phone networks are built, technically in most cases, as well as organizational and product wise, they introduce roaming even inside corporate networks. I.e a Vodafone customer will pay a roaming charge even though he or she is in another Vodafone subsidiary network. That is hardly a free market. That is a product designed optimized for revenue. This is proven by Hi3G (3) that have abandoned roaming charges between Sweden and Denmark, but not to other 3 countries. Go figure.

A lot of this insanity, if not all, is inherited from the technical design on the mobil networks that on an architectural level enforces suboptimal routing of calls and data, based on inherited assumptions from the old telco-world. All customers needs to be verified and controlled by the mother ship (you home operator). This also creates customer lock-in effects, where you can for example limit a users network access to only certain destinations until they pay you for yet more destinations. This in monopolistic tel-co (let’s call it ITU) speak is “service separation”. This “feature” is also to blame for a lot of the artificially high prices for data roaming. You can today buy just expensive Internet access over slow links (called 3G) at a fixed rate per month. So one would assume that covers the cost of the data backhaul from the cell-towers (it doesn’t scale, but that is another discussion). However, the moment you cross the cell-tower coverage to a cell-tower located in another country, the costs becomes 10 fold. At the same time Wifi access in the same radio spectrum with backhaul is around 50-100 times cheaper—with unlimited use.

Now you could argue that all of this does not touch the main issue, that the market should be open and fair. But it does. The fact that I, when data roaming, have no option but to use my home providers exit point in Sweden for my data, rather than connecting to the Internet locally where I am, is all designed as an excuse for unrealistically high prices.

I would be all for having the EU not regulate the prices, but then the EU also need to ensure that there is a true, open and free market. And that includes requiring network architecture and design to reflect this. It means telling ENISA and the ITU that network architecture and technology can no longer be used as excuses for customer lock in and artificially high pricing. Unfortunately that won’t happen. Most EU states can’t see a future where their old monopolies are forced to compete on equal terms, and on market conditions. In most cases it would be slaughter of employment numbers, and probably huge losses that would need to be covered by the owners—i.e the member states.

But I guess that just as SvD, we can always keep dreaming. In the mean time I am all for the price regulation. MY experience is that there is nothing that helps network architecture and software engineering as much as the prospect of lost revenue.

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