Article by Mark Newman, Ovum analyst
I once described roaming as the mobile industry’s dirty little secret. Dirty because of its obscene profitability and secret because no one – specifically regulators – seemed to want to, or be able to, do much about protecting mobile users.
Fast-forward to 2016 and roaming is no longer a secret – at least not in Europe. It’s been forced to clean up its act by European regulators and prices are now on a downward trajectory that will see the roaming premium disappear entirely in 2017. But what about roaming for people travelling from Europe to other parts of the world? And what about roaming prices generally outside of Europe?
Over the last two years, pricing innovation has started to change the fusty old world of roaming pricing. Ovum’s newly launched Innovative Roaming Offers Tracker product details innovative roaming services from 64 operators in five continents. It was the era of the smartphone, and the inadequacy of the wholesale arrangements that underpin the roaming sector, that forced operators to find more customer-friendly ways of offering roaming services. Even those people brave enough to turn their data roaming on when their airplane wheels hit the tarmac were finding that they had already spent a small fortune on roaming by the time they collected their luggage because of all the smartphone apps running in the background.
There are a number of different packages now offered by operators – especially for data. They can be daily, weekly, or monthly. There are plans for just a few countries or for most countries. Some packages come as part of high-end price plans and others are bolt-ons. The best packages tend to be from multi-market operators, which can offer roaming across their footprint with no additional charges, or from disruptive players such as Free, 3, and T-Mobile. These operators are using roaming to persuade mobile users to switch from other networks, and may actually be subsidising roaming for some routes.
But this does not mean that all mobile users around the world are benefiting from these new packages. Some people are not aware that their service provider has special bundles; others just don’t get around to signing up to them before they travel; and others decide that they will just hunt down free WiFi when they get to their destination. And not all operators have roaming bundles, and not all countries are covered by them. Roaming prices remain obscenely high for those people who do not have a roaming bundle – even for Europeans – and particularly for travel to emerging markets.
The growing availability of roaming packages and bundles is a firm indication that operators now believe it is in their interests to make roaming more affordable. It is inevitable that revenues from existing business users will decline as they adopt the new price plans – it would be difficult to make a case for strong price elasticity in this segment. Where operators see potential for growth is in the huge number of silent roamers – largely consumers – who switch off their phones when they travel abroad. Indeed, there is good reason to believe that if price were not an issue, then people would use more data when on holiday than at home as they upload content, chat with friends, and use a whole range of news, information, and content services over mobile networks rather than WiFi.
But as they develop a more proactive and aggressive retail strategy to unlock this pent-up demand, operators need to be fully aware of just how difficult it will be to persuade consumers to change their preconceptions about roaming, and their travel habits. Most people have a story to tell about a friend or relative who has returned from holiday with a huge roaming bill. Nowhere is there less trust between a mobile operator and a customer than in roaming charges. The more complex the roaming bundle – the more exceptions in terms of countries covered, different service elements included in the bundle, and usage caps applied – the more difficult it will be to earn this trust.
The experience of European roaming price cuts– and operators’ responses to them – should be a valuable lesson for the mobile industry. European roaming revenues have been in decline since the first price caps came into force in 2007. Even though traffic has grown moderately since then, this growth has not compensated for the price cuts. There has been very little pricing innovation for European roamers, and operators have just tended to apply the maximum prices allowed by the European Union. By communicating these prices to customers by text message, operators have reinforced the message that there is a significant price premium for roaming. Furthermore, for those people who are now getting used to paying a flat monthly fee for their voice, SMS, and data, any additional costs can look prohibitive because of the element of uncertainty in terms of knowing how much they will spend.
Ovum is in the process of finalising its new roaming forecasts, and we remain confident that by adopting attractive, transparent, and predictable roaming price bundles operators can tap into a sizeable new consumer market. But such an approach is not without its risks. The potential to tap into a large market of silent roamers is still largely unproven, and many operators still believe that a defensive approach is more profitable than a proactive one.
Article by Mark Newman, Ovum analyst