Status of Data Roaming

1. Flat-rate Pricing for International Mobile Data RoamingHeikkiHämmäinen, HannuVerkasalo, K.R. Renjish KumarEuroCPR2009SevillaMarch 31, 2009

2. Regulation approved by EU on March 2009 For wholesale tariffs only Volume-based wholesale price cap of max 0.50EUR/MB Commercial launches of flat-rate data roaming exist Bridge Alliance (11 Asian operators) launched a monthly(?) flat-rate of 30USD a month for 15MB and 60USD for40MB April 2008 Conexus Mobile Alliance (7 Asian mobile operators) launched a daily flat-rate varying in the range of 10-22USD (also unlimited volumes!) July 2007 Vodafone launched a Euro flat-rate service for business travelers with laptops, 12EUR per day, max 50MB (and a wholesale price of 0.50EUR/MB) May 2008 Orange launched a daily Euro flat-rate of 12-15EUR per day, max 50MB. Commercial experimentation focused on business users Status of Data Roaming

3. Research Hypothesis • Market-based mechanisms will not produce flat-rate data roaming •  regulatory intervention is needed • Volume-based price cap will not trigger the Internet machinery •  some kind of flat-rate-based price cap is needed • How about a regulated daily flat-rate?

4. Mitomo et al. (2007) demonstrated the existence of flat-rate preference among Japanese mobile users Observations from the Finnish market Rapid growth of fixed Internet (ADSL) started at launch of flat-rate (1999) Rapid growth of mobile Internet started at launch of flat-rate (2007) Laptops generate 98% of mobile cellular data traffic (via USB stick modems) Flat-rate has not spoiled the profitability of operators-rate Rapid growth of Internet roaming will start at launch of flat-rate? Flat-rate Preference in Internet Access

5. Data roaming prices are detrimental? Average MB / user / day Home 1,0 Roaming -89% 0,59 0,5 -89% 0,07 0,05 0,01 0,0 Usage-based Block-priced / Flat-rate Domestic data pricing plan from operator

6. Impact of Roaming Context on Usage?

7. AVERAGED OVER ALL DAYS Application usage Average minutes / user / day Home 30,0 Roaming 25,0 +18% 20,0 18,1 15,3 15,0 +191% -83% 10,0 8,0 +256% -67% -3% +31% 5,8 4,2 5,0 3,6 3,6 3,5 2,8 2,1 1,6 1,2 1,2 1,0 0,0 Browsing Games Messaging Music Maps Camera Clock Dataset: 578 panelists and 425 261 application sessions at home, 117 panelists and 8 266 application sessions abroad, Finnish smartphone study 2007

8. AVERAGED OVER ALL DAYS Voice call usage SMS usage MMS usage -37% Average messages / user / day Average messages / user / day Average calls / user / day Home 2,1 +53% 8,0 0,20 Roaming -40% 2,0 +89% 6,7 1,7 6,0 0,15 0,14 +27% 1,3 4,4 +58% 4,0 4,0 0,10 1,0 1,0 3,2 0,07 0,07 0,05 2,0 0,05 0,0 0,00 0,0 Inbound Outbound Inbound Outbound Inbound Outbound Dataset: 254 panelists and 58 751 calls at home, 30 panelists and 624 calls abroad, Finnish smartphone study 2007 Dataset: 577 panelists and 116 789 SMSs at home, 105 panelists and 2 850 SMSs abroad, Finnish smartphone study 2007 Dataset: 311 panelists and 1 839 MMSs at home, 11 panelists and 56 MMSs abroad, Finnish smartphone study 2007

9. Roaming industry structure: operators depend on each other  no first mover advantage  regulator needed Threat of Internet: concern of the loss of voice revenues  operators’ ”no hurry” strategy Radio access bottleneck: spectrum shortage and poor radio  operators’ ”business users first” strategy GRX transport bottleneck: complex architecture  higher transit prices than in the Internet backbone Traffic segmentation: difficult to discriminate laptop vs handset  operators cannot price handset traffic reasonably But, no hard obstacles exist! Obstacles of Flat-rate Data Roaming

10. Pricing structure is (here) more important than price level Regulation of wholesale tariffs is not sufficient Daily flat-rate for data roaming looks promising Wholesale IOT price cap Initially 5 EUR per day for basic data rate (up to 384kbs in 3G) Relative to the tariff basket of European domestic mobile flat-rates Quota-based traffic restriction, initially at 100MB per day Retail price cap Twice the wholesale price, i.e. initially 10 EUR per day To secure fast deployment of flat-rate to consumers European Solution: Daily Flat-rate Proposal

11. Simplicity (already tested on the market) Roaming traffic increase  revenue increase High profitability compared to domestic data traffic E.g. average domestic monthly flat-rate / 30 = 0.35EUR (in Finland) Price cap easily covers the roaming costs of home and visited operator Balance between home and visited operator Manageability of bottleneck resources Traffic quota allows prioritization of the radio resource usage Market-based management of higher bitrates (initially above 384kbs) Simple book-keeping between home and visited operator Anyway, roaming traffic << domestic traffic ! Why should operators like daily flat-rates?

12. Conclusion • Europe is badly fragmented to roaming areas • Internet roaming can become the issue that terminated the European success in the global mobile market • Unless, the Commission uses its power wisely to drive the Internet innovation machinery through • mobile flat-rates in Europe (roaming and domestic) • roaming flat-rates outside Europe Use the push-button to battle the financial crisis!

13. THANK YOU!

14. System Dynamic Model Flat-rate preference Internet VoIP Data roaming days Data roaming traffic EU data roaming revenue Service quality EU data roaming cost EU-external volume-based roaming tariffs Data roaming profit EU non-data roaming tariffs Domestic subscribers Capacity investments Domestic monthly flat-rate data tariffs