Consumers in Europe will pay less for mobile phone calls, texts and Internet access when travelling abroad following a ruling on Thursday that could also prompt telecom companies to introduce cross-border deals to offset lost revenue.
Many smartphone users turn their phones off while travelling abroad because they are worried about the high charges they could incur, an issue that has been taken up by consumer-friendly European politicians. They say the new European Union caps on roaming charges, taking effect on July 1, will eventually cut bills for roaming by two-thirds and allow people to use their mobiles abroad more often.
One in three mobile users has experienced "bill shock" from data roaming charges, according to a report based on over 1500 people from global wireless provider iPass, due to be published this month.
Analysts estimate the caps will hit telecom companies including France Telecom (Paris) and Deutsche Telekom (Bonn, Germany) hard for the first few years and then start to even out once consumers get used to using their phones abroad more.
A total of 578 members of the more than 750-seat European Parliament voted on Thursday in favor of the roaming charge caps, with just 10 against and 10 abstaining.
Charges on mobile internet use abroad will be capped for the first time at 70 cents per megabyte in July this year and that will be lowered to 20 cents per megabyte by July 2014, representing the steepest decrease of all the new caps. Roaming costs on calls, for example, are set to decline from 35 cents to 29 cents in July this year and to 19 cents by 2014.
From July 2014, customers should also have the option to shop around for a separate mobile roaming provider when travelling abroad. Vodafone (London) and France Telecom have already said they plan such offers and see it as a new sales opportunity.
Industry analysts Informa Telecoms & Media estimate that the caps will boost the use of email and the Internet on smartphones.
"The cost of five minutes on Facebook will fall from 35 cents to 10 cents while a five-minute video on YouTube will fall in price from 3.50 to 1 euro," Informa said.
European lawmakers have been working to lower and even get rid of roaming charges since 1999, with many arguing the costs were mainly padding the bottom lines of mobile operators at the expense of consumers.
"We wanted to get rid of roaming charges altogether, but unfortunately the right-wing MEPs supported the phone companies and we had to agree on a temporary measure," said Michael Cashman, a British Labor member of the European Parliament.
The vote comes as several large telecom companies released first-quarter results, with some predicting the impact the new rules will have on them. Belgium's Belgacom expects the roaming caps to hit profits by a maximum of $41 million in 2012 at both revenue and core profit level. Rival Mobistar said the caps, combined with reduced mobile termination rates - a fee companies charge each other for use of their networks - will take $74 million off its revenue for 2012.
Stephane Beyazian, a telecoms analyst at Raymond James, said operators' revenues would be hit by the caps and the benefit from the increased mobile data usage would take time.
"There is a real potential for data roaming usage, but clearly not within the next three to four years, in my opinion, when cuts occur," he said.
Beyazian said operators will either need to increase mobile phone use abroad or find new ways to lock in roaming customers.
"We think that traffic is unlikely to triple by 2014 to make up for the loss," he said.
Phone companies would do well to focus on their internet offers and mobile applications to grow their businesses once the caps have taken hold, Informa said.
"Offering their users a data plan - via an app store - that allows them to use their favorite services while abroad at a much lower price than that offered by their home network would clearly be an attractive proposition," said Informa's Mark Newman.
Deutsche Telekom Chief Executive Rene Obermann said on Thursday the sector would eventually benefit from the roaming caps.
"Bottom line is we will see stronger revenue from data use abroad because it just makes sense," he told a conference call. "I think the industry has acted too slow to learn this lesson, I am not that skeptical."