Legal Briefing

ECJ rules on the validity of the Roaming Regulation

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TMT | 01 July 2010

On 8 June 2010, the European Court of Justice (ECJ) rejected the attempt by various leading European mobile network operators (MNOs) to challenge the validity of a cap imposed by the EU on the roaming fees they can charge customers travelling overseas. From the point of view of these providers, price-capping regulation has effectively curbed a lucrative market that was worth approximately €8.7bn at the time the regime came into force in 2007.

BACKGROUND

International roaming refers to the facility provided by domestic MNOs to their subscribers when abroad. This is set up through agreements between domestic and foreign MNOs arranging to terminate each other’s calls on their respective networks in consideration of a fee (wholesale charges). This fee is then passed on by the domestic MNOs to their customers who have availed themselves of this service (retail charges).

While recognising the importance of international roaming in facilitating cross-border mobility for both individuals and businesses, the European Commission was concerned over the ‘unjustifiably high levels’ at which the mobile roaming charges had been maintained, despite repeated warnings to MNOs. These high charges meant that 80% of roaming customers in 2006 were businesses rather than individuals. Further, small- and medium-sized companies doing business in the internal market suffered from the significant additional cost.

Initially, the Commission attempted to avoid regulating roaming charges by calling on MNOs to voluntarily reduce their prices, empowering national regulators to take action at the national level and conducting competition law investigations. When all these failed, an EU-wide legislation was proposed in 2006 resulting in the Roaming Regulation (Regulation (EC) No 717/2007) being adopted in 2007 under Article 95 of the EC Treaty (now Article 114 of the Treaty on the Functioning of the EU) that imposed a ceiling on:

  • the maximum amount a MNO could charge for voice calls made and received by its customers when travelling (the charges were set out in a eurotariff that MNOs had to actively offer their customers); and
  • wholesale roaming charges, ie the fee paid by a customer’s home network provider to the foreign network the consumer used when travelling.

The original Roaming Regulation was time limited and was set to expire in June 2010. However, this was later amended by a new regulation that expanded its scope to cover SMS, as well as data calls and prolonged its validity until June 2012. This led to a call for judicial review by four MNOs, namely Telefónica O2, T-Mobile, Orange and Vodafone, challenging the validity of the Roaming Regulation in the High Court of England and Wales. The High Court referred the questions of whether Article 95 of the EC Treaty formed an adequate legal basis for the adoption of the Roaming Regulation, and whether, by setting the aforementioned eurotariff, the EC legislature had fallen foul of the principles of proportionality and/or subsidiarity to the ECJ for a preliminary ruling.

JUDGMENT OF THE ECJ

Legal validity

The ECJ noted the Commission’s concerns over the extremely high retail charges for international roaming services that were in place at the time of the adoption of the Roaming Regulation, as well as failed attempts by national regulators under the existing legal framework to tackle the charges. Having also taken into account the difficulties faced by national regulatory authorities in identifying undertakings that held considerable market power and controlling the behaviour of visiting network operators in other member states whose services were used by customers when travelling, the ECJ upheld the legal validity of the Roaming Regulation. Given the significant interdependence of retail and wholesale roaming charges, it seemed apparent to the ECJ that any move by member states to only tackle retail charges, without lowering the wholesale costs for the provision of such EC-wide roaming services, would severely distort competition and disrupt the ‘orderly functioning of the EC-wide roaming market’.

Recourse to Article 95 could be had only if the aim was to prevent obstacles to fundamental freedoms that arose from disparities in national laws and directly affected the functioning of the internal market. The point of contention was whether this justified the imposition of price caps by EC legislature. However, it seemed apparent that the Roaming Regulation intended to protect consumers from excessive charges, while establishing a single regulatory network within which MNOs could function based on objective criteria. Excessive retail charges due to high mark-ups by domestic MNOs, and the disconnect between these and wholesale charges levied on the said domestic MNOs, were a problem that national authorities could not sufficiently tackle. This led the ECJ to rule that the object of the Roaming Regulation was to improve the conditions of the functioning of the internal market and hence could not be faulted for its legal basis.

Proportionality

According to EC case law, the principle of proportionality mandates that any measures implemented through EC law provisions must be appropriate and must not go beyond what is necessary to attain the objectives of the legislation. Despite what appears to be a rather wide discretionary power, the EC legislature’s decisions must be based on objective criteria. The ECJ took note of the studies conducted by the Commission at the time of drafting the Roaming Regulation, which showed average retail rates for roaming services to be over five times higher than the actual cost of the provision of the wholesale service. The eurotariff was set at a level that more accurately reflected the costs incurred by MNOs and the ECJ considered this appropriate to protect customers against unnecessarily high charges.

Further, the complex dynamics of the roaming market were such that a decrease in wholesale rates would not necessarily reflect in the retail rates. Regulation of the wholesale rates would not have a ‘direct and immediate effect’ for customers, and the situation demanded regulation of both wholesale and retail charges. Keeping in mind the wide powers of the EC legislature in this regard and the importance of ensuring consumer protection, this move to regulate rates at both the wholesale and retail levels was held proportionate to the aim pursued.

Subsidiarity

In areas that do not fall within its exclusive competence, the EU institutions are to act only if and in so far as the member states themselves cannot sufficiently achieve the objectives of the proposed action. The ECJ referred once again to the interdependence of retail and wholesale roaming fees, and the significant disruption that would ensue should member states each choose to only tackle the issue of high retail charges. A joint approach was deemed necessary by the EC, and both the wholesale and retail levels, and this was wholeheartedly backed by the ECJ.

COMMENT

Roaming fees have fallen sharply by approximately 70% since the Roaming Regulation was first introduced, and have since come down even further owing to the inclusion of text messages and data calls within its scope. Since March 2010, MNOs have had to offer customers the option of setting their own cut-off price limit for downloading data to shelter them from ‘bill shocks’ for surfing the internet excessively while travelling within the EU. Moreover, from 1 July 2010, they will have to introduce a €50 limit for those customers who have yet to set their own.

However, the ECJ believes at the time the Roaming Regulation was adopted, ‘the relationship between costs and charges was not such as would prevail in fully competitive markets’. This judgment has been welcomed by the Commission and gives impetus to its European Digital Agenda, which envisages that the difference between roaming and local (ie home-country) mobile phone charges will approach zero by 2015. The Commission is due to submit an interim report on the functioning of the Roaming Regulation by 30 June 2010, as well as complete a full review by 30 June 2011.