Why roaming prices are insanely expensive

International roaming, at the best of times, is a complicated business to make sense of. And when it comes to data, it’s often downright impossible. So not only is it close to impossible to make sense of the charges in the country you’re travelling to, if you do manage to figure it out, its guaranteed your eyes will start watering.

Of course, with smartphones and their insatiable demand for data (even in the background), bills of thousands and tens of thousands of rands when roaming are becoming the norm.

Vodacom will charge its customers anything from R5 per MB to R128 per MB, depending on the country and whether or not you’re billed at preferential Super Saver or Africa rates. And even though Vodacom offers the best explanation of international data roaming charges in South Africa, it’s still insanely complicated.

It’s normal for a Vodacom subscriber to have completely different rates on each of the partner networks in a particular country, than an MTN subscriber visiting the same country.

For example, a Vodacom customer visiting Kenya will pay R5 per MB on Safaricom, R17.50 on Airtel Kenya (ex-Zain) and R102.40 per MB on the Orange/Telkom Kenya network. An MTN subscriber will pay around R106.50 per MB (at R2.60 per KB), and 3G roaming is limited to Safaricom only.

And the reason for this is quite simple. Roaming agreements are bilateral wholesale agreements between operators. So Vodacom (ie. Vodafone) or MTN or Deutsche Telekom or Orange or Telefonica will sign agreements with other operators to enable roaming services in countries where they do not have a presence. Often operators will work in an alliance with other larger operators to ensure they don’t have to sign hundreds of these agreements, but rather a handful to give them global coverage.

Now, each operator’s negotiating position is dependent on its size. This means the amount of roaming minutes, SMSes and data its customers are going to use abroad, and the amount of roaming services the other operator’s customers are going to use on the other company’s network.

When a visiting customer (on network B) roams on an operator’s network (network A), the charges are billed through to that customer’s network at the high prices. So the network being roaming on makes the profit.

Using the Keyna example, it’s plain to see that Vodacom is at an advantage, given that Vodafone is majority-shareholder in Safaricom. This enables it to offer significantly cheaper rates than rivals. It’s also obvious that at some level (either at Vodacom or at Vodafone Group) it has a roaming agreement with Airtel (Bharti’s African assets).

MTN is at a disadvantage as it doesn’t have a presence in Kenya, nor a partner network. In fact, it competes aggressively with Orange (Telkom Kenya) and Airtel (ex-Zain) in many markets across the continent. Neither party would be running towards each other to sign favourable roaming agreements, especially not on premium services like 3G.

If we used neighbouring Uganda as an example, MTN customers would be in the better position, paying R10 per MB (it has an operation in the country), while the lowest price Vodacom customers will pay is R17.50 per MB (on either the Airtel network or – surprisingly – on MTN Uganda).

But, R5 per MB (or even R10 per MB) is still more expensive than usual data prices, especially since this is international roaming on a group’s existing global footprint.

The higher the wholesale price agreed between two operators, the more the customers on both networks pay. So operators have an interest in keeping those prices higher than the market price.

The reason for the mark-up is that roaming services (including voice and SMS) are fabulously profitable for operators. So profitable in fact, that none publically disclose just how much money they’re making from inbound roaming (when visitors roam on its local network).

Operators may argue that the costs of providing roaming services to visitors are higher than in-country market prices, and that the tariffs are justified. Or they may say nothing at all.

But 3, the UK’s smallest operator, has shed some light on the real costs of providing the roaming services. Its regulatory head, Hugh Davies, told ZDNet UK in 2011 that “operators do need to incur some one-off costs when enabling data roaming, but these do not explain the charges being levied on consumers.

“In fact,” he says, “data-roaming retail prices bear no relation to the underlying costs of data transport — between 1p and 3p per megabyte, depending on the operator.”

So there’s no significant additional cost in providing the service. Even a mark-up to a standard out-of-bundle rate (in SA, R2 per MB) could be justified, but it’s complete insanity to even attempt to justify charges of over R100 per MB.

Operators are clever when billing for data on roaming, too. Usage is billed in minimum 10KB or 25KB increments, and tariffs are often shown in these portions. Most customers will compare these tariffs with per MB pricing and think the difference is not that large, when it could be a factor of 40 or 100 times more expensive than it looks. Regulations are one way to solve this, but a single regulator in a country cannot regulate alone.

Source: Moneyweb

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