You guys get to count GPRS subs, agreed.
European Regulators Raid Cell Phone Companies
July 12, 2001
By SUZANNE KAPNER
ONDON, July 11 — European regulators raided the offices of Vodafone (news/quote) and eight other mobile phone operators today and combed through documents they believed would offer evidence that the companies had set artificially high prices for some services.
The coordinated, surprise inspections cap a 17-month inquiry into roaming prices — the fees that mobile operators collect for transferring customers to other networks and are the latest example yet of the growing prowess of European regulators, led by the competition commissioner, Mario Monti.
In the last year alone, Mr. Monti has presided over investigations into allegations that banks were fixing the euro exchange rate and that music companies colluded in setting prices for compact discs. In perhaps his most audacious so far, Mr. Monti last week thwarted General Electric (news/quote)'s attempts to acquire Honeywell International (news/quote), marking the first time that a European regulator blocked a combination of two American companies. Mr. Monti's decision was all the more unusual because it contrasted with antitrust officials in the United States, who had approved the deal.
"Mr. Monti has shown that he is determined to apply the rules, despite the political sensitivity of a situation, or the amount of lobbying against him," said Guy Lougher, an antitrust lawyer with Wragge & Company, in Birmingham, England.
The raids carried out today are one of the most powerful investigative tools of European regulators. In the United States, officials must first submit to lengthy court hearings before companies are required to turn over confidential information, antitrust lawyers said.
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For European mobile phone companies, the timing of Mr. Monti's attentions could not be worse. Many are struggling to pay down debt after spending a collective $100 billion on government-sponsored auctions for new radio spectrums. And they are faced with another $100 billion bill to develop the networks and services that will run on those new frequencies.
A Vodafone spokesman confirmed that antitrust officials had visited its offices today, and that the company was fully cooperating with their investigation.
Similar comments were made by Orange, the mobile phone company owned by France Télécom; Deutsche Telekom (news/quote); and British Telecommunications (news/quote), among others.
The European Commission, the executive arm of the 15-member European Union, began examining allegations of price fixing among mobile phone companies in January 2000, at the behest of several consumer groups. In February of that year, it sent out 200 questionnaires to mobile operators, national competition authorities and telecommunications regulators. By December, it had concluded, "excessive pricing and price collusion are likely."
Today, in a statement explaining the reasons for its surprise raids, the commission said that it was examining not only roaming prices, but also wholesale prices that German operators charge competitors for use of their network. The commission also said it was looking into a plan pioneered by Vodafone to offer consumers flat-rate roaming prices.
"There is the sense that roaming charges are high, they are not transparent and there are a limited number of players, which could lead to some anti-competitive behavior," said Michael Tscherny, a spokesman for the commission.
Should regulators find evidence of a cartel, the commission could levy a fine of up to 10 percent of the companies' worldwide sales, Mr. Tscherny said. He cautioned that a final decision was still some way off, and that the commission rarely implements such severe financial penalties. The largest fine that the commission has ever levied on a cartel was £248 million — $350 million at today's exchange rate — against the European cement industry in 1994.
Antitrust lawyers said some sort of settlement would be the most likely outcome. For instance, even though the commission flushed out admissions of guilt from several banks in the euro-fixing case, it took a lenient stance after the banks promised to discontinue illegal practices.
Even so, mobile operators have good reason to guard what analysts call a honey pot of roaming fees, especially now that fierce competition is driving down domestic calling rates. Because roaming allows operators to share a network, they can offer increased services at little additional expense.
For instance, when customers who uses the Vodafone network in Britain travel to Germany, they might automatically switch to Deutsche Telekom's T-Mobile network. In many cases, the companies set the price of those roaming calls without informing the customer. For Vodafone, the fees that it collects from customers who make calls in Germany are almost pure profit, because it is using another company's infrastructure, and therefore incurs negligible costs.
"Roaming is an important profit element for carriers," said Andrew Cole, the head of Adventis' global wireless consulting practice. "Relative to the incremental cost needed to provide the service, you could argue that profit margins are significant."
Vodafone's stock declined 5.6 percent, to 145 pence ($2.05). Orange's stock fell 2.2 percent, to 9.20 euros ($7.88). Deutsche Telekom shares fell as much as 2.9 percent, to 25.44 euros ($21.78). Shares in British Telecommunications dropped 3.8 percent, to 441.5 pence ($6.23). |
