Something interesting has been happening in the UK recently. Consumers have been challenging financial services companies over ‘unfair charges’ and – guess what – they’ve been winning. Thousands of customers have been writing to their banks and credit card companies and asking that they return the money they’ve been charged for ‘late payment’ and overdraft fees over as much as a six year period. For some customers, this has amounted to several thousand pounds and the banks are having to pay out because, even though they won’t officially admit liability, they know the expense of defending the cases in court would outweigh the cost of settling with individual customers.
They are also terrified of a regulatory ruling being issued against them (something which hasn’t actually happened yet), so rather than let cases reach that stage, they’ve been resolving the disputes before customers refer them to the authorities. In the words of the Financial Ombudsman: “So far, we have not had to make any formal decisions on disputes about bank charges – because the banks have preferred to settle the complaints brought to us, making offers to customers to repay disputed charges on a goodwill basis.”
The national press, which is nothing if not a canny judge of popular sentiment, has spurred this activity by providing template letters customers can send to their banks, making the process as accessible as possible.
So what’s this got to do with the mobile industry? Well, there are some strong structural parallels: both mobile and retail banking are dominated by four or five large players, each controlling a substantial slice of the market and each part of larger pan-European or multi-national organisations. There’s also a degree of consumer inertia in each business: the hassle of changing your mobile contract provider and changing your bank are not dissimilar.
But here’s the key point: mobile has seen regulatory action aimed at resolving a similar problem in recent months. Just like in the financial services business, the charges mobile operators have been levying for EU roaming services have been deemed unfair. The regulatory language used in both industries has been very similar, describing the charges as “inconsistent with the true cost of providing the service.”
As a result of regulatory action at EU level, all operators are required to contact their customers and ask them if they wish to move to the new ‘Eurotariff’ roaming plan, which caps charges at EUR 0.49 per minute for making a call and EUR 0.24 for receiving a call in any EU country on any network. Even if the customer does not respond immediately, the EU law requires all consumers to receive these prices automatically from the beginning of September 2007. After years of consumer group pressure and encouragement of competition to reduce these charges, the EC finally has finally put an end to the expensive and confusing business of making calls while abroad.
I’ve written about this in previous articles and my position has always been clear: not only were roaming charges unnecessarily expensive, they were priced in such a way that they damaged customer experience and massively limited the potential of cross-border calling. I believe the mobile industry has been incredibly short-sighted in waiting for the EC to force their hand. Any one of several pan-European operators (Vodafone, T-Mobile and Orange are the most obvious) could have scored a major marketing coup by being the company which allowed you to call from abroad at a reasonable rate: none of them took the initiative until the writing was on the wall. This was insular thinking and customer mismanagement at its worst.
I should give an honourable mention to Hutchison 3G though. Although I still think they waited too long, they have been the first movers and the most customer friendly of the larger operators (‘friendly’ is very much a relative term in this instance). Some time ago, Hutchison introduced a scheme enabling Three customers to make calls at the same rate as their home tariff when they were roaming on any Three network in any country. The only problem was Three didn’t have networks in all that many countries (or all that many customers!).
Now, however, Three is once again seizing the initiative. Rather than just introducing the mandated ‘Eurotariff’ at the minimum levels, it will offer its customers roaming prices at less than half the amount stipulated by the regulator. In this area, as in so many others (e.g. the X-Series flat-rate data pricing, open web access and its competitive tariffs), Three is showing itself to be most astute at understanding customer experience management.
The problem is, operators may find this legislation has a far wider impact than negative customer sentiment. What if the mobile industry faces a similar consumer outcry to that affecting the financial services industry? Given the similarity between the regulatory climate in each business, what’s to stop consumer activitists encouraging customers to deluge their operators with letters requesting a full breakdown of roaming charges and a refund of the amount deemed to have been charged ‘unfairly’.
In many ways, this could be much more serious for the mobile business than it has been for the financial industry. The number of transactions which would need to be tracked is many orders of magnitude higher: for an average business customer it could be thousands of calls, made across hundreds of different networks over several years. Alone the cost of reviewing all these could make it cheaper to settle with individuals, and that’s before the operators have even evaluated the potential legal fees.
The various parties in this debate were understandably hesitant to comment on this idea when I contacted them. Martin Selmayr, a spokesperson for the European Commission, would neither confirm nor deny that their legislation could apply to past charges, saying simply: “It [the legislation] provides a number of dates by which operators must comply with the different legal requirements contained within it. It is not intended to have retrospective effect.” He also noted that mobile and financial services are: “two different sectors with different particularities,” and played down the possibility for direct comparisons.
The GSM Association, the global trade body representing the interests of network operators, believes its members don’t have a case to answer. David Pringle, a spokesperson for the GSMA, told me: “We don’t believe that our members are exposed to such claims. The Commission’s regulation of the roaming market wasn’t predicated on the outcome of a formal investigation into whether prices were excessive. Indeed, one of the GSMA’s major objections to the regulation was that the Commission didn’t first demonstrate that competition wasn’t working.” As such, the GSMA did not focus on this issue when lobbying the EU about its proposed cap on roaming rates.
Pringle also believes the action taken in the financial services industry to be of a different nature. “OFT (The UK Office of Fair Trading) found that the level of penalty charges imposed by card issuers was unfair under consumer protection legislation – there has been no comparable decision with respect to roaming charges.”
Vodafone and Orange, two of the operators most likely to impacted by this issue, were unhelpful. Vodafone’s spokesperson simply repeated a canned quote about the ‘innovation’ of their Vodafone Passport roaming service, while Orange did not respond to requests for a statement.
Perhaps the next step then is for consumers who are unhappy with these charges to raise the matter with the relevant government bodies in the area of customer protection.
The figures at stake are substantial. The GSM Association’s most recent figures date back to 2005, when they calculated EU-wide roaming was worth about EUR 8.5 billion per year. Some internal research I had sight of at a leading investment bank calculated that roaming accounted for 10% of annual revenues at the average pan-European operator. The GSM Association’s published figures show The EU-mandated pricing is effectively designed to cut roaming charges in half, so already the operators are facing a 5% annual revenue shortfall. This could grow significantly if customers start trying to reclaim past charges. The lesson in customer experience management could be a costly one.