Roaming is significantly more profitable to carriers than standard phone plans. — AFP Relaxnews The Covid-19 pandemic has revealed an uncomfortable truth about the telecoms industry: Roaming, that old bugbear of the world traveller, still accounts for a disproportionate amount of profit. It’s an addiction that carriers just aren’t ready to wean themselves off, even as it becomes harder to justify and drives customers to Silicon Valley alternatives. The 2020 travel hiatus has lost European carriers some €2bil (RM9.83bil) in roaming fees, according to my calculations based on this year’s earnings reports. That might only be about 1% of their total revenue, but in many cases the drop-off has been enough to make the difference between profit growing and shrinking, trimming earnings for some operators by four or five percentage points. It chips away at their contention that new digital tools are making profitability more resilient. That’s because roaming is significantly more profitable to carriers than standard phone plans. It can generate a more than 50% Ebitda margin, an earnings measure, compared with the typical 35%, Bloomberg Intelligence analyst Erhan Gurses estimates. It’s a particularly lucrative money-spinner for companies active in the tourist hotspots of southern Europe: the likes of Telecom Italia SpA, Vodafone Group Plc, France’s Orange SA and Spain’s Telefonica SA. Roaming can proportionately account for four times as much revenue for those companies as it does for firms in countries that don’t attract quite as many transatlantic visitors, such as Switzerland’s Sunrise Communications AG and Swisscom AG, or Sweden’s Telia Co AB. And this money is coming in despite the European Union essentially ending roaming charges in 2017 for those from member countries crossing its borders. An Orange customer in France doesn’t have to pay extra to make a call when in Portugal, for instance. The additional income comes from either non-European visitors or from European customers gallivanting around the rest of the world. A continued penchant for roaming may be shortsighted. The extra fees can push travellers toward alternatives that support WiFi, such as Apple Inc’s FaceTime or Facebook Inc’s WhatsApp Audio, which ultimately encourage consumers to form habits that aren’t in the carriers’ long-term interest. Continuing roaming also risks agitating regulators, who have persistently complained about it being little more than a cash cow. That’s political goodwill carriers can’t afford to lose as they try to push through more mergers. Individually, none of these factors – the loss of fee revenue, the rise of wi-fi alternatives and an irked antitrust police – is a deal breaker for telecoms. Cumulatively, they present a risk. Still, intercontinental roaming charges are unlikely to disappear any time soon. US regulators have little incentive to stop AT&T Inc, for example, from charging exorbitant carry fees to a European carrier whose customers are on holiday in Las Vegas or doing business in the Bay Area. The kind of multilateral agreements needed to put an end to the practice would be hard to come by. For now, carriers need a vaccine rollout for global travel to resume and for roaming fees to help them return to growth. But the impact such a small fraction of their operations has had on earnings is disconcerting. – Bloomberg (Alex Webb is a Bloomberg Opinion columnist covering Europe's technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco.)
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