Why data roaming costs too much

Using the mobile internet on your smartphone, tablet or laptop while travelling abroad is far too expensive, our readers say.

When ZDNet surveyed its readers around the world in March, 80 percent said they had received a data-roaming bill they thought was excessive — we heard tales of bills running into hundreds and thousands of pounds. Additionally, 20 percent of readers thought data-roaming charges in general were "too high", and 76 percent said they were "much too high".

But how high are data-roaming charges, and can the operators justify it? Figuring out the going rate for data roaming can in itself be a tricky business. Retail prices for data roaming vary between operators. For Europeans, the prices also differ depending on whether you are travelling inside or outside of the continent. The picture is muddled and answers hard to find: however, the end results are clear.

Operators have also started offering bolt-on bundles of roaming data that do make usage somewhat cheaper on a per-megabyte basis, particularly within Europe, but these bundles require the user to opt in. This means planning ahead rather than using the internet casually. Most users who do not plan ahead and who do not disable data roaming on their smartphones will find themselves paying the standard per-megabyte rate. Even for those buying bundles, people do not naturally tend to think in megabytes, and choosing the right package for your needs can be difficult.

UK operators' standard rates for data-roaming vary between £1 and £3.07 per megabyte for data roaming within Europe, and between £3 and £10 per megabyte for the rest of the world. If you use 500MB on a two-week trip — this can easily be achieved when factoring in email, Twitter, Facebook, Google Maps, a few photo uploads and some light browsing — then, in the worst case, it would cost you £5,000. The best case would still be £500.

Compare that with the same operators' domestic data pricing, which usually works out at a penny or two per megabyte or less in some cases, when taken as part of a standard contract. Even with the lower intra-European data-roaming rates, this represents an overall mark-up in the thousands of percent — and elsewhere, 80,000 percent is easy to find. On the best-value tariff we could find, a Vodafone UK iPad user pays £15 for 2GB locally, but £29.99 for 50MB when roaming outside Europe. That's an increase of 79,000 percent.

This may be one of the highest differentials in the history of commerce — and it's between two different retail rates, not even wholesale to retail. By comparison, estimates for the mark-up for cocaine from grower to consumer range up to a maximum of 32,000 percent (PDF). How do operators justify charging close to four times the highest drug mark-up for carrying data which, to their systems, is the same as any other?

Operator logic

It is important to understand the basic mechanism for the formulation of data-roaming charges. Imagine that Operator A's customer travels abroad and uses their smartphone on Operator B's network. This can be done because of prior, secret negotiations between the two operators, in which a wholesale price was agreed. Operator A can then add whatever mark-up it likes to arrive at the retail price, which is where the big bills come from. The higher the secret wholesale price agreed, the more the consumers from both networks pay — at no cost to the operators.

Costs are way too high. It's the equivalent of walking into a bar in Germany and being told 'here's a glass of wine for €500 because you're a Brit or a Spaniard'.

– Hugh Davies, 3

Large operators tend to benefit most from this setup, because they are more likely to have other operators' customers stray onto their networks. They are also more likely to see their customers from one country use another of their networks in another country, in which case they are negotiating the wholesale price with themselves.

As the smallest UK mobile network operator, 3 has a different attitude to data-roaming charges than that of its larger rivals: Vodafone, O2 and Everything Everywhere (T-Mobile and Orange's merged operations). It is therefore unsurprising that 3 is willing to break the industry Omertà surrounding the actual costs involved. The company's regulatory chief, Hugh Davies, tells ZDNet UK 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.

"It costs you [the operator] about the same as it costs you at home — plus a little bit extra for the cost of billing from someone else's systems and the integration and connection with someone else's systems, and the risk of countries where you don't have fully integrated systems — but essentially it's the same as what it costs you to sell it in your own market, plus a little bit more," Davies says. "And that little bit more is not the same as what consumers are paying. It's way too high. It's the equivalent of walking into a bar in Germany and being told 'here's a glass of wine for €500 (£439) because you're a Brit or a Spaniard'."

David Gannon is the senior expert for global products at T-Mobile, the eleventh-largest operator in the world. He tells it a different way.

"Operators buy [mobile spectrum] licences for a finite period, and then build the infrastructure and roll it out," he says. "That's a hell of a cost, and it drives economic growth across the globe. You've got to get a return on that investment."

Gannon gives the stock industry justification for high data-roaming prices: infrastructure and spectrum are expensive, and these costs need to be recouped somehow. Margins are very low on domestic data pricing because that is where the real competition takes place — in the words of Orange roaming chief Yves Martin: "Right now, the mobile operators are a bit stuck into low domestic data prices." So the money has to be clawed back from roaming customers instead.

The problem with the argument is operators don't build their networks for foreign visitors; they build them for their domestic customers. Most have already made their money back. "Roaming charges are prohibitive, very expensive if you compare them with local charges, and there's no reason why those prices should be that high," Charles Njoroge, the director-general of the Kenyan telecoms regulator CCK, tells ZDNet UK. "There's investment in infrastructure [but the operators] have recouped their money, and we need to be able to communicate without any barriers."

Dean Bubley, an analyst at Disruptive Analysis, also says the investment argument is completely unjustified. "I can't see why...

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