Mobile's next big revenue opportunity: roaming

Roaming is one of the most lucrative mobile industry business segments, yet it is also one of the most under-used.

In a report on global roaming, UK research firm Informa estimates that just 13% of all mobile customers worldwide used roaming last year. By 2013 it predicts this will rise to just 17%.

“[T]he market is far from saturated and roaming is in some senses an emerging market,” it observes.

Operators are looking to third party service providers with hubs that span much of the world to expand the market – and meet regulatory requirements in Europe – while keeping costs down.

The Informa report, to be published in late July, says Europeans roam the most: the report predicted 31% of European subscribers would use their phone abroad her country in 2008, compared to 5% from Asia-Pacific and 18% from North America.

It’s certainly a message that mobile roaming platform providers keen to push.

Mathias Prüssing , the CEO of Switzerland-based Comfone, states, “If every operator had a roaming relationship with every country, the market would be huge, but at the moment, they typically only have bi-lateral agreements with affiliates on what they believe are the most important routes, such a between Europe and US. There are between 50 and 100 countries with none or few roaming agreements in place.”

He continues, “The market has changed in the last year. Operators are very focused on how they can increase their revenue. It is just not feasible for every operator to negotiate a bilateral agreement with one or more operators in every other country, but operators don’t have to outsource everything – they can mix and match what they want to handle in-house and what they want to use hubbing for.

“For mature operators hubbing is a cost-effective way of establishing roaming relationships with new countries, thereby increasing the volume of calls involved and revenue, while controlling costs. For tier 2 and 3 operators, MVNOs and start-ups, it means they don’t need capex upfront.”

This approach is about more than just setting up roaming agreements with new territories. Prüssing says, “The provision of roaming services is moving away from the basics of data clearance, financial clearance and signalling. They have become commoditized and therefore have limited growth potential. We need to move up the value chain and hubbing is the way to do that because it offers operators the benefits of scale.

“In the next three to five years, we expect roaming to increase in value by more than 100% and traffic to grow by 20% to 30% a year – and that’s just us. We can develop a huge business case from the current situation if we offer operators the right mix of services.”

Regulation seems to be encouraging hubbing. The European Commission is the first regulatory body in the world to impose price caps and other strictures on roaming. Europe’s mobile operators generated €6.5 billion ($9.1 billion) in revenue from roaming fees in 2008, representing about 2% (although other observers argue it’s more like 5%) of the €300 billion European telecoms market, according to the Commission.

At €5.2 billion, voice roaming charges made up the bulk of the income, followed by €800 million for text-messages and €560 million for wholesale data roaming fees.
Amit Daniel, vice president of marketing, Starhome, which also provides roaming services, agrees the regulation is a good thing, for wider reasons too. It is well known that the commission has capped intra-EU roaming fees for voice and SMS, and that capped fees will apply to data from this month (July) onwards, but as Amit says, “What is less well-known is that from March 2010, the commission will oblige operators to provide real-time notification to roaming customers about their spending, including when they are about to exceed their monthly limit.”

She says operators elsewhere are planning to cap roaming charges and keep customers up to date about their usage abroad to avoid bill shock, without regulation obliging them to do so. “They see there is a very strong business case for it. Operators understand bill shock creates huge amounts of bad publicity, damages trust between customers and operators, and the service provider ends up reimbursing the customer – an expensive undertaking,” Daniel says.

Another piece of EU legislation that comes into play next March, which is likely to have repercussions elsewhere, is that European operators will no longer be allowed to charge more for voicemail intra-EU than for domestic voice mail. Until now, operators tended to use different solutions for domestic and roaming voicemail, charging more for overseas collection of messages to pay for the tromboning effect – the two legs to a call to collect voicemail, from the country that the customer is in, to the country where they live and back again.

Daniel again argues that while the agenda is being pushed by regulation in the EU, it makes business sense for others to take the same approach: “Fears of big charges for voicemail mean that many customers switch their phones off while travelling, keeping them for use in emergencies only, so operators lose revenue.”

The European approach doesn’t necessarily work everywhere else, though. Customized Applications for Mobile networks Enhanced Logic (CAMEL) is used by operators to set up bi-lateral roaming agreements between them. It is typically supplied by the switch vendor and every deployment requires separate interoperability testing, making it expensive to deploy. Also, there are few CAMEL agreements in place in Latin America, Africa and Asia-Pacific, and workaround solutions are often used, such as callback services instead of roaming for prepaid customers.

Daniel thinks workarounds will cease to practicable as roaming grows. She explains, “When the majority of an operator’s customers are prepaid, roaming is more of a challenge because different operators deploy different solutions.

She says Starhome offers a solution, already deployed in Africa, where the roaming is an app on the SIM card. It works through a gateway on the home operator’s side and controls every call.

“It enables users to roam freely on any network and the home operator can charge in real-time for it, which avoids both bill shock and bad debt – the operator informs the customer of their spending and can cut them off if necessary,” Daniel claims.

She concludes, “Many prepaid operators need this kind of solution that provides seamless roaming everywhere.”

Comfone provides hubbing services to 175 operators including some of the larger groups, such as Vodafone and Orange.