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ECJ advisor says roaming cap is legal

OUT-LAW News, 01/10/2009

The European Commission did not break EU law when it put a cap on the prices that mobile phone networks can charge for calls made and received while the user is abroad, according to an advisor to the European Court of Justice (ECJ).

The European Commission, Parliament and Council placed a cap on roaming calls in 2007 to curb what they saw as excessive costs for users when they made or received calls while in another EU member state. The rule was called the Roaming Regulation.

Four major EU mobile networks took a case in the UK against the cap, arguing that it was a disproportionately harsh way of dealing with the problem of high prices and that it undermined countries' right to govern themselves.

The High Court asked the European Court of Justice to rule on whether the actions violated EU laws on proportionality and subsidiarity. One of the ECJ's legal advisors, Advocate General Poiares Maduro, has said that the European Community's actions did not break the law.

"The Regulation was adopted on the basis of Article 95 [of the] EC Treaty which allows the Community to adopt legislation to approximate the laws of Member States where there are disparities or potential disparities which would hinder the creation or functioning of the internal market," said an ECJ statement outlining Maduro's opinion. The opinion itself is only available in French. "The setting of maximum charges for roaming calls does not infringe the principles of subsidiarity or proportionality."

The principle of subsidiarity means that the European Community should only act to achieve something that is not achievable by individual member states. "It is clear that action at Community-level was required: national regulators having neither the power to regulate prices charged by foreign networks to networks from their Member State, nor the incentive to regulate wholesale prices charged within their territory to foreign networks," said the statement.

Mudaro assessed the issue of proportionality in the light of evidence that the European Commission had tried many other tactics to convince networks to lower costs.

"The Community intervened as a last resort; all of the Commission’s previous attempts to reduce roaming prices (including competition law investigations, transparency initiatives, regulatory action and political pressure) having failed," said the ECJ statement. "[Mudaro] also observes that the Commission found that roaming prices varied widely in ways that could not be explained by underlying costs, with operators making profits of above 200% for calls made while roaming and of 300% or 400% for calls received. Given these excessive charges and the need for timely action, a decision to regulate retail prices was an option reasonably open to the Community."

The Regulation was designed to ensure the operation of cross border trade in mobile phone services, but Mudaro conceded that direct price control by governing authorities was a measure that would have an "extreme impact on the market". He said that this was lessened, though, because the Regulation is limited to three years of operation.

The ECJ does not have to follow the advice of its advocates general, but reportedly does so in around 80% of cases.

Jon Fell, a partner with Pinsent Masons, the law firm behind OUT-LAW.COM, said the opinion confirms that an authority must exhaust all other options before engaging in the kind of price fixing approved by the Commission, Council and Parliament.

"This shows that a regulation is going to be a last resort, which is what it should be," he said.

Fell said that if the ECJ follows Mudaro's advice it could have an important knock-on effect on other telecoms regulation issues, such as the Commission's ongoing campaign to force mobile networks to reduce call termination rates, which are the amounts they charge other networks for completing calls to mobile phones.

"This sets a precedent for using a Regulation to tackle pricing. It is a very powerful tool for the Commission to have. It opens up the possibility that it will be used in relation to call termination rates if people don't get their act together," he said.

"This is a very important warning shot, but there is still plenty of room for argument for telecoms companies to attack whether everything that could possibly have been done has been before this action is taken," said Fell.