Cross-group Tariffs: Good PR but Not Much else

Opinion by Emeka Obiodu, senior analyst at Ovum

Prior to 2006, roaming used to be a convoluted process – at least that's what operators claimed. And they could charge as much as they wanted. When the EU began to ask for lower rates, operators retorted that roaming was expensive to administer and difficult to implement. Then Zain (formerly Celtel) came along with its ‘One Network' concept. It removed roaming charges for its customers across Africa, demystified roaming and earned a resounding endorsement from The Economist. The citation read: " Zain Group has in effect created a unified market of the kind that regulators can only dream about in Europe."

But why have cross-group tariffs not taken off en masse since then? Apart from Vodafone, 3, Zain, MTN, Cable & Wireless and Globacom, operators are not falling over themselves to offer cross-group tariffs. In our report Cross-group tariffs: an inconvenient option we explored the market for cross-group tariffs, probing deep into the ‘why, where and how' reasons for rolling out such a tariff.
There are benefits from cross-group tariffs

Cross-group tariffs have immense PR value. Customers love the idea of an altruistic company, and in the face of a recession every little helps, especially for business customers seeking to lower costs. Such enhanced brand appeal can translate to a competitive advantage as it helps operators to attract and retain customers.

In addition, cross-group tariffs can be used to achieve specific strategic objectives. The ‘3 Like Home' scheme was in tune with 3's strategic positioning as a market disruptor. Likewise, Zain, especially with its latest commitment on mobile data as part of its One Network, wants to gain moral advantage over MTN and Vodacom. In a way too, cross-group tariffs lend credence to all the talk about ‘synergies' whenever one operator acquires the other.

The risks outweigh the benefits

The risks from cross-group tariffs are more worrying than the benefits. Firstly, there is the small matter of operational challenges. Is connectivity guaranteed? Has the operator deployed CAMEL for prepaid roaming? Who deals with the customer services requests/disputes? And in what language?

Then there is the issue of money. We haven't seen an operator that improves its revenues by offering cross-group tariffs. Instead, what we see are operators putting their existing roaming revenues at risk. It also exposes the difference in prices across an operator's footprint and shows, for instance, why Zain excludes Kuwait from the One Network.

Crucially too, as operators continue to argue that roaming is costly to implement, cross-group tariffs show the EU and other regulators that roaming is actually not difficult. Won't such a moral hazard psyche up regulators to action?

Finally, there is a problem with the assumptions about traffic trends. For example, there is little roaming between Burkina Faso and Tanzania, so Zain's cross-group tariff is hardly ever used there.
Evidence is against cross-group tariffs

As anecdotal evidence shows us, cross-group tariffs are not worth much. 3 is scrapping the 3 Like Home tariff in June, and despite Vodafone's generous Vodafone Passport scheme, its European peers are doing fine without a cross-group tariff. Even in Africa, where Zain's One Network is a moral champion, MTN continues to vacillate on launching its ‘Seamless Roaming' concept.

Indeed, the more we probed, the less convinced we were about the merits of cross-group tariffs for operators. Maybe they are just a populist token.

Posted to the site on 17th May 2009