Data Roaming: Tax, or Punishment?

Regular followers of Tony Poulos will know of his crusade against bill shock – the heart-stopping moment when a customer looks at their bill and discovers they have used a service that costs thousands of times more than expected. This excellent blog at the Harvard Business Review looks at the problem in a refreshing way. Economics professor Joshua Gans describes sky-high data roaming rates as a ‘stupidity tax’, aimed at the people too dumb (or too lazy) to calculate the cost of what they are doing. That implies that telcos are smart enough to take advantage of those stupid customers, especially as roamers have no long-term commitment to the networks they roam on, so upsetting them has no cost in terms of lost loyalty and lost future revenues.

I think there is another analogy that fits the bill (ahem). Telcos do not want data roamers on their network. They want voice roamers on their network. They want their customers to be able to roam, and to be able to use both voice and data services when away. So they have to offer data to inbound roamers as part of making the deal work. When inbound roamers use data, they place a burden on congested networks, reducing the quality of service for the network’s own subscribers. Whilst the network’s subscribers are in it for the long haul, the roamers are a variable element that drive up demand for peak capacity but at ordinary rates will not generate returns that could actually finance the capacity they use. That means they cannot be trusted nor relied upon, but they harm the operator’s ability to compete with its rivals for those all-important, high-value, long-term subscribers. So inbound roamers have to pay their way upfront, suffering higher rates because that is how any business would treat unwanted, untrusted, one-off customers whose business they literally cannot refuse. You could think of it as pricing in the volatility in the use and revenue generated by these customers. Or, from a negative perspective, the charge is a fine – a punishment for using the network. The problem is, whilst the fine is levied by the network on which the user roams, warning notices are the responsibility of the provider that bills the subscriber.

Putting analogies to one side, the question for RA is this: how much does it cost to service an inbound data roamer, and how much is it worth to discourage them?