European data rates threaten to get capped

European service providers are set for a bit of a kick in the pants after an EU official made some bold statements regarding handheld data rates at GSMA this week.

[Viviane Reding, European Commission’s information minister] said: “Sending text messages or downloading data via a mobile phone while in another EU country should not be substantially more expensive for a consumer than sending text messages or downloading data at home. This is the logic of the borderless single market which we in Europe agreed to create already 50 years ago. Higher retail charges abroad must be justified by additional cost of operators, or they will have to disappear.”

To back up the talk, Reding is threatening to impose a cap on wireless data prices that European wireless carriers are allowed to charge, unless they voluntarily drop the rates by July 1st. Bad news for carriers, good news for consumers.

Comments [2 Responses]

February 14th, 2008 at 1:35 pm

This isn’t good news.

If you were renting a condo for $1000 and your cost was $700 excluding any other physical repair or upgrade costs. Your gross margin is $300. What if the government told you that you can’t charge more than $800? Because they think that $100 is a good gross margin, 10%.

What would you to do your condo and how would you manage it?

1. You can delete some features from the condo to reduce the actually cost from $700 to something else.
2. You can raise price from some where else to meet the margin target. So you can charge $800 but then charge higher prices for utilities or whatever that comes with the condo.
3. You might have to raise prices from some other condos that aren’t affected by this govt edict, meaning other markets have to make up the loss.
4. You are less likely to offer future offering since the margin is only 10% or less. It tells other condo/apt owners in the market to stay away unless some other costs can change to enter the market to earn enough profit margin. Why invest in this market @ best 10% when they can invest in somewhere else to make greater profit margin.
5. By the way, you don’t always break 10%. Because you know, there will be some vacancy when occupants move out or renters market goes south. It maybe that @ 10%, margin may be lower in longer term since there will be some gaps.

All in all, this is a bad news for customers because it will limit what companies can offer. In fact, the innovation will be stifled and it will come in cost of others.

You might say, companies are greedy for charging $3 per MB. Oh, Yeah?
Why don’t you tell govt to force Starbucks to charge their coffee $2 per cup instead of $5.
Tell govt to force Whole food to lower their prices by 20% because their profit margin is at 35%.

Principle of this argument is that there is an acceptable average profit margin, profit that an entity can earn. So, the entity shouldn’t have “out-side profit.”

Per capita income of US is about $40,000. Lets’ say, govt decided that individual should make outside of %20 margin, meaning, maximum a person can earn is capped at $48,000. So, those who agree with above posts should return any salary that’s earned above $48,000 and next time when you get a new job, tell them that you don’t want to earn anymore than $48,000.

Also, when you sell house, you can’t sell your house above 20% of an original purchase price. It doesn’t matter how long you lived there. Why should anyone have out-side margin on selling houses?

I highly doubt anyone would do this, counter intuitive.

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