EU overcomes the invisible hand’s paralysis

JUNE 18 — Life became a little cheaper for millions of European people on Thursday after mobile telephone companies were forced to scrap roaming charges for customers who use their phones within European Union (EU) territory.

Until now, telecom operators have got away with massively increasing their charges for phone calls, text messages and internet access whenever an EU resident left their home country, but now that ethically dubious source of riches has been declared illegal and customers will be able to stay connected without any additional fees anywhere within the EU.

The main significance of this development is that it was very much a political victory rather than a case of consumers benefitting from the supposed “invisible hand” of the marketplace.

That famous phrase, coined by the hugely influential 18th century Scottish economist Adam Smith, claims that inefficiencies or inequalities within a free and open market will always be ironed out.

If something is wrong with the system, according to the theory, it will quickly be put right by a producer who would benefit both himself and purchasers by providing a better deal.

The idea that the market “looks after itself” has inspired generations of laissez-faire policies, with champions of the free market believing the chief task of government is to encourage open commerce by staying well out of the way.

It’s a nice idea and largely it works: if a biscuit manufacturer, for example, is charging 10 units of currency for its biscuits but a competitor can take advantage of new technology by reducing the price to eight units without reducing the quality, they will do so and will consequently gain more customers, who will also benefit from paying the lower price. Everyone wins.

The world of commerce often follows this path, meaning that products become better and cheaper for consumers as years go by. Unfortunately, however, it doesn’t always work so cleanly because no market is truly free, open or efficient.

In the case of telecoms, giant operators have colluded to manipulate prices ever since mobile phones became commonplace. If companies A, B and C all agree to keep roaming charges in place in a market which has natural restrictions on new entrants rather than attempting to undercut each other, there’s not much that anyone can do to stop them.

When a small number of corporations are dominant enough within their industry and prepared to work together rather than competing against each other, they can swat away the invisible hand and control the market by keeping prices higher than they should be.

And so, for years European consumers have been accustomed to paying massive price increases whenever they use their phones abroad.

Not any longer, because now the only organisation with sufficient power to forcibly impose a change has stepped in to take decisive action: the government. Or in this specific case, a range of governments across a whole continent.

Telecoms operators have not scrapped roaming charges out of the goodness of their hearts or in an attempt to gain a competitive advantage, but because they were forced to. And sometimes, that’s the only way.

The European Commission has hailed the move as one of the institution’s greatest successes, stating: “The European Union is about bringing people together and making their lives easier. The end of roaming charges is a true European success story.”

I agree. Political organisations, such as the EU, are at their most meaningful when they are able to make a direct impact upon the lives of ordinary people.

It can often be difficult to see exactly how governmental rules and regulations are actually useful to normal people. With so much bureaucratic red tape, indecipherable jargon and petty nit-picking, it’s easy to become frustrated with political processes and believe they are a long way removed from real life on the streets.

Now if you live in one of the EU countries like France, you don’t have to pay roaming charges when you travel within the EU. — Reuters pic
Now if you live in one of the EU countries like France, you don’t have to pay roaming charges when you travel within the EU. — Reuters pic

Just occasionally, however, something happens to prove that governments can actually tangibly improve the lives of their citizens, and the abolition of roaming charges is a great example.

It also shows that one of the biggest tasks of government is regulating business. This is an increasingly difficult challenge in the modern world where so many corporations operate in multiple territories across the world.

Roaming charges, for examples, still apply to European mobile users when they visit Malaysia — or vice-versa — because there isn’t an international regulator which can force operators to drop them.

Actually, there is: the GSMA (the Global System for Mobile Communications Association), which in its own words “represents the interests of mobile operators worldwide, uniting nearly 800 operators with more than 250 companies in the broader mobile ecosystem.”

And right there in that phraseology is the weakness of so many industry regulators: “represents the interests of mobile operators.”

Take note that the GSMA, which does have the power to scrap roaming charges everywhere in the world if it so desired, does not represent customers. By its own admission, it represents the operators, and it would therefore be like turkeys voting for Christmas if it forced its members to abolish an extremely profitable line of business.

With regulators like the GSMA not fulfilling the purpose they are nominally designed for (regulating members to give customers a fair deal), governments have to step in, and the EU should be applauded for having the persistence and determination to take on such a massive industry and win, purely for the benefit of ordinary people.

There are, of course, also downsides to supranational governmental bodies imposing laws across several territories, and I’m sure a mobile operator PR person would present a very different picture from the one I have described.

But sometimes people need protecting from the interests of commerce. The invisible hand, because it can be paralysed by business interests, is not always free to intervene. The markets have to be regulated, and that can only come through legal means.

* This is the personal opinion of the columnist.

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