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By Jo Best, 19 October 2006 15:05

NEWS

O2 has steamrollered its roaming charges, scrapping per-minute charging for incoming calls in favour of a flat-rate fiver per month.

The service will initially only be available in Spain for O2 customers who are roaming on Spanish operator Moviles. Both operators are owned by the Spanish telecoms group Telefonica, which acquired O2 in October last year for £17.7bn.

The operator remains equivocal on how the roaming charges will affect it. Will it be a money maker or a money taker? An O2 spokesman told silicon.com: "We don't know yet. It's very much more a retention strategy. We're not going to lose vast amounts of money - it's the benefits of the Telefonica acquisition."

Spain is the most popular foreign destination for O2's roamers, according to the operator, which says 60 per cent of calls made abroad take place in the country. The flat-rate roaming service will be rolled out across 35 other European countries and states before the spring, the operator said.

The new service, aimed at those who spend a lot of time travelling, will drop incoming call charges in favour of the subscription for contract customers only. Pre-pay users, however, will be excluded and will have to pay 35p for every incoming call.

According to Paolo Pescatore, programme manager of European wireless and mobile communications at analyst house IDC, the move will make sense for those that spend a lot of time abroad.

He said: "It's quite a significant development and one the user will like." However there are other areas Pescatore believes operators will re-examine: "This is just voice - with SMS and data charges I expect to see more developments there."

SME users can also sign up to the scheme aimed at frequent travellers, for a £2.50 per month tariff, although they'll need to handcuff themselves to a 12-month contract. Consumer users only need to sign up for a minimum of a one month subscription.

O2 is not the first to tackle roaming - most of the major operators have been cutting prices in an effort to stave off action by EC information society and media commissioner, Vivianne Reding. Reding has threatened to enforce cuts in retail rates within Europe that would see prices slashed by up to 70 per cent.

Since Reding's threat to strip operators' roaming margins of their fat, many networks have found room for manoeuvre on pricing. Vodafone, for example, set up its Passport scheme, where users can take their home call rates abroad if they're willing to pay 75p per call.

Jeremy Green, principal analyst at Ovum, said: "The operators are like a teenager that's been told to tidy their room. They know they have to and they know it's good but they'll do it as slowly and miserably as possible. All the operators are doing this. They said they couldn't do anything about roaming but since [Reding's investigation] has happened, they've all been able to do quite a lot."

Green believes, given sufficient stimulus, operators may yet see their way clear to cutting prices further. "Margins are still quite high. They'll do as much as they're made to," he told silicon.com.