A Deserved Double-Take on Wireless Prices

The Federal Communications Commission is preparing to take a closer look at several aspects of the U.S. wireless market. While hardly an encouraging signal to mobile technology innovators, one bright spot in these developments has been the firm, public commitment of Chairman Julius Genachowski to "fact-based and data-driven" decisions.

Against this backdrop, this week's highly publicized release of a new study by the Organization for Economic Co-Operation and Development (OECD) deserves far closer scrutiny. If you follow broadband policy debates, OECD international "rankings" are known to favor smaller member states, while often claiming the U.S. marketplace in comparison is "behind." Clearly, our nation has many unique challenges (not the least of which is its vast physical geography) that policymakers and the private sector must acknowledge and constructively address to advance modern infrastructure needs.

But the most recent entry of OECD "analysis" into the wireless debate is proving equally problematic to informed progress toward important national goals. The new study claims that the U.S. has among the most expensive wireless service in the world. Having seen a television ad just last night for unlimited calling, texting and wireless Internet--with no long-term commitment -- for $40 a month, I was immediately skeptical and decided to take a closer look.

Without inducing a flashback to college statistics class, no matter how you slice and dice the numbers, there are many obvious flaws in the OECD analysis. Perhaps the most problematic is the global assumption of what a typical wireless user and typical wireless service looks like.

According to the OECD, the typical global wireless user talks on their mobile phone for about an hour a month and sends about 50 texts. But according to CTIA, the U.S. wireless association, consumers in the U.S. spend on average more than 12.5 hours each month talking on our mobile phones, and we send over 400 texts. Americans, in fact, are the chattiest people on earth. The next most vocal mobile population is Hong Kong at less than 7.5 hours a month. Why do we have so much to say? Because in the U.S., mobile talk is cheap. U.S. wireless consumers, in fact, have the lowest per-minute prices of any OECD nation.

Where precisely do the OECD analysts go wrong? In the mother of all footnotes, if you look at the fine print that accompanies their chart on the typical global wireless user, you learn that the analysis "does not include discounted or free calls to pre-selected phone numbers as part of 'friends and family' or 'preferred numbers' plans...Pre-paid plans are excluded."

Translation: Everything that makes the U.S. wireless market the envy of consumer bargain-hunters around the world is conveniently stripped from the analysis. It's a disclaimer that puts even the most evasive pharmaceutical ad to shame.

But the core issue here isn't simply whether the OECD got its numbers right or wrong. The deeper problem is the consequences that such faulty analysis can have on our broader goal of maintaining the pace of progress and innovation in the U.S. mobile marketplace. Perceptions matter in the incredibly competitive wireless world in which we now live. They matter for consumers, for regulators, and for innovators. So let's keep our focus on the facts.

And what are the facts today? Since 2001, the average price of a U.S. wireless plan remains about $50 a month, even though we've more than quadrupled the amount of time we spend on our mobile phones (not to mention added texting and data surfing). In fact, price per minute of use has declined by almost 90% since the 1990s. What other household expense could come even close to matching that figure? Bottom line: Consumers have scarcely paid a dime more for this extraordinary step into virtually limitless mobile communications.

Chairman Genachowski is right to hang his hat on data-driven decision-making. Enlightened people can disagree on policy. But we should never disagree on math. The quality of the data will guide the quality of the debate and in no small part determine the effectiveness of future policies.

The U.S. wireless sector leads the world in consumer value, innovation and choice. As we weigh changes to the policies that got us here, it's important that this fact not get lost in translation. The OECD got this one wrong -- and no amount of wishful thinking on behalf of our global competitors makes it right.

Jonathan Spalter, chairman of Mobile Future, served as chief information officer at the United States Information Agency and as an advisor to and spokesperson for Vice President Al Gore during the Clinton administration. www.mobilefuture.org

Follow Jonathan Spalter on Twitter: www.twitter.com/mobilefuture

Comments

[Ameriki]

There is no competition in the United States. My coworkers from India and Pakistan laugh at how much we Americans must pay for poor low-speed connections.

[JPHR]

I checked the wikipedia for the USIA. The USIA's mission was "to understand, inform, and influence foreign publics in promotion of the national interest, and to broaden the dialogue between Americans and U.S. institutions, and their counterparts abroad". Combine that with the job of spokesperson and you get the picture of a professional lobbyist.

I rather trust the OECD, which for instance also provides execellent statistics with regard to health care (the US paying twice as much as universal health care costs in Western Europe). Seems to me that corporate interests have hijacked the US political system, which enables them to exploit US society end its citizens.

Thanks to the election funding system in the US everything is for sale.

[dadw5boys]

The cost in Eroupe is 1/3 of the cost in the USA.

Is that why comparison plans between the two were left out?
Cell phone= 2 way radio on digital band ~ very cheap technology,

[SolarPowerGuy]

"Americans, in fact, are the chattiest people on earth."

Aren't there enough things wrong with Americans? We need this dubious distinction, too?

I would LIKE to purchase a wireless plan which offers a good coverage area, but fewer services. I would, of course, want to pay less for that plan. My wife and I spend about two hours a month each on our cell phones. That's 240 minutes. Good luck finding a plan out there with fewer than 600 minutes per month (plus those "bonus" nights and weekends minutes that don't even remotely figure into my life).

[TReynolds]

Comment: Part 2

Many important features of the US market are already included in the basket. For example, operators who offer unlimited calling to wireless users on the same network will have lower prices in our baskets. That is because the baskets assigns 48% of the calls in the basket to "on net" numbers and the marginal cost of these calls, after paying the subscription, would be zero. These weights are calculated using the data provided to us by operators.

You can find the mobile basket breakdown online at: http://www.oecd.org/dataoecd/3/23/43488777.pdf

The recent Communications Outlook also has data on the total number of mobile minutes used per year per subscriber as reported to us by national regulators. The US and Canada report incoming + outgoing minutes (compared with other countries which report just outgoing minutes) and the US and Canada both are high. They are similar to Finland though if you assume that half of the US calls are incoming and half are outgoing. Despite the high levels of consumption, Finland still has some of the lowest-priced plans in the OECD across the basket methodologies.

Measuring mobile prices is complicated and an imperfect science but the steps the OECD takes to build these basket methodologies with operators helps ensure they are an important data source for policy makers and researchers.

[TReynolds]

Comment: Part 1

I'm one of the authors from the OECD and I think it is important to address some of the issues raised in the article.

It is a complicated process comparing mobile prices across countries but we find that the basket methodology is still very effective. The Economist's Big Mac Index does something similar by comparing exactly the same product from one country to another to compare price differences, and in their case to look for under- or over-valued currencies. My Japanese friends could argue that the Big Mac index isn't useful because they eat fewer Big Macs than my French friends but I would counter that the value of the exercise still holds because they tell us about the different price levels. Our baskets are meant to do the same thing. They take the exact same basket of calls and messages and compare how much it costs to buy in all 30 OECD countries.

Since we need to come up with a common set of consumption patterns to apply we do this in conjunction with regulators and operators. We hold meetings every 2-3 years to evaluate the methodologies and calling patterns and invite operators and regulators from across the OECD to participate. Operators come with data on the consumption patterns of their users which we use to formulate the appropriate basket sizes and compositions together. US operators come and participate in these meetings along with the FCC.

[wisewomcat]

This seems to be a very well reasoned article.

However, considering the company you work for, and how you are basically a cheerleader for the wireless industry (AT&T specifically), I am highly suspicious of anything you write. I actually care very little that our phone plans cost as much as they do -- but I am pretty sure you don't have consumers' best interests in mind when you write articles -- therefore I am going to assume that OECD's analysis is correct, and that you are simply trying to spin it.

(Sorry about my point of view regarding you -- it all started when you tried to convince people that tying phones [like the iPhone] to the carrier [like AT&T] was actually good for the consumer)