American Consumers Pay 10 Cents per Minute Less and Use over 600 Minutes More than Their International Counterparts

Can 270 Million American Wireless Subscribers Be Wrong?

Two years ago, a ConsumerGram summarized a number of statistical reports and found that the U.S. wireless market was lower priced, had more competition, provided more minutes per subscriber and had greater handset choice than any country in Europe, concluding that those calling for the adoption of an interventionist, European-style wireless regulatory model were extraordinarily misguided. More recent data confirms these findings – that the average American consumer is paying 10 cents per minute less for wireless voice telecommunications and is saving about $1,000 per year over what he or she would have paid at overseas’ prices, or $270 billion in total annual savings for U.S. consumers. At significantly lower prices, the average American consumer talks over 600 minutes more than their international or European counterparts. That fact says something about the satisfaction of these 270 million American consumers with their mobile service, and it shows the suppression in demand caused by higher wireless prices in overseas markets. The U.S. consumer is voting with their dollars.

American Wireless Consumers vs. the World
Some in Washington are ramping up the rhetoric regarding the competitiveness of the U.S. wireless industry, claiming prices for wireless services are too high, and calling for more regulation to remove alleged barriers to competition. This rhetoric should remind us all of the words of Mark Twain, who said “I am not one of those who in expressing opinions confine themselves to facts.”

A closer look at the OECD and the Federal Communications Commission’s statistics show, however, that the U.S. consumer is far better off than his/her international counterpart. According to an internationally published study, there are more American wireless providers offering more handsets for sale at affordable prices in a less concentrated market than anywhere in the Western world; U.S. consumers use an average 4 times more minutes per month than consumers abroad; and U.S. wireless prices are the lowest in the world, with the exception of Hong Kong.

Newer FCC Data – U.S. Prices Lower by 10 Cents per Minute
The FCC’s 13th Annual CMRS Report (January 2009) provides an update of the comparative economics for wireless services in thirteen countries, twelve of which had sufficient price and demand information to permit comparison. These data are summarized in the table below and show that the average U.S. consumer uses the highest number of minutes (812 MOUs) and pays the lowest reported price (6 cents per minute).

 tableone1

According to FCC data, U.S. wireless telecommunications prices were 68% lower than the weighted average price in other reported countries. While the FCC notes that revenues may be overstated in Calling Party Pays (CPP) countries by a factor of 15%, a reduction in prices for these CPP countries (shown in the table above as Adjusted Revenue per MOU) still leaves the U.S. average price substantially below the international average – 63% lower. Clearly, American consumers pay less for using their voice mobile services, which stimulates more usage. The link between lower prices (revenue per minute) and higher usage (minutes per month) is shown in the chart below, and suggests that American consumers are receiving substantially higher welfare benefits than consumers in other countries.

chart1

Who Pays Too Much and Who Saves?
The newly released FCC figures provide some insight into what a U.S. consumer would pay if living abroad and what an overseas consumer would pay if living in the U.S. The table below shows that the average American consumer bought 812 minutes a month and paid $49 per month or $585 per year. Consumers outside of the U.S. would have to pay (on average) $132 per month or $1,582 per year for the same number of minutes, based on world prices. Conversely, the average overseas consumer now spends about $30 per month or $360 per year, but for just 185 minutes. At U.S. prices, that same 185 minutes would cost the average international consumer only $11 per month or $133 per year. In other words, at 812 minutes, the average wireless consumers would pay almost $1,000 less in the U.S. than overseas. With 270 million wireless subscribers in the U.S. (CTIA 2008), Americans are saving $270 billion per year at current rates, compared to their International counterparts.

tabletwo2

Don’t Fix What Works
Based on this analysis, our earlier study, OECD data and an FCC’s report, the U.S. wireless market has the highest output, most competition and greatest benefits for consumers; American are paying 10 cents less per minute and saving almost $1,000 per year over what they would have paid at overseas’ rates – a $270 billion savings for all Americans. With American consumers having access to more services and devices than their international counterparts, it is hard to understand why policymakers would focus precious time and resources trying to devise new regulations that would jeopardize these consumer benefits.

Posted: July 20, 2009

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Comments

  1. l wu says

    this data may be skewed from bulk rate plans as opposed to a pay-as-you-go plans that are very common with european sim cards. for instance, in the US a plan may be $40 per month for 400 minutes, but only say 50 minutes gets used. case in point for my tween child who needs a “lifeline” low use cell phone with perhaps 5-10 minutes per month, i effectively have her on a $25 per quarter prepay plan.

  2. steve says

    Dear I Wu — The data and the term “minutes of use” are based on “minutes used,” and has nothing to do with plan minutes — so it is not skewed as you suggest. Steve

  3. V says

    Stumbled on this while doing some research for Indian telecom market. I must say you guys are fooling yourselves by comparing with the most inefficient of the markets..
    Indians get charged at 1.2 cents per minute (expected to go down to 0.2 cents in a year) and chinese pay less than 3 cents a minute!!! Now, that’s competitive pricing!!

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