Fewer Hang-ups with U.S. Wireless Telephone Competition: American Consumers Use More Minutes and Pay Lower Prices

There is a belief by some that the domestic wireless market lags the European market in terms of consumer choice, usage and favorable pricing.  This has created the perception that the U.S. wireless market is failing, leading to calls for increased market regulations and the adoption of an European-style wireless model.  This ConsumerGram summarizes the results of a recent study that compares international statistics and finds that the U.S. wireless market is lower priced and more competitive than in Europe.  

 

Unsubstantiated Claims

If something gets repeated many times, public perception begins to accept it as if it were a fact.  One example is the frequent claim made by some that the European wireless market has more choices, more consumers, is healthier and has lower prices, compared to the U.S. wireless market.  To back up the claim, some point to Organisation for Economic Co-operation and Development (OECD) statistics showing that Europe is ahead of the U.S. in terms of cellular service penetration.  This perception has led to suggestions that the U.S. wireless market is slower to innovate and generally lags other parts of the world, and has contributed, in part, to a recent FCC’s decision to place additional rules upon bidders of an upcoming wireless spectrum auction.  In testimony before the U.S. House of Representatives, senior counsel for Consumers Union testified that “in Europe and Asia, wireless consumers have better choices.”[1]  Referring to the U.S. market, this testimony states, “instead of innovating, the wireless industry has become a cozy cartel of a few dominant providers with limited device offerings.”[2]  With perception looking more like fact, some have called for the fixing of the U.S. wireless market, including remedies that would add regulations and adoption of a European-style wireless model.

 

The Devils in the Details

The problem with the OECD statistics is that Europe counts the number of cell phones differently than we do in the U.S.  In the U.S., wireless subscriptions primarily reflect the number of handsets in operation, while in European the statistics reflect the number of Subscriber Identity Module (SIM) cards.  Because European roaming rates are so high between countries, it is an advantage for some European consumers to have multiple SIM for a single handset.  That means that the European statistics overestimate the number of cell phone users, creating the false appearance that Europeans have more cell phone in operation as a percent of the population. 

 

What Does the Evidence Say?

A closer look at the OECD and the Federal Communications Commissions statistics shows that the U.S. is, in fact, far ahead of its European counterparts, according to a report released by the American Consumer Institute.  The report concluded:

 

·         The U.S. wireless market offers more choice and is less concentrated than any Western country’s wireless market;

·         U.S. consumers use an average of 800 wireless minutes per month, while most European consumers use less that 200 minutes per month;

·         U.S. wireless prices are  the lowest in the world, with the exception of Hong Kong; and

·         The combination of higher usage at lower prices presents compelling evidence that the overall consumer welfare derived from wireless service is higher in the U.S. than internationally.

 

The study was bolstered by a commentary written in the Wall Street Journal on August 30, 2007, which stated:

“U.S. Consumers have access to more wireless operators and more devices than consumers anywhere else in the world.  And the top three wireless providers in the U.S. comprise a smaller share of the market than their counterparts in Europe and Asia.”

 

Conclusion

The contention that the U.S. is behind Europe is not supported by empirical evidence.  This means that the last thing the U.S. needs is a European-style market that produces higher prices and lower usage.  As the Wall Street Journal said, “… calls for more telecom rules and regulations are a solution in search of a problem.”


[1] Chris Murray, “Wireless Innovation and Consumer Protection,” testimony before the U.S. House of Representatives on Telecommunications and the Internet, Committee on Energy and Commerce, July 11, 2007.

[2] Ibid.

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