Understanding mobile prices in the US and EU

An important new report has just been released about the markets for mobile service in the US and the EU.  Commissioned by the GSMA, the global trade organization of the mobile industry, it expresses concern that Europe is falling behind the US in certain areas of the mobile industry.  It provides a valuable counterpoint to the spate of bad news about America falling behind in broadband.

The report highlights a few important points:

1. Retail prices don’t tell the whole story about mobile orMobile prices, US vs. EU broadband.

Many believe that Europeans pay less for broadband than Americans.  But as the new report shows, Americans do pay more, but they also use 5 times more voice and twice as much data.  Americans actually get more mobile value for their money.

It’s not enough to look at the list price.  You have to consider the network type, the network speed, they type of device, whether the item is sold in bundle, the effect of local taxes, and other factors.

2. Competition is driven by more than the number of competitors. It’s the level of technology that matters.

Many make the mistake to think that simply having a lot of players is the way to ensure competition.  In certain markets such as telecommunications, it is the level of technology that drivers competition. What matters is being able to choose from a variety of networks for you broadband:  DSL, cable, and LTE, not necessarily that you have many providers for just one network type.  This fact is shown in the OECD data which puts U.S. in third position globally for competition among carriers of different networks. Put it another way:  if the automobile was available, would you care that there were 10 companies offering a horse and buggy?

The report does not discuss it, but many American carriers gambled on CDMA mobile standards technology, which ultimately didn’t pan out.  So to stay competitive, carriers needed to upgrade to a technology that would best the leading mobile technology GSM:  LTE.  American carriers are in an arms race to deploy their new mobile networks, spending more than $70 billion per year, according to the research firm Infonetics.

The fact that the US is leading on the internet and mobile fronts is a concern to the Europeans. This explains their effort to create a digital single market which would allow carriers to merge to get economies of scale.  However this effort is opposed by a number of national telecom regulators who have worked for years to ensure that there were many providers for each market.

One of the main challenges in Europe now is that so many providers are fighting for the scraps of small marketplaces.  The short term effect is low prices for consumers, but long term, margins are so low for carriers that most are loath to make the network investments necessary to keep pace with technological innovation. This is important because Neelie Kroes, Vice President of the European Commission and leader of the digital single market effort, expects the private sector to do the “heavy lifting”[i].

Many observers of the mobile industry say that only one or two carriers can get a reasonable business case.  No operator wants to be #3 or #4.

3. The future of the internet is mobile.

American leadership in LTE is important because the future of the internet is mobile.  After resisting the internet for many years, people get onto the web for the first time because mobile technology such as tablets and smartphones make it so easy.  Already more than half of all Americans have a smartphone.  As for new advances in telemedicine, they are driven by mobile networks. Mobile will have long term consequences for  how we consume the web, in applications, services and devices.

Check out my article about America’s status in broadband internet overall.

[i] http://europa.eu/rapid/press-release_MEMO-12-554_en.htm