A report by a Managing Director at NERA Economic Consulting says policy makers and regulators should ignore the Digital Fuel Monitor, an international mobile pricing study regularly published by Finland’s Rewheel Research. According to the new report, there is no “simple fix” for the Digital Fuel Monitor; it needs “a complete redesign of the study’s methodology.”
The Digital Fuel Monitor, published regularly for the past 5 years, is somewhat simplistic (eg. “how many 4G gigabytes will €30 buy”) and many industry observers rely on the abbreviated ‘public’ version of the study. Most have likely never examined the complete report in detail.
Each time Rewheel releases its studies, I have found them to be problematic, especially with some of the conclusions that don’t seem to follow from the methodology of the study. Among other problems, Rewheel’s studies are premised on the overly simplistic belief that low prices are the sole indicator of competitiveness of mobile markets as stated succinctly in a 2017 tweet:
Yes I am afraid I read it. In our side of the Atlantic we measure height in cm, weight in kg & competitiveness in high/low prices. In yours?
— Rewheel/research (@RewheelResearch) May 17, 2017
Its statement at the time was in response to a posting from Verizon that pointed to other key indicators of competition: “falling prices, exploding demand, significant investment, boundless consumer choice and innovation.”
The report by Dr. Christian Dippon, Chair of NERA’s Global Energy, Environment, Communications & Infrastructure Practice, challenges the study methodology and conclusions drawn by Rewheel. “Oversimplified and Misleading International Price Comparisons Must Not Guide Policy and Regulatory Decisions” concludes that Rewheel’s report is a “simplistic ranking exercise that assumes away the complexities of an international comparison by treating all plans, networks, and countries as identical. This apples-to-oranges comparison offers no economic insights, and governmental agencies cannot use it as the basis for proper regulatory and policy decisions.”
The report, commissioned by TELUS, takes the reader through what Dr. Dippon calls fundamental and fatal flaws in Rewheel’s approach:
- ignores all plan differences except the monthly data allowance;
- ignores all network quality and country cost differences;
- distorts its results by omitting the most popular plans, including family and prepaid plans;
- ignores several price elements including multiple plan requirements and activation fees;
- fails to adjust for PPP; and
- includes VAT.
Dr. Dippon demonstrates the fallacy of using price as the sole measure of competitiveness by examining Rewheel’s assertions about its home market, Finland.
Rewheel presents Finland as one of the cheapest and most competitive countries in its 41 study countries. Rewheel bases this conclusion on its understanding that Finland offers unlimited data at €25, ahead of most other countries. Rewheel’s own data, however, demonstrate that the average Finnish subscriber does not demand unlimited data. Instead, Rewheel reports that the average Finnish subscriber demands 23.8 GB of data per month, which Rewheel reports costs €25. At this average Finnish demand level, Finland is by far not the cheapest country because Austria, Australia, Romania, Ireland, Slovenia, Sweden, the United Kingdom, Israel, Poland, France, and the Netherlands all offer plans that meet and/or exceed the average Finnish demand level of 23.8 GB with price points cheaper than €25.
Among the other problems discussed by Dr. Dippon is what he terms a failure by Rewheel to consider overall consumer expenditures. For example, Austria has 1.7 mobile subscriptions per person; Canada has 0.865. “By focusing exclusively on the price of a single plan, the Rewheel study fails to recognize that in many of its study countries consumers purchase more than one plan and thus spend more on mobile wireless service per month.”
Specific to Canada, Dr. Dippon points out that “Canada is home to some of the fastest and most advanced wireless networks in the world. Yet, based on its simplistic ranking exercise, Rewheel labels that country [Canada] as noncompetitive and laggard.”
Dr. Dippon points out the contradiction: “Quite simply, a market cannot both be noncompetitive and offer some of the best mobile wireless services in the world.”
The report is an important critique by a recognized authority in regulatory economics, confirming my long-held view that there are problems with Rewheel’s studies. It merits a close read by Canada’s regulators and policy makers.