Mark Goldberg


www.mhgoldberg.com





Comparing international mobile value propositions

A new report comparing international mobile rate plans puts Canada atop the G7 + Australia when considering the price-value relationship in mobile wireless services.

The study [pdf, 537KB], authored by NERA and commissioned by the CTIA (the US mobile industry association), examined more than 1500 rate plans offered by 213 mobile operators in the 36 OECD member states. The study, conducted by NERA, considers differences in plan characteristics, network qualities, and country attributes, allowing the authors to compare value propositions, and not just a superficial price comparison.

“A hedonic regression is a special type of regression model that assumes the price of a good is affected by product characteristics and external characteristics, which can be analyzed through regression analysis to produce a price prediction for any combination of these attributes.”

Why go to the trouble of such a sophisticated analytical approach? The abstract to the NERA study explains:

The interest in international comparisons in the mobile wireless sector has created a cottage industry in which regulators, consulting firms, and think tanks regularly rank countries based on a single variable—price. These price rankings, so several of them claim, are the Swiss Army knife of competition analysis. A country with a low ranking is viewed as noncompetitive and thus purportedly in need of regulatory intervention. Recent research has raised concern as to whether the methods employed in these ranking studies are sound and produce meaningful results.

The purpose of this study is to fill this void by ranking countries not solely by their nominal retail price points for mobile wireless services but rather by comparing them based on their more holistic mobile wireless value propositions.

For instance, a simple price comparison would indicate that a $30 plan is a better proposition than a $40 plan. However, if the value proposition of the second plan exceeds that of the first by the equivalent of $10 or more, the second plan is a better proposition because it provides more bang for the buck. The mobile wireless value proposition consists of not only how many megabytes of data the plan includes but also how many voice minutes, SMS messages, and other services the plan includes. The value proposition also accounts for network quality because a low price on a spotty network with low download speeds may offer a lower value to the consumer than a higher price on a more ubiquitous network with excellent download speeds. The value proposition also considers the fact that serving smaller countries with high urbanization rates is less costly than building a network in a large country with sizable rural regions.

At the end of the day, examining the value proposition more closely mirrors the purchasing decision process undertaken by consumers, as contrasted with overly “simplistic assumptions”, such as those contained in studies produced by Rewheel.

There is an easy way to demonstrate that Rewheel’s world differs starkly from the actual world. If consumers cared only about data, as assumed by Rewheel, then they would purchase only the plans offering the most data for a given budget. However, marketplace evidence clearly refutes this simplistic assumption; there is no indication of a positive correlation between providers offering data rich plans and market share, thus refuting the notion that consumers care only about data allowances. Based on these limitations, the Rewheel study has been repeatedly criticized and found unscientific and meaningless.

Keep in mind, this study was produced for the US industry. When accounting for the value proposition being offered consumers in comparison with those in peer countries, NERA found Canada’s mobile services pricing to be top performing.

Value Proposition Ranking
G7 + Australia
Country Weighted Ratio Rank
Canada 0.953 1
United States 0.975 2
Germany 0.999 3
United Kingdom 1.004 4
Australia 1.090 5
Japan 1.104 6
France 1.273 7
Italy 1.539 8

The “Weighted Ratio” for a country is calculated using a subscriber share weighted average for all providers in the country, following a hedonic regression model, based on the assumption that the price of mobile wireless service is affected by plan, network, country attributes. In the example above, the country ratio for Canada of 0.953 means that Canadian mobile prices are 4.7% lower than the G7 plus Australia benchmark after adjusting for the mobile value proposition.

When benchmarked against leading democracies, effectively Western Europe, Australia, New Zealand, the US and Canada, Canada again ranks number one, followed by the USA and Germany.

Value Proposition Ranking
Leading Democracies
Country Weighted Ratio Rank
Canada 0.967 1
United States 0.990 2
Germany 1.003 3
Austria 1.017 4
New Zealand 1.021 5
United Kingdom 1.039 6
Ireland 1.057 7
Netherlands 1.070 8
Australia 1.125 9

The report’s abstract describes the dilemma faced by policy makers examining so many of the published international rankings:

Across the world, politicians, regulators, and competition authorities are analyzing the state of competition in their respective countries, considering regulatory and policy actions, and measuring the key performance indicators of mobile wireless service providers. To compare their country’s standing relative to international peer groups, they rely on international ranking lists. The interest in international comparisons in the mobile wireless sector has created a cottage industry in which regulators, consulting firms, and think tanks regularly rank countries based on a single variable—price. These price rankings, so several of them claim, are the Swiss Army knife of competition analysis. A country with a low ranking is viewed as noncompetitive and thus purportedly in need of regulatory intervention. Recent research has raised concern as to whether the methods employed in these ranking studies are sound and produce meaningful results.

According to the CTIA study, “The fundamental problem with the existing price ranking studies is that they all suffer from an omitted variable bias,” assuming “a world where consumers are indifferent to all other competitive differentiators” such as monthly service allowances and quality differences beyond price. The study authors also note that most rankings “fail to consider the vast differences in building networks in the study countries.”

The study takes aim at a number of international pricing reports, including ISED’s annual study (performed by Wall Communications or Nordicity), saying the use of arbitrary baskets “produces meaningless results.” The harshest criticism is levelled at Rewheel Research, saying its “study has been repeatedly criticized and found unscientific and meaningless.”

A number of international price studies use OECD data as their source. In looking at the data collected by the OECD, the CTIA study authors observe a number of caveats issued by the OECD itself: “All statistical country comparisons should be undertaken with caution” and “It is important that policy makers examine a wide range of broadband indicators when considering key policy decisions.”

Against the backdrop of these flawed pricing studies, NERA constructed its study, including examinations of plan attributes, network attributes and country attributes. Because the study was commissioned for the CTIA, most of the detailed comparisons and discussions are focused on the US market.

Canada’s top ranking, relative to the value proposition being offered to consumers, shines in the report’s comparisons against the G7 plus Australia, and in comparison with leading democracies.

Innovation, Science and Economic Development (ISED) is overdue in releasing its annual international pricing study, a simple examination of price. It is worth noting that ISED’s annual pricing study used to contain a list of cautions on its use, explaining that simple price comparisons have limitations. For example, in 2016, the study produced for ISED stated “Prices in Canada and international jurisdictions are driven by a complex mix of a number of factors: cost of service, competitive positioning, technological advances, consumer behaviour and regulatory frameworks.” The authors cautioned “this Study did not account for any cost of service or socio-economic factors that may be relevant for price differences across different domestic and international jurisdictions. Thus, factors such as population density, terrain and climate have significant impacts on the cost of service.”

The CTIA study represents an important independent look at the value proposition being offered to consumers, examining factors with a greater level of sophistication than the simplistic models used by most analyses.

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