Mobile Price Study: Only As Good As its Assumptions

Predictably, people are pointing to a new study on mobile pricing, published by the New America Foundation, as proof that U.S. mobile prices are too high.

The United States tends to fall in a band of countries that charge higher prices to individual wireless consumers for everything except pure voice service where prices are comparable, a study by the New America Foundation finds. read the full study here.

But a study is only as good as its assumptions. Taking a look at single-user plans, the foundation finds that "across postpaid and prepaid voice plans, Canada, U.S., U.K., and Japan mostly fall in the high to middle price tiers while India, Hong Kong and Sweden fall in the low price tier."

The United States is in the highest price tier in the postpaid and prepaid text plans sharing space with U.K., Canada and Denmark while Sweden, India and Japan fall in the lowest price tier, the foundation says.

Finally, Japan, Hong Kong, U.S. and Canada feature in the high to medium price tiers while India, Sweden, and U.K. emerge as winners in the low price tier, the New America Foundation says.

In Canada and U.S., consumers have the highest minimum monthly charge for a complete postpaid cell phone service at $67.50 and $59.99 respectively, the New America Foundation says. Other countries that follow a similar cost structure at lower rates are U.K. at $32.40, Denmark at $39.00, and Finland at $40.10.

So here's the problem: In the United States, in 2006, fully 54 percent of adult mobile users subscribe through a family plan, according to the Yankee Group. That was up from the percentage of users on family plans in 2005, when 49 percent of adult subscribers were on a family plan.

Eighty-one percent of all mobile-using teens were on a family plan in mid-2006, up from 75 percent in 2004, the Yankee Group found.

A reasonable estimate might be that 60 percent to 70 percent of U.S. users are now on family plans. That is important when comparing costs and plans across regions and countries of the world because the New America Foundation study compares individual plans, not family plans.

That isn't to say the New America Foundation study is "wrong." But it compares plans that most U.S. users are not buying.

The plans selected for study are important. Some are pointing to an earlier study by the Organization for Economic Cooperation and Development as well.

The Organization for Economic Cooperation and Development, for example, suggests that U.S. mobile prices are "high," based on a standard set of usage buckets, mirroring the New American Foundation study.

But there's a problem. Most U.S. users talk about four times as much as some Europeans do.

The problem is that the OECD study uses definitions of "low," "medium" and "high" use that might describe usage in the Netherlands, but are wildly inapplicable to typical U.S. usage rates, says George Ford, Chief Economist of the Phoenix Center for Advanced Legal and Economic Public Policy Studies.

Specifically, the OECD analysis calls 44 outbound minutes a month "low," 114 outbound minutes medium and 246 minutes outbound "high" levels of usage.

The average mobile consumer in the United States uses 800 minutes a month, about four times as high as the OECD "high usage" level. Furthermore, the OECD considers 55 text messages a month to be "high use" where the typical U.S. mobile user sends or receives 400 text messages a month.

Since usage plans are directly related to usage, this is an issue that distorts the comparisons, difficult to make under the best of conditions. By definition, the "average" U.S. user is a "high usage" customer. So if U.S. users kept the same behavior patterns, but had to buy plans as the OECD baskets suggest, they would have to pay rates commensurate with very-high usage levels.

In other words, if users in a given country have low usage, and are on low usage plans, then average prices paid will tend to be "lower." In the United States, usage is vastly higher than in Europe.

Normalizing for usage volume, what one finds is that U.S. users pay modest prices for much-higher use. If users in the Netherlands had consumption patterns identical to U.S. mobile users, they would pay very-high prices.

In other words, one cannot simply compare low-usage plans in one country with high-usage plans in another, any more than one can compare low-usage plans in one country with high-usage plans in the same country. Nor can one compared plans that most users do not buy, and produce results that are terribly meaningful.

Who has the most expensive phone bills? North Americans!: