Hard to Explain Higher Cost, Higher Usage Pattern in U.S. Mobile Internet Access

U.S. mobile data consumption in 2013 grew 120 percent over 2012 levels, according to CTIA-The Wireless Association’s annual survey.

U.S. mobile providers handled more than 3.2 trillion megabytes of data in 2013, CTIA reports.

Between 2010 and 2013, U.S. mobile data consumption increased 732 percent, CTIA also reports.

That probably does not come as much of a surprise. According to Cisco, Ericsson and other research firms, by 2018, data usage will increase eight times the 2013 figure, or be more than 383 times the traffic in 2008.

The interesting challenge is why U.S. mobile data is so high, compared to usage levels in Europe, for example, where “prices” or “costs” appear to be lower. Classical economic thinking would suggest usage for a product with demand should grow as prices get lower, contract for that same product if prices get higher.

The T-Mobile US marketing attack provides one example. By effectively dropping prices, T-Mobile US has stimulated both usage and attracted net new customers.

But some would note an anomaly: EU consumers pay less per month than U.S. consumers for mobile wireless services, but U.S. consumers use five times more voiceminutes and twice as much data, according to the GSMA.

One possible explanation is that, measured as percentage of household income, U.S. prices actually are lower than in Europe, even though the conventional wisdom and studies tend to suggest the opposite is true.

When converting for purchasing power parity, though, posted retail prices in the United States rank about 43rd globally, in terms of cost, behind Columbia and ahead of Greece.

The other issue is that prices make sense only in relation to other goods and services consumers purchase.

Looking at prices as a percentage of income is one additional way to measure, as that method compares communication costs to other goods and services purchased in the same market.  

Cost as a percentage of household income runs less than two percent in developed nations, as a rule.

To be sure, product and lifestyle preferences cannot be discounted, nor the relationship between speed and consumption: users on faster networks consume more data.

One might argue the U.S. simply has a more-developed application infrastructure.

Whatever the reasons for usage, European consumers pay less per month than consumers in the United States, but U.S consumers use their devices more intensely than consumers in the EU.

The other issue is unit prices--”price per bit”--which arguably is lower in the United States than in the EU, at least for some plans.

All that noted, if one argues mobile Internet access costs are higher in the United States than in Europe, while consumption is vastly higher in the United States, one is challenged to explain precisely why that should be the case.

In the end, differences in appetite might be the explanation. Higher prices might not deter consumption in the U.S. market because the product itself is in greater demand than in some other markets.

With the caveat that comparing prices between countries is not easy, GSMA in 2013 argued that U.S. mobile spending by consumers was about $69 a month, compared to a European Union average of $38 a month.

U.S. consumers use 901 voice minutes per month, more than five times the European
average of 170 minutes.

Thus, while U.S. consumers pay more per month than those in the EU, they pay less per unit of

Merrill Lynch estimates that average revenue per minute of voice usage in the U.S. is far lower than in any European country, and less than a third of the European average, for example.

So there are any number of ways to look at the cost of usage. Cost in the U.S. market might be higher, but in a market where the product is deemed to have more value. 

As a percentage of household income, costs might not be higher. Or pricing policies might be shaped around usage patterns that, on a cost-pe-bit basis, are not higher in the U.S. market. 
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