Friday, October 31, 2014

Are Retail High Speed Access Prices Too High?

What is more important, nominal prices or prices expressed in terms of local purchasing power? That, in a nutshell, is why international comparisons of any goods or services have to be adjusted for purchasing power parity.

If that is not done, one can conclude U.S. Internet prices are too high. Adjusting for local prices, as when comparing the cost of an Internet access subscription to national income statistics, yields a different answer, namely that prices are quite low.

One might argue that consumer purchasing of products that are too expensive would be reflected in actual buying behavior.

In 2012, European Community adoption of fixed network access was about 27 percent of households, where U.S. adoption was in excess of 72 percent. So in which market are prices effectively too high, or value too low?

In the MENA region, fixed broadband costs about 3.6 percent of the average monthly income per capita, while mobile broadband costs around 7.7 percent of monthly income per capita.

The point is that cost is relative to local prices. What Internet access “costs” is relevant only in the context of prices for other products people buy. The point is that Internet access is most affordable in developed markets, even if nominal prices might be “higher.”

In the 46 countries studied, the cost of entry-level broadband exceeds on average 40 percent of monthly income. That is the case in nations where daily income is US$2. In other instances, Internet access represents 80 percent to 100 percent of monthly income, according to the Alliance for Affordable Internet.

Depending on the type of Internet access, a better metric is either price as a percentage of household income or price as a percentage of per person income. According to the International Telecommunications Union, developed nation prices per capita were about 1.7 percent of gross national income, where prices were 31 percent of gross national income in developing regions, in 2012.

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