Sunday, January 27, 2019

U.K. Household Communications Spending is Flat and Fixed

U.K. consumers, like consumers anywhere, are likely to spend only so much on communications services of all types. That explains why household spending on communications (including subscription video) is constant, year after year.

So when spending on some elements grows, spending on other elements has shrunk. In the United Kingdom, as video entertainment and fixed network internet access have grown, spending on mobile services and fixed voice have dropped.

That is worth keeping in mind when examining price levels (“the cost”) of internet access, mobile service, video subscriptions, messaging or voice. To buy more of something, all other things being equal, consumers will buy less of something else.

One problem we always have when trying to determine what people actually pay for various communications services is that we must work with “list” and “discounted” prices. It often is hard to tell what percentage of customers pay the list prices or some other discounted price (through a bundle or some other promotion).

The other issue is that prices tend to climb, over time, with inflation of general price levels. For example, the buying power of $100 in 1913 was $2564 in 2018, according to the U.S. Department of Labor. The buying power of $100 in 2008 was $119 in 2018.

So even if there were no improvements in quality, and all prices rose evenly, the $100 spent on any product in 2008 would be equivalent to spending $119 ten years later.

The consumer price index also tends to track growth of gross domestic product, over time.

The point is that, looking at price levels, it is natural for prices to increase over time. It never is equally clear whether prices are risking in “real,” inflation-adjusted terms. Nor is it easy to capture changes in demand or product quality.

I used to pay as much as $300 a month for a 768 kbps internet access service. Now the list price for service at 100 Mbps to 150 Mbps is perhaps $50 (before taxes and fees).

The important point is that on a cost-per-bits-per-second basis or even in absolute (not inflation adjusted)  terms, and not accounting for other discounts, perhaps most consumers pay the same, or less than they used to,  for fixed network internet access.

Nominal prices might rise over time, as prices generally do. But cost per bit and qualitative improvements are not to be captured in the retail price data.

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