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OECD is Wrong: U.S. Consumers Do Not Pay More for Cell Phone Service

Posted on: Wednesday, 16 September 2009, 09:00 CDT

Phoenix Center Says OECD Analysis of International Mobile Pricing Plans is Misleading

WASHINGTON, Sept. 16 /PRNewswire-USNewswire/ -- A recent report by the Organization for Economic Cooperation and Development ("OECD") that purports to find that the United States has some of the highest mobile telephone prices in the world is seriously misleading and does not provide a reliable indicator of price levels from one country to the next, Phoenix Center Chief Economist Dr. George S. Ford shows in a new Policy Perspective released today. The Perspective, Be Careful What You Wish For: A Comment on the OECD's Mobile Price Metrics, finds that Americans do not pay higher prices and cautions policymakers to view the OECD's report with great skepticism.

As an initial matter, Dr. Ford demonstrates that the OECD's methodology of computing expenditures levels in countries for three arbitrarily chosen "baskets" of mobile phone usage cannot be used to compare prices meaningfully across countries. As Dr. Ford explains in the study, the OECD report concludes that a number of countries are both "low-price" and "high-price" countries for mobile phone services, an unworkable contradiction. The Perspective also points out that the usage levels assumed by the OECD are exceedingly low by both United States and Canadian standards. Since pricing plans for mobile services are dependent on usage, Dr. Ford shows that "such large discrepancies between assumed and actual usage are plainly problematic..."

Dr. Ford then outlines a more economically meaningful approach to comparing prices by asking the question of whether American consumers (who purportedly have the highest mobile prices according to the OECD) would be better off under price plans offered in the Netherlands (who purportedly have the lowest mobile prices according to the OECD). After accounting for the mobile usage patterns and billing practices in the United States and the Netherlands, Dr. Ford finds that the answer is "No." American consumers would actually pay more for mobile service at current usage levels if they faced the pricing plans offered in the Netherlands. In so doing, Dr. Ford demonstrates that "international comparisons of prices across arbitrarily-selected baskets do not provide a reliable indicator of relative prices when the consumer demand profiles vary significantly."

Dr. Ford offers a few recommendations to improve the OECD's analysis:

First, the OECD should, at a minimum, expand the number of pricing baskets to reflect usage levels across countries. The high-usage basket should be about 2000 total voice minutes per month.

Second, the OECD should incorporate, to the extent possible, the full distribution of usage (or usages) in Member Countries rather than looking at a few customer types.

Third, the OECD should not limit itself to a few arbitrarily selected carriers in each Member Country, but should include a sufficient number of carriers to represent adequately the best prices available in a given country for all usage levels.

Fourth, the OECD should explicitly recognize the complexities of comparing mobile prices across countries, including economic, cultural, and regulatory differences that affect demand and prices. As Dr. Ford explains, for "the data to be used wisely and effectively, the report should clearly disclose the limitations of reported statistics to enable accurate interpretation."

Finally, Dr. Ford recommends that the OECD should primarily document the variety of pricing plans offered in each country, "rather than create price indexes of dubious merit." In so doing, the OECD can "serve as a useful and policy-relevant provider of data, rather than a purveyor of 'filtered' data of questionable credibility."

The complete copy of the study, Phoenix Center Policy Perspective No. 09-03, Be Careful What You Ask For: A Comment on the OECD's Mobile Price Metrics, may be downloaded free from the Phoenix Center's web page at: http://www.phoenix-center.org/perspectives/Perspective09-03Final.pdf.

The Phoenix Center is a non-profit 501(c)(3) organization that studies broad public-policy issues related to governance, social and economic conditions, with a particular emphasis on the law and economics of telecommunications and high-tech industries.

SOURCE The Phoenix Center

Source: PR Newswire

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