Mobile Phones: Pricing Structures and Trends (Information society)

104 Pages·2000·3.203 MB·English

by  Sam Paltridge, Organization for Economic Co-operation and Development

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INFORMATION SOCIETY
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PRICING STRUCTURES AND TRENDS 0
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Mobile communications is one of the tremendous success stories of the telecommunications
industry. By June 1999, there were 293 million mobile subscribers in the OECD area, or
PRICING STRUCTURES
around one mobile phone for every four inhabitants. Current growth continues to exceed
most past projections. The benefits wrought by mobility in communications are increasingly
AND TRENDS
evident in terms of both economic and social development.
If there is a caveat amidst such a tremendous success story, it is that the very rapid growth
of mobile communications has tended to conceal large performance differences across the
OECD area. There is an ongoing need to examine performance against fast moving
international benchmarks. Without such analysis, the challenges to mobile communications
INFORMATION SOCIETY
meeting wider policy goals, in relation to electronic commerce and local infrastructure
competition, will remain impervious to critical review. In addition, high growth rates have
tended to mask some problem areas where there has been insufficient price competition.
In many countries, the mobile communications sector has been successfully used to pioneer
liberalisation. Nevertheless, it is incumbent on policy makers to continually review regulatory
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frameworks. This book highlights a number of areas for policy review and decision.
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www.oecd.org D
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ISBN 92-64-18527-5
93 2000 07 1 P -:HSTCQE=V]ZW\W:
Édition 2000
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Mobile Phones
PRICING STRUCTURES AND TRENDS
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
ORGANISATION FOR ECONOMIC CO-OPERATION
AND DEVELOPMENT
Pursuant to Article 1 of the Convention signed in Paris on 14th December 1960, and which came into
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shall promote policies designed:
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accordance with international obligations.
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Sweden, Switzerland, Turkey, the United Kingdom and the United States. The following countries
became Members subsequently through accession at the dates indicated hereafter: Japan
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(22ndNovember 1996) and Korea (12th December 1996). The Commission of the European Communities
takes part in the work of the OECD (Article 13 of the OECD Convention).
Publié également en français :
TÉLÉPHONIE MOBILE : STRUCTURES ET TENDANCES EN MATIÈRE DE PRIX
© OECD 2000
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FOREWORD
The OECD has considered cellular mobile communications pricing on several occasions as the sec-
tor has grown in importance over the past decade. In 1992, the OECD analysed the question of whether
the pricing of mobile communication services would be complementary or in competition with fixed
network services and in 1995, pricing strategies used by mobile telecommunication operators in differ-
ent markets in the OECD area were examined. That report found that higher growth rates had been
achieved in competitive markets.
Based on this analysis, and the increasing experience with liberalisation in Member countries, the
OECD’s Information Computer and Communications Policy Committee released a statement on the
benefits of competition in mobile communications in terms of market growth, increasing employment,
furthering universal service applications and reducing prices. Since that time, the evidence for these
benefits has strengthened and by 1998, mobile communications had grown to represent more than 20%
of the total communications market in the OECD area.
This book examines mobile pricing structures and trends. It updates previous analysis and seeks to
confirm the earlier observation that higher growth rates are strongly correlated to increasing liberalisa-
tion. It also updates mobile growth rates and the evolving market structures for the provision of mobile
service and projects market structures to the end of 2000. This is relevant at a time when many OECD
governments are considering the licensing arrangements for IMT-2000 (International Mobile Telecom-
munications system). The importance of wireless networks in promoting infrastructure competition at
the local access level is a key issue for OECD Member governments.
The book was prepared by Dr. Sam Paltridge of the OECD's Directorate for Science, Technology and
Industry. It is published on the responsibility of the Secretary-General of the OECD.
3
© OECD 2000
TABLE OF CONTENTS
Main Points........................................................................................................................................................ 7
Cellular Mobile Pricing Structures and Trends............................................................................................. 9
Mobile Penetration Rates................................................................................................................................ 14
Changing Market Structure.............................................................................................................................. 16
Pricing Trends.................................................................................................................................................... 21
Convergence with Fixed Network Pricing...................................................................................................... 27
Calling Party and Receiver Party Pays............................................................................................................ 33
The Price of Calls from Fixed Networks to Mobile Networks...................................................................... 40
Tromboning....................................................................................................................................................... 57
Pre-paidCards................................................................................................................................................... 60
Short Message Service ................................................................................................................................... 66
IMT-2000 Licensing Update............................................................................................................................. 73
Statistical Annex................................................................................................................................................ 79
Boxes
1. Select glossary of mobile terms .............................................................................................................. 10
2. Finland: mobile penetration update....................................................................................................... 14
3. European Union mobile licensing........................................................................................................... 17
4. Key cellular mobile policy initiatives in Japan...................................................................................... 18
5. Receiving party pays regulatory update................................................................................................. 20
6. Removing regulatory barriers to CPP...................................................................................................... 35
7. Mobile traffic and revenue patterns in Spain........................................................................................ 39
8. European Commission investigations of pricing between fixed and mobile networks................... 45
9. Pre-paid card use in Sweden.................................................................................................................... 61
10. Lock-in......................................................................................................................................................... 65
11. SMS messaging and “hz.com”.................................................................................................................. 69
Figures
1. Rolling three-year average growth rates in different market structures............................................. 19
2. OECD mobile basket prices time series................................................................................................. 21
3. BT fixed network to mobile network....................................................................................................... 46
4. Fixed to mobile network prices and penetration.................................................................................. 47
Colour Supplement
Mobile subscriber growth................................................................................................................................ 49
Mobile penetration in the OECD area........................................................................................................... 49
Liberalisation has fundamentally changed the market structures for mobile communications............ 50
Liberalisation correlates with higher growth rates in mobile penetration................................................ 50
Cellular prices are falling................................................................................................................................. 51
Who pays for a mobile call?............................................................................................................................. 51
Calling opportunities........................................................................................................................................ 52 5
© OECD 2000
Table of Contents
Calling opportunities in Finland..................................................................................................................... 52
Calling party pays, receiving party pays and growth rates.......................................................................... 53
Pre-paid share of subscribers for selected European operators................................................................ 53
CPP experience in Mexico............................................................................................................................... 54
Are fixed-to-mobile termination rates cost oriented?................................................................................. 54
Price or roaming................................................................................................................................................ 55
Selected pre-paid card prices......................................................................................................................... 56
Short message service (SMS) pricing in the OECD area.............................................................................. 56
Statistical Annex
1. Pre-paid users in selected Europe mobile operators, June 1999........................................................ 79
2. Mobile cellular subscribers in OECD countries..................................................................................... 80
3. Mobile subscribers per 100 inhabitants in OECD countries................................................................ 81
4. Mobile subscriber increase per 100 inhabitants per annum, 1991-99................................................ 82
5. Number of mobile operator equivalents in OECD countries............................................................... 83
6. OECD mobile subscriber penetration rankings, 1990-June 1999......................................................... 84
7. Personal basket of digital cellular service, August 1999....................................................................... 86
8. Business basket for digital mobile service............................................................................................. 87
9. INTUG Survey of European roaming prices, 1999.................................................................................. 88
10. Fixed network pricing in Denmark, July 1999......................................................................................... 88
11. Comparison between CPP and RPP......................................................................................................... 89
12. Mobile subscribers as a percentage of access lines............................................................................. 90
13. Cellular mobile growth in Mexico............................................................................................................ 91
14. Network calling opportunities in OECD area......................................................................................... 91
15. Price of calls between fixed and mobile networks................................................................................ 92
16. Interconnection charges between fixed and mobile networks in OECD countries, January 1999... 93
17. Mobile pricing and service innovation.................................................................................................... 94
18. Pre-paid card pricing in OECD countries................................................................................................ 95
19. Selected mobile card conditions and duration..................................................................................... 96
20. SMS growth in Europe............................................................................................................................... 97
21. Short message service (SMS) pricing in OECD countries..................................................................... 98
22. Radiolinja pricing for SMS roaming......................................................................................................... 99
23. OECD Member countries and IMT-2000 (UMTS and 3G)...................................................................... 101
6
© OECD 2000
MAIN POINTS
Mobile communications is one of the tremendous success stories of the telecommunications indus-
try. By June1999, there were 293million mobile subscribers in the OECD area, or around one mobile
phone for every four inhabitants. Current growth continues to exceed most past projections. The bene-
fits wrought by mobility in communications are increasingly evident in terms of both economic and
social development. Moreover, the potential for using wireless networks as a platform for electronic
commerce and increasing infrastructure competition are some of the most promising developments on
the communications horizon.
If there is a caveat amidst such a tremendous success story, it is that the very rapid growth of
mobile communications has tended to conceal large performance differences across the OECD area.
There is an ongoing need to examine performance, however meritorious in national terms, against fast-
moving international benchmarks. Without such analysis, the challenges to mobile communications
meeting wider policy goals in relation to electronic commerce and local infrastructure competition, will
remain impervious to critical review. In addition, high growth rates have tended to mask some problem
areas where there has been insufficient price competition.
This is not to argue for increasing regulation of mobile communications. From a policy perspective,
tremendous benefits have been achieved in an environment characterised by less regulation than tra-
ditional telecommunication networks. Indeed, in many countries, the mobile communications sector
has been used to pioneer liberalisation. Nevertheless, it is incumbent on policy makers to continually
review regulatory frameworks. The report emphasises a number of areas for policy review and decision:
– Analysis clearly shows a strong correlation between market growth and market openness. During
the 1990s, those markets that had liberalised the most and had four or more operators, have con-
sistently outperformed markets with monopolies, duopolies or three operators. In the United
States, for example, some markets have seven networks in direct competition. In Japan, Korea
and the Netherlands, up to five operators are competing in the same markets. This is important
in relation to third-generation mobile licensing where policy makers should strive to open mar-
kets as rapidly and as widely as possible to this new technology.
– Important price reductions have taken place in mobile services. However, there is evidence that
in many countries prices remain high and there is still scope for price reductions. If growth slows
and operators start competing against each other for existing customers, more rapid price
declines can be expected. However, there have been insufficient price reductions in the pricing
of calls from fixed-to-mobile networks in countries with calling party pays. The lack of competi-
tion in this price segment is due largely to the market power of mobile companies. Prices in this
market segment appear to be well above cost and should be reviewed by regulators who should
require cost-based pricing.
– The relatively high termination charges on mobile networks are leading to bypass at the national
level via fixed network and international re-routing of traffic. This has led to recommendations to
seek increases in international termination charges to prevent such bypass. Such action would
not rectify the root of the problem, which is based on high mobile termination charges.
– Prices for international roaming appear to bear little relation to cost. This reflects insufficient
competition in the roaming market, to a large extent due to the relative small size of the interna-
tional roaming market. 7
© OECD 2000
Mobile Phones: Pricing Structures and Trends
– Successful growth and diffusion of mobile communication services is focusing greater attention
on how mobile relates to fixed networks. Accordingly, it is necessary for regulatory authorities to
review current frameworks in those instances where regulation might impede the offering of cer-
tain pricing structures, such as calling party pays. This issue is critical in putting fixed and mobile
networks on an equal footing so that the potential for competition between networks can be
exploited. Testing the demand for new pricing structures can be left to the market.
– Successful growth and diffusion of mobile communication services is focusing greater attention
on how mobile communication relates to the Internet and electronic commerce. This report
reviews and benchmarks the pricing of emerging services such as short message services. These
services are the harbingers of third-generation information services over mobile networks, and
policy makers need to review current regulatory frameworks in order to enhance pricing innova-
tion and competition in the provision of these services.
8
© OECD 2000
CELLULAR MOBILE PRICING STRUCTURES AND TRENDS
Introduction
The OECD has considered cellular mobile communications pricing on several occasions as the sec-
tor has grown in importance over the past decade.1 In 1992, the OECD analysed the question of whether
the pricing of mobile communication services would be complementary or in competition with fixed
network services.2 In 1995, the OECD examined the pricing strategies used by mobile telecommunica-
tion operators in different markets in the OECD area.3 This study included the then novel trends
towards flexible pricing packages and selling blocks of airtime in advance of use. That report also found
that higher growth rates had been achieved in competitive markets.
Based on this analysis, and the increasing experience with liberalisation in Member countries, the
OECD’s Information Computer and Communications Policy Committee released a statement on the
benefits of competition in mobile communications in terms of market growth, increasing employment,
furthering universal service applications and reducing prices.4 Since that time, the evidence for these
benefits has strengthened. By 1998, mobile communications had grown to represent more than 20% of
the total communications market in the OECD area. Mobile operators directly employed more than
260000people and have created many more jobs among resellers and related businesses.5
Earlier OECD work also noted the potential for mobile communications to enhance universal ser-
vice. Recently, mobile communication penetration rates have begun to exceed those of fixed networks
in a growing number of OECD countries. In fact, new wireless technologies are increasing access in many
and varied ways. In Sweden, mobile phones are also being developed which enable speech and hear-
ing-impaired users to take advantage of communications mobility.6 The technology enables real-time
text-phone conversations over mobile networks. However, the importance of mobile networks is not
limited to increasing access to communication services. The ability to utilise mobility is greatly enhanc-
ing social developments in areas such as personal security and emergency services. In the United
States, for example, some 98000calls are made every day from mobile phones to emergency services.7
Combining this with new services, such as location finding, will further improve the ability for emer-
gency services to respond to distress calls.
This report examines mobile pricing structures and trends. It also updates previous analysis and
seeks to confirm the earlier observation that higher growth rates are strongly correlated to increasing
liberalisation. It does this by comparing growth rates for different markets structures with monopolies,
duopolies, three operators, and four or more operators. Mobile growth rates are also updated, as these
data are important for comparing the performance of the sector across different OECD countries and
informing regulatory authorities and policy makers as they consider new issues. The report also updates
the evolving market structures for the provision of mobile service, and projects market structures to the
end of 2000. This is relevant at a time when many OECD governments are considering the licensing
arrangements for IMT –2000 (International Mobile Telecommunications system, refer to the glossary in
Box1). The importance of wireless networks in promoting infrastructure competition at the local access
level is a key issue for OECD Member governments.
The report also provides a comparison of prices for baskets of digital mobile service. Another area
of mobile pricing considered is that of roaming, an area of growing significance to business users. The
report also considers convergence with fixed network pricing but not just from the perspective of 9
© OECD 2000