NERA Economists Provide a Comparison of the Mobile Wireless Value Proposition

The Situation

Since its beginnings in the 1980s, the mobile wireless services sector has fundamentally altered cultures, shaped societies, and contributed to economic growth. The fifth generation (5G) of mobile wireless technology is expected to have the most significant economic impact yet. Around the world, politicians, regulators, and competition authorities are analyzing the state of competition in their respective countries, considering regulatory and policy actions, and measuring key performance indicators of mobile wireless service providers. To compare their country’s standing, they rely on international ranking lists. The interest in international comparisons in this sector has created a cottage industry in which regulators, consulting firms, and think tanks regularly rank countries on a single variable—price. Price rankings (so several of them claim) are the Swiss Army knife of competition analysis. A country with a low ranking is viewed as noncompetitive and thus purportedly in need of regulatory intervention. Recent research has raised concerns as to whether the methods used in these studies are sound and produce meaningful results. The studies’ simplistic analytical techniques assume a world where consumers are indifferent to the competitive differentiators (i.e., monthly service allowance and quality differences) beyond price. Price rankings also fail to consider the vast differences among the study countries that affect the building of networks. 

NERA's Role

CTIA (a US wireless communications association) retained NERA Managing Director Dr. Christian Dippon and Associate Analyst Jason Claman to prepare a study that will compare countries based on their more holistic mobile wireless value propositions (not just retail price points). This study uses data from 1,554 retail plans offered by 213 mobile wireless providers in summer 2019 in the 36 countries of the Organisation for Economic Co-operation and Development (OECD). The data were used to fit a hedonic regression model with seven different country peer groups. Each model is used separately to predict the prices of every plan in the database and calculate the ratios of actual prices to predicted prices. The average ratios for the providers are aggregated at the country level to create a specific country subscriber-share weighted average. Rankings reflect a country’s weighted average ratio. A ratio lower than one indicates that on average, the country charges lower prices than does its peer group. 

The Result

The approach in NERA’s study overcomes the shortcomings of the price-only rankings and compares the value propositions of mobile wireless services. It also demonstrates that correcting for the omitted variable bias inherent in price-only studies shows the United States ranking favorably compared with its peers with a ratio always lower than one and the best ratio in 76% of the cases.