Perhaps everything’s bigger in America, as the old saying goes, but when it comes to mobile phone calls and data usage, US consumers are certainly paying big, sometimes nearly 20 times as much as Europeans.
If you live in France, you can pay as little as €20 ($21.50) per month for a monthly package featuring 50 gigabytes of data, unlimited domestic and international calls to over 100 countries and unlimited text messages, AFP wrote.
In the United States, that much data could cost you $390 per month from one national operator.
While the above comparison may be the extreme, it dovetails with an International Telecommunications Union report last year, which found US data to be up to 19.5 times more expensive than in Europe when corrected for purchasing power of consumers.
The result is that while US companies may be the pioneers with online video streaming services like Netflix and Hulu, Americans have been asked to pay much more for what it takes to use them on a smartphone, which is rapidly becoming a popular platform for catching the latest episode of TV shows.
That may be changing though, as another US operator recently dropped its unlimited calls and data package from $180 to $80 per month.
Less Choice, Higher Prices
So why has there been such a huge difference?
“The fundamental reason is competition,” said Steven Hartley, practice leader for service providers and markets at telecoms and IT consultancy Ovum.
France and Britain—where you can get an unlimited data plan for as little as £27 ($41)—each have four national mobile operators. The same goes for Sweden, where the cheapest 50-gigabyte plan is roughly $46.
In the United States, the so-called national operators do not really fully cover all of the country. At any given location, only one or two may be present, plus a small regional player.
“Of course, where you have less choice, you are going to have higher prices,” said Hartley.
The situation is in some ways ironic, given that the United States is generally seen as the paragon of free competition that is supposed to lead to lower prices while the European Union ties companies up in red tape, thus causing higher prices.
But in this case, “the EU has gone out of its way to encourage more competition and to regulate prices, and to regulate them down”, which has benefited consumers, said Hartley.
Hellish Circle
Sylvain Chevallier, an associate at telecoms specialist BearingPoint consultancy, agreed that competition is the issue, but believes the problem is in Europe.
“It’s not that the US market isn’t competitive, but I would say that in fact the European market is way too competitive” which has resulted in plunging prices, he said.
“Companies need a certain number of subscribers to cover their costs of building and operating their networks.”
In the United States “you don’t have this constant life or death struggle for a sufficient number of customers” said Chevallier, calling it a “competitive but reasonable market”.
But he believes in certain European markets, such as France, there are too many operators for the number of customers, noting that the revenue per customer fell by nearly a third when a fourth operator started business.
“To survive, the operators must get as many clients as possible, but to do so cut prices,” said Chevallier. “It’s a hellish circle that results in the market losing its value.”
While Europeans may enjoy low prices now, the question will be whether operators will be willing to invest the massive sums needed to upgrade and expand their networks.
Indeed, the need to recoup investment costs is the main argument advanced by the US mobile industry to explain its tariffs.
