22 thoughts on “CTIA 2007: How far behind is the U.S. vs. Europe?”

  1. frankly, looking at the data, they definitely show we are doing pretty well. Especially looking at the number of minutes and cost/min. The eu folks appear to be getting ripped off. and check the data pricing – ATT vs orange or vodafone.

  2. This table doesn’t show that US customers pay for both inbound and outbound calls and that EU customers only pay for outbound calls, by the way.

  3. The United States is ahead of the EU when it comes to interconnection and roaming (continent wide). The EU is still on a Calling Party Pays model for interconnection. The costs of terminating a call are a fixed limit on the amount of minutes that can be sold. In The Netherlands the costs of terminating a call on the mobile network are 10 or 11,4 cents/minute. So selling more than 200 minutes for 20 euro will quickly become a loss maker. The effect of these terminating costs are (as you show in your table) a much lower incoming+outgoing usage in the EU than in the US. Regulatory costs of this model are high too, because it requires constant attention of the regulator. A solution could be to terminate the terminating charges πŸ™‚ This would be similar to the peering and transit model in the Internet world. Great thing there is that it is very competitive.

    An extra effect of the high per minute charge in the EU is that data services are developing slowly. Telco’s are so high on mobile voice and SMS charges that they try to block anything on their data networks that cannibalizes their voice and SMS income. In the US this is less of a problem, because the business model is more based on a fixed charge per month.

    Roaming is just as much a problem in the EU. If you move from one country in the EU to another one, you will be charged 49c/mins. There is no competition possible, since that amount is the fixed retail charge. There is a simple solution (see the link to the blog), where your choice in foreign operator would also determine your retail charge. (Though simple this would be heavily opposed by the operators, because it would cause competition and less free money from foreigners) Yes, US consumers also pay roaming when abroad, but the US is very big and many of them never leave. An EU consumer will roam 2-4 weeks a year.

    OM: I do belief your numbers are not completely correct. The percentages for penetration are probably correct, but the entire EU holds 494,070,000 people (wikipedia) Western Europe is much smaller than that. With regards to data penetration, the interpretation is very hard, since the sale of a UMTS capable phone/sim-card equates to a user with most operators. In reality many users switch off data-UMTS because of cost. It is however fair to say that in most of Western Europe 98% of the population has a mobile phone. Many have two (work and private)

  4. Very interesting, but I have some questions: What’s your definition of 3G penetration? Is it based on actual users? Secondly is a user the same as a subscription or as a subscriber?

    Here in Europe we do get ripped off on the price per minute and cost of sms/mms. These are justified by the providers with two arguments: (1) the high prices they had to pay for UMTS licenses and (2) subsidy on new phones. Luckily we get to see sim-only subscriptions more often. These subscriptions cut prices down to about half.

    I agree with Walt Mossberg recent article where he states providers shouldn’t subsidize the phones as it limits the price competition between phone manufactures . This will also cut down on the costs of the providers.

    Mossberg article: http://mossblog.allthingsd.com/20071021/free-my-phone/

  5. @Raindeer are you saying the marginal costs of a mobile phone call are 10 cents per minute? What are these costs based on?

    In the Netherlands there are providers offering calls at less than 10 cents per minute, I don’t expect them to sell below their marginal costs.

  6. @markpith

    The terminating charge for terminating a call on the mobile net are 10 or 11.4 cents per minute (see http://www.opta.nl/download/201479+mobiele+gespreksafgifte%2Epdf page 8/222) When an operator offers a lower per minute charge you will have to look for the following catches.
    1. Sim only: The per minute charge for a sim only is just for what you call within the bundle. Since you get a subsidy from the operator, this per minute charge is lower, but only because they pay the difference with the subsidy that would otherwise have gone to a phone or other goody. Calling outside the bundle is 22 cents per minute (orange) or 25cent (T-mobile NL). Reasoning is quite simple, they hope you go outside your bundle and start paying real money.
    2. Market share of the operator. The bigger the operator, the bigger the chance that the call will be on its own network. So it can sell more minutes because of owning its own network (also terminating to fixed is 1cent/minute
    3. Special deals on its own network. Orange NL offers two thousand minutes to one number on its network for free.

    All in all, terminating charges are king. Free money for the operators. GSM Europe will do everything to protect this just look at this report by Gilbert and Tobin and CRA International http://www.gsmworld.com/documents/ip_intercon_full.pdf
    It’s completely worthless, but it sets the stage. πŸ™‚

  7. Take a look at Canada – we have a cell phone user pays sytem where call charges are incurred by the person receiving the calls (polar opposite to Europe/Australia) and yet we do not have unlimited data plans (except for the one just accounced by Virgin in Oct!) and our minutes are not even close to competitive by US standards. So how is that switching to this system will guarantee lower prices for Europe?

  8. As an American living in Europe people tend to forget one thing. Incoming calls and text messages are free, regardless of the origin. You {Om} can call me in Finland and I don’t pay a thing.

    You can send me 1000 text messages and again, I don’t pay a thing.

    People here in Finland don’t even use voicemail, we just leave you a text message if you don’t pick up.

    Numbers can be manipulated.

    One more thing, I’m on prepaid, yet I rarely spend more than 20 euros on credit per month.

    <3 Europe.

  9. Comparing total minutes per month is a bit problematic. Americans pay for both incoming and outgoing calls (receiving party pays) while Europeans only pay for outgoing calls (calling party pays). All incoming calls are free – which also explains the higher penetration rates. You can carry a cell phone and pay nothing at all – as long as you only receive calls.

  10. @canadian: The difference between the models is very important. In a Calling Party Pays model your ability to give an unlimited calling plan is limited by the terminating costs charged by your competitor. In a model where you don’t pay for terminating, it is all up to what the network wants to do, regardless of what its competitors do.

    In a system where there is no terminating charge it is possible to only charge for outgoing calls, or only for incoming, or a different rate for incoming and outgoing, or for a fixed amount of minutes per month etc. The great thing of the European GSM model from the perspective of the operator is that competition is limited to one model. One model with strict lower limits on charges per minute and as a result per month.

    The EU model creates a dependency for one operator revenue upon other operators for both roaming and terminating and it is there where the market failures are. If these dependencies weren’t there, each operator could determine themselves how many minutes they would be willing to sell. The same goes for roaming if the retail price of roaming could be determined by the foreign network, than the business of the home network would not be able to depend upon the roaming charges.

    All in all, it seems the mobile sector in Europe is the only sector that can depend on its competitors for its revenues. It would be great to be a baker and depend on other bakers for revenue. Or to be a journalist like Om and know that Red Herring and CNET will foot part of the bill.

  11. @Raindeer Your phrase “The EU is still on a Calling Party Pays model for interconnection”, with stress on STILL, sounds like this is something outdated and stone-aged, while I prefer to say that American model “Incoming Party pays too” sounds ripoff-ish for me, and also makes a lot of fun in regards with telemarketers and other peculiar business animals. I wonder when Americans will stop to use their (rather odd) views on world as golden standard “Things Should Go Only This Way”. Yes, I know – this is Lecture-for-Americans on how-great-their-life-compared-to-those-pity-EUlanders πŸ™‚

  12. @A.T. I’m an EU lander. And yes I mean STILL. From the perspective of the consumer and of the regulator the Calling Party Pays model is inferior. This is because competition is limited by the dependence upon the pricing of a competitor. So if you want to offer a customer 500 minutes extra for free, in the CPP model you can’t because it will incur a direct cost. In the model where you don’t pay for terminating you can. The best model would be Peering and Transit, just like in the internet world. In Europe it has led to a highly competitive market for internet bandwidth.

  13. Carriers all over the world hate the Internet peering model for the same reason they love the European terminating model. In general, you can say that if the the carriers like a pricing model it is bad for consumers.

    The difference between the two models is why 3rd parties can make money in Europe offering mobile VoIP. The economics for mobile VoIP in the US are not nearly as attractive, precisely because the price per outbound minute is so much lower than the rest of the world. There is still a market for International mobile VoIP calling from the US, again because of the terminating charges outside the US.

  14. @Raindeer thanks for the explanation. I never knew these terminating charges are on such a high level. And indeed the marginal cost is below these terminating charges because calls are made within their own network or to fixed lines.

    I hope we’re going to see a lot of competition in the next years from WiMax solutions with mVOIP and e-mail. These would hopefully lead to a payment system as common in the “internet world”. Roaming would just be paying a different provider for one day/ week/ month as common with WiFi.

  15. I have contracts in both the US AT&T and Europe (Vodafone Italia)and use TIM and Wind with pre-paid SIMs.. The numbers quoted are absurd. It ignores pre-paid subsciber traffic which is the bulk of traffic in most EU countries. Just as a user, it is obvious to me that Italy, anyway, is light years ahead of the US cellular network-wise. Unless one of the other carriers in the US has significantly more and sophisticated services than AT&T, Vodafone, TIM and Wind all are far more sophisticated in terms of services. Plus, with Vodafone Passport (and the new EU law), I pay no roaming and the same rates I pay in Italy in all EU states. And, I don’t pay anything when I receive calls. It is a far better system. Paying on receipt of a call is a strange concept to me, thank goodness it is limited to a few countries.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.