12 June 2002

Contents

Summary
Scope
Results for mobile domestic services
Results for mobile roaming services
Results for combined domestic/roaming basket
Conclusions

Chapter 1 – Introduction
Points to bear in mind
Outline of the report

Chapter 2 – Mobile services (domestic)
Introduction
Market developments
Methodology
Results including handset costs
Results excluding handset costs
Sensitivity analysis
Detailed results
Conclusions

Chapter 3 – Mobile services (roaming)
Introduction
Market developments
Methodology
Structure of tariffs
Results for post-pay
Results for pre-pay
Sensitivity analysis
Results for combined mobile services basket
Detailed results
Conclusions

Annexes
Annex A – Exchange rates and VAT rates
Annex B – Updated mobile baskets
Annex C – Detailed results for mobile baskets
Annex D – Detailed results for mobile roaming

Summary

Scope

S.1 This report is an international benchmarking study of mobile services (both 'domestic' and 'roaming'), in France, Germany, Italy, Sweden and the United Kingdom.

S.2 This study is a follow up to the study published by Oftel in November 2001 (which was based on August 2001 prices) (International benchmarking study of mobile services, November 2001). The analysis and drafting of this report has been carried out by Oftel. The models developed by Oftel used to generate the results contained in this report have been audited by an independent consultant, Analysys Ltd. The tariff data used in this report has been collected by consultants Total Romtec.

S.3 Points that should be borne in mind in interpreting the results are detailed in paragraphs 1.9-1.12 of this report. This report is not intended in any way to be a buyer's guide to services in the UK.

S.4 The results presented are based on a snapshot of prices as at 27 February 2002. The usage profiles have been updated since the November 2001 study.

Results for mobile domestic services

S.5 Table 1 shows the results for the mobile price index (expressed relative to the UK price level). This analysis has been based on considering the cheapest packages available, irrespective of whether they are pre or post paid services, and including the cost of the mobile handset, which is assumed to be written-off over 18 months.

S.6 The results show that, based on the sample of service providers/operators selected:

• overall, UK prices are slightly higher than the average; and
• prices in France, Germany and Sweden are, on average, 7-11% cheaper than in the UK, while prices in Italy are 13% more expensive.

Table 1: Cost of mobile services (best of post and pre-pay packages, cost of handset included)

February 2002 prices.
Note: the average is a simple average of all the basket results, Q1 = usage quintile 1 etc; day = mainly daytime; Off-peak = mainly evening and weekend.

S.7 The results represent a slight change in the UK's position since August 2001, when UK prices were slightly better than the average. The change from the August 2001 results has two elements:

• the effect of handset and tariff changes in the UK and elsewhere results in a deterioration in the UK position; and
• this is offset by the change in usage profiles which tends to improve the UK position.

S.8 The main changes between August 2001 and February 2002 (outside of the profile changes) are:

• there has been an effective increase in tariff price in the UK (largely due to the withdrawal of some cheap tariffs) while the handset price has stayed about the same (the Nokia 3310 has been benchmarked);
• tariffs in other countries have stayed the same or decreased slightly; and
• the handset price has generally decreased elsewhere, with the biggest decreases seen in Sweden and France (for post-pay).

S.9 The results are sensitive to the assumptions made regarding the handset. The UK moves to:

• being the cheapest of the five countries if the cost of the handset is not included; and
• being the second cheapest of the five countries overall if:
  - the period over which the handset is written-off is increased from 18 months to two years; or
  - the price of the cheapest available handset is used, rather than benchmarking a particular model.

In these cases, the UK's position relative to other countries has also changed from August 2001 to February 2002. However, the effect is mainly to narrow the gap between the UK and other countries, and only with Germany is the order reversed.

Results for mobile roaming services

S.10 Tables 2 and 3 show the results of the benchmarking exercise for mobile international roaming services for post and pre-pay consumers respectively. A price index (based on the two cheapest deals available) is shown for each of seven commonly visited countries.

S.11 The results show that UK prices for consumers roaming abroad:

• are lower on average than elsewhere for post-pay consumers, with prices in France 5% higher and prices in the other countries 14-22% higher; and
• are substantially higher than elsewhere for pre-pay consumers and on average are more than double the prices in Italy and Sweden.

Table 2: Price index for mobile international roaming services by visited country (based on two cheapest deals) –
post-pay

Note: an index of the price of roaming in the UK is not included, as this is not relevant in considering the costs incurred by UK consumers.

Table 3: Price index for mobile international roaming services by visited country (based on two cheapest deals) –
pre-pay

Note: an index of the price of roaming in the UK is not included, as this is not relevant in considering the costs incurred by UK consumers.
Where an operator does not offer roaming in one or more of the benchmarked visited countries, they have not been included in the analysis. This means only one operator is included for Germany.

S.12 The results in table two have also been run considering only the two operators in each country who were the earliest entrants (these generally also have the highest number of subscribers). The results of this show that prices in the UK are still close to the cheapest prices elsewhere.

Results for combined domestic/roaming basket

S.13 It is also possible to consider a combined basket including both domestic and roaming services for post-pay consumers. The results of this are similar to the results for domestic services only, reflecting the fact that the weight given to roaming services within the combined basket is relatively low compared to the weight given to domestic services.

Chapter 1 – Introduction

1.1 Oftel’s aim is to provide the best possible deal for telecommunications customers in terms of quality, choice and value for money through effective competition. International comparisons of telecoms services are one way of assessing the achievement of this aim.

1.2 Oftel carries out regular reviews of the major telecoms markets to determine the appropriate level of regulation for the future. Regular benchmarking exercises allow a time trend to be developed, which provides greater information than a single snap shot. The results in this report will form part of the data input for future reviews.

1.3 This study focuses on comparing the cost for representative users for mobile services in each country using a 'basket' methodology. Oftel has carried out its own benchmarking work (as opposed to using alternative published sources) to ensure that the methodology is rigorous and robust and that it addresses the following issues:

• usage baskets need to reflect a range of patterns of use representative of different groups of consumers; and
• consumers have a potentially wide range of choices for their telecoms services:
  - consumers have a choice of competing operators all of whom will offer different packages; and - each operator may offer a variety of different packages and discount schemes targeted at different segments of the market.

Price comparisons need to take into account the range of products available to the consumer.

1.4 It is important that the baskets used reflect the usage patterns of consumers, which may change over time. Oftel has recently carried out some market research which has enabled the baskets to be updated and these updated profiles form the basis of the results in this report. To ensure a consistent time trend can be developed, previous results based on August 2001 tariffs have been re-run using the new baskets.

1.5 The following countries are included in the analysis:

• France;
• Germany;
• Italy;
• Sweden; and
• UK.

1.6 This study is a follow up to the study published by Oftel in November 2001 (the 'November 2001 study'), which was based on tariff data valid as at August 2001. This study is the fifth in a series that started with a study carried out by Teligen for Oftel and published in May 2000. A list of the 'tariffs valid at' date and date of publication of previous studies is given in the table below.

Table 1.1: List of previous studies

*The results in this report are not comparable with those in subsequent reports due to changes in methodology. Reports can be found on Oftel's website at www.oftel.gov.uk/publications/research/index.htm.

1.7 The analysis and drafting of this report have been carried out by Oftel. The models developed by Oftel used to generate the results contained in the report have been audited by an independent consultant, Analysys Ltd, who confirm the following:

• the models are logically sound (ie they correctly implement the methodology described in this report); and
• the tariff data has been checked and has been correctly entered and interpreted.

1.8 Data has been collected from the vast range of tariff packages available to residential and small/medium sized businesses for major operators and service providers in each country as at February 2002. Data collection has been carried out for Oftel by consultants Total Romtec.

Points to bear in mind

1.9 There are a huge range of operators and service providers offering services to consumers and it is not possible to cover all packages on offer. In addition, it is not possible to fully capture all aspects of innovative tariff products. While it is believed that the sample chosen is fully representative and covers the range of offers available by country, the possibility that consumers have access to additional offers outside the range calculated for the sample used in this report cannot be excluded.

1.10 The objective of this report is to provide a comparison between countries for a range of consumer usage profiles. A range of profiles is chosen to be illustrative of the most frequent types of customer calling patterns, but is not comprehensive. Prices are based on a snap shot as at 27 February 2002. Although providing a sound overall picture, the comparison of companies within a country should not be taken as necessarily being representative for an individual consumer.

1.11 The analysis is based on a basket methodology, which allows prices to be compared across different operators in different countries. It is not, however, intended to be a buyer’s guide to services as:

• it provides only a snapshot of the price levels for a continually changing set of price packages; and
• the residential or business consumer will have to use more specific usage information in order to determine the best option for that person or business.

The objective is to illustrate the scale and level of prices available to consumers in different countries.

1.12 There are separate industry funded initiatives and reports which seek to help UK consumers be better informed purchasers of telecommunications services (examples are: individual enquiry based price comparisons – www.phonebills.org.uk; fixed and mobile quality of service indicators – www.cpi.org.uk/www.oftel.gov.uk; advice to consumers on using a mobile abroad – www.oftel.gov.uk; and information for small businesses about using telecoms and the Internet – www.TelecomsAdvice.org.uk). Oftel is also planning to: launch an accreditation scheme for price comparison services later in 2002, which will raise consumer awareness of and confidence in such services; and produce a guide to choosing and using UK mobile services early in Summer 2002. This report is not part of that body of work as it seeks to compare positions between, not within, countries and it is not, therefore, intended in any way to be a buyer's guide to services in the UK.

Outline of the report

1.13 There are two subsequent chapters which present the results for:

• mobile services (domestic) – Chapter 2; and
• mobile services (roaming) – Chapter 3.

Chapter 2 – Mobile services (domestic)

Introduction

2.1 This chapter covers 'domestic' mobile services ie calls made from mobile phones within the consumer's home country. Roaming services are covered in chapter 3.

2.2 Oftel has completed its review of the mobile market in September 2001 and has concluded that, for services bought by mobile subscribers, the market is prospectively competitive. This study will form part of the ongoing monitoring of the mobile market and the resulting time series will be used in subsequent reviews.

2.3 The results are based on prices as at February 2002 and provide an update of the results presented in the November 2001 report (based on prices as at August 2001). This study is the fifth in a series that started with a study carried out by Teligen for Oftel and published in May 2000 (based on prices as at February 2000) (see note one below).

2.4 This chapter follows broadly the same format as the previous reports and covers:

• changes in the UK market over the last six months;
• methodology;
• results (both with and without the cost of the handset) showing:
  - price indices for a range of residential and business baskets;
  - price movements over the last six months; and
  - charts which show the spread of offers by country;
• sensitivity analysis;
• detailed results by operator; and
• conclusions.

2.5 Detailed results for all tariff packages modelled can be found in annex C.

Market developments

2.6 Mobile phone ownership appears to be levelling out in the UK. Results from Oftel's latest consumer research (carried out in February 2002) show 73% of UK adults and 62% of small and medium businesses (SMEs) claim to have a mobile phone, compared to 73% of adults and 61% of SMEs in August 2001.

2.7 Pre-pay packages continue to be popular with residential consumers, with 67% of residential mobile users using a pre-pay package in February 2002. However, the percentage has fallen somewhat from 71% in August 2001.

Methodology

2.8 The price comparisons are based on evaluating the costs for a range of different usage 'baskets' for the different tariffs available. The usage baskets previously used were based on market research carried out in early 1999. The mobile market has developed considerably over the last three years and it is to be expected that usage patterns will have changed. Oftel carried out some new market research in Q4 2001 and new baskets have been developed based on this. Further details are provided in annex B. The main changes have been:

• the number of minutes use per month has decreased for each quintile;
• the number of SMS messages has increased;
• previously two usage patterns per quintile were modelled: mainly peak and 'combination' (calls spread fairly evenly over daytime, evening and weekend). The two usage patterns chosen for this report are peak and off-peak (mainly evening and weekends);
• the proportion of calls to mobile (as opposed to fixed lines) has increased; and
• the split of calls to mobile between on and off-net calls has increased the proportion of on-net calls.

Handset costs

2.9 In the November 2001 study, the main results presented were based on the cost of a particular handset (the Nokia 3310), benchmarked in each country, with an average handset replacement time of 18 months. The Nokia 3310 continues to be a popular handset in the UK. The same approach is used in this report.

2.10 The prices used for the Nokia 3310 handset are shown in table 2.1, where they are compared to the prices as at August 2001, used in the November 2001 study. In general there is a good degree of consistency between the prices used in the November 2001 study and the prices used in the current study. It is seen that prices have mostly decreased. The Nokia 3310 has been a popular handset for some time and it is possible that some of the price falls may reflect that fact that the handset is beginning to be less sought after (and hence is being discounted). Oftel will consider including a more recently introduced model in the next benchmarking update.

Table 2.1: Handset prices used

All prices in UK£ and including VAT.

Results including handset costs

Price index

2.11 The price index (based on the average of the two cheapest packages from different operators in each country) is presented in table 2.2 for the best of all packages, irrespective of whether they are post or prepay, with the price of the handset included. Detailed results showing the cost of each basket for each tariff package modelled are shown in annex C.

Table 2.2: Cost of mobile services (best of post and pre-pay packages, cost of handset included)

February 2002 prices.
Note: The average is a simple average of all the basket results, Q1 = usage quintile 1 etc; day = mainly daytime; Off-peak = calls spread fairly evenly over day, evening and weekend.

2.12 From table 2.2, it is seen that as at February 2002:

• UK prices are slightly more expensive than the average; and
• prices in France, Germany and Sweden are between 7% and 11% cheaper than in the UK while prices in Italy are around 13% more expensive.

2.13 The UK's position has deteriorated slightly since August 2001. The change from the previous results has two elements:

• the effect of handset and tariff changes in the UK and elsewhere results in a deterioration in the UK position; and
• this is offset by the change in profiles which tends to improve the UK position.

2.14 The main changes between August 2001 and February 2002 (outside of the profile changes) are:

• there has been an effective increase in tariff prices in the UK (mostly due to the withdrawal of tariffs previously found to be among the cheapest) while the handset price has stayed about the same (the Nokia 3310 has been benchmarked);
• tariffs in other countries have stayed the same or decreased slightly; and
• the handset price has generally decreased elsewhere, with the biggest decreases seen in Sweden and France (for post-pay).

2.15 The handset decreases may reflect the fact that the Nokia 3310 is beginning to be relatively less popular and is being discounted. This will considered further in the next benchmarking update.

2.16 Italy continues to have the highest prices. However, use of multiple SIM cards (to reduce mobile call charges) is easier in Italy than in the other countries (as there is no handset locking), and it is possible the methodology used in this report (which assumes a single tariff packge is used) overestimates the prices available to consumers in Italy.

Packages included in the index

2.17 It is also useful to consider the price index results in the context of the types of package that have been chosen as being least cost.

2.18 Table 2.3 shows whether the least cost packages are post or pre-pay.

Table 2.3: Type of package included in price index

The table shows: cheapest package [pre or post]/the second cheapest package (from a different operator) [pre or post].

2.19 In general, the trend is for prepay packages to be cheaper for low volume users, while postpay packages are cheaper for higher usage. However, there are significant variations by country:

• in Sweden and Germany, the index is composed of postpay packages for all baskets;
• in France, post-pay packages feature partially in the index even at low usage; and
• in Italy and the UK, the index is composed of pre-pay packages for all but the highest usage quintile.

2.20 The overall pattern of type of package which is cheapest is similar to that as at August 2001.

2.21 The vast majority of packages chosen for the index are available to both business and residential consumers. A small number of business packages feature in the index for the higher usage baskets.

Time trend

2.22 The results in table 2.2 indicate that the UK's relative position has moved relative to that based on August 2001 prices, reported in the November 2001 study. The percentage changes in price between August 2001 and February 2002 are shown in table 2.4. To ensure that this captures changes in tariffs and handsets, as opposed to changes in the baskets used, the figures for August 2001 have been rerun using the new baskets and the price changes are based on these new figures.

Table 2.4: Percentage change in price levels between August 2001 and February 2002

2.23 It is seen that overall: prices have risen in the UK (largely due to some tariffs which were previosuly among the cheapest being discontinued); prices have generally fallen elsewhere, particularly in France and Sweden.

2.24 The price changes shown reflect the methodology used in this report, ie they reflect price changes for the cheapest tariffs available to new consumers. They do not necessarily reflect the average price change experienced by consumers (consumers in practice will use a wider range of tariffs, and will continue to use tariffs which are no longer available to new subscribers). Oftel's mobile price index work gives a better indication of overall UK price changes.

Price spread charts

2.25 'Price spread' charts are shown in figure 2.1. The charts show the price for the cheapest package offered by each operator as a percentage above the cheapest price across all countries, for each basket. These charts illustrate the relative spread of prices by country, as well as allowing relative price levels to be compared.

2.26 The price spread seen varies by basket. In general the price spread seen in the UK is similar to that seen in other countries. The price spread in the UK is smaller for low usage baskets compared to high usage baskets.

Figure 2.1: Price spread charts

Results excluding handset costs

Price index

2.27 The results have also been run excluding the handset cost and are presented in table 2.5. These results may be relevant for consumers who have had their handset for some time, and who have written off the initial cost. Oftel market research suggests that nearly half of mobile phone users in the UK have had their current handset for less than a year, and 80% for less than two years. This implies that it continues to be relevant to include the cost of the handset in the main analysis.

Table 2.5: Cost of mobile services (best of post and pre-pay packages, cost of handset excluded)