International benchmarking study of mobile services – 4 June 2003

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 are only available as a pdf document - please click here to download

Annex A Exchange rates and VAT rates
Annex B Detailed results for mobile baskets
Annex C 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 December 2002 (which was based on August 2002 prices). Oftel has carried out the analysis and drafting of this report. The tariff data used in this report has been collected by consultants HI Europe.

S.3 Points that should be borne in mind in interpreting the results are detailed in paragraphs 1.8 – 1.11 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 February 2003.

Results for mobile domestic services

S.5 Table 1 below 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 overall, based on the sample of service providers/operators selected:

• UK prices are second cheapest with Sweden only 2% lower; and
• prices in France and Germany are slightly more expensive, and prices in Italy are significantly more expensive.

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

February 2003 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 Since August 2002 there has been an improvement in the UK’s position. The main changes between August 2002 and February 2003 are:

• there have been decreases in handset prices and/or tariffs in the UK, Italy and Sweden; and
• there was little change in both France and Germany.

S.8 The results are sensitive to the assumptions made regarding the handset. The UK moves to being the cheapest of the five countries overall if:

• handset prices are excluded;
• 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 particular models.

Results for mobile roaming services

S.9 Tables 2 and 3 below 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.10 The results show that UK prices for consumers roaming abroad:

• are lower on average than elsewhere for post-pay consumers; and
• are substantially higher than elsewhere for pre-pay consumers and on average are approximately double the prices in 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 2 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.

S.11 The results in table 2 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 the cheapest of the countries covered in this report.

Results for combined domestic/roaming basket

S.12 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 telecom services are one way of assessing the achievement of this aim.

1.2 Oftel carries out regular reviews of the major telecom 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 telecom 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.

1.4 The following countries are included in the analysis:

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

1.5 This study is a follow up to the study published by Oftel in December 2002, which was based on tariff data valid as at August 2002. This study is the seventh 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 at: www.oftel.gov.uk/publications/research/index.htm

1.6 Oftel has carried out the analysis and drafting of this report.

1.7 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 2003. Data collection has been carried out for Oftel by consultant’s HI Europe.

Points to bear in mind

1.8 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 capture fully 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.

1.9 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 14th February 2003. 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.

1.10 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 access 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.

1.11 There are separate industry funded initiatives and reports which seek to help UK consumers be to better informed purchasers of telecommunications services (examples are; fixed and mobile quality of service indicators – http://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 – http://www.TelecomsAdvice.org.uk). Oftel has also recently produced a range of consumer guides and has introduced a seal of approval, called the Oftel PASS, for websites that compare the prices of different suppliers and provide impartial and accurate information – http://www.oftel.co.uk/publications/consumer/2002/pass0902.htm. 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

1.12 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. International roaming services are covered in chapter 3.

2.2 Oftel published a consultation document in April 2003 as part of its review of competition in the outgoing mobile market. The current proposal is that no mobile provider has a dominant position, and that therefore the market is effectively competitive. This study will form part of the ongoing monitoring of mobile sector, and the resulting time series will be used in subsequent market reviews.

2.3 The results are based on prices as at February 2003 and provide an update of the results presented in the December 2002 report (based on prices as at August 2002). This study is the seventh 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). However, changes in methodology made in the second study mean that a consistent series is only available from August 2000 onwards.

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

• changes in the UK market over the last 6 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 6 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 Oftel's market research has shown between August 2001 and November 2002 mobile ownership remained relatively stable, however in the last quarter (ending February 2003) there was a significant rise with penetration amongst UK adults reaching 75%, up from 69% in November 2002. The increase in mobile penetration follows the Christmas period. For Small and Medium businesses (SME's) mobile penetration has remained relatively stable since August 2002 and 59% claimed to have a mobile phone at February 2003.

2.7 Pre-pay packages continue to be popular with residential consumers, with 71% of residential mobile users using a pre-pay package in February 2003. This is similar to the August 2002 results.

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 are described in the December 2001 report.

2.9 The methodology for evaluating the price of each basket remains essentially the same as in other studies. Minor changes have been made to improve the modelling of tariff packages including bundled SMS, reflecting the increasing trend for tariffs with this feature to be offered.

Handset costs

2.10 In the December 2002 report, the main results presented were based on the average price over three handsets, which were relatively widely available in all countries (for both pre and post paid) and comparable in terms of price and functionality, with an average handset replacement time of 18 months. The handsets used were the:

• Nokia 3310;
• Nokia 3330; and
• Siemens C45.

2.11 To reflect changes in the handset market a slightly different approach is taken this time:

• the average price over the above three handsets is again taken (though this time all three handsets are not available in each country, and the exact combination differs by country); and
• this price is then averaged with the price of the Nokia 3410 (a newer model, with added functionality, which is widely available across all countries).

2.12 This approach achieves a balance between ensuring continuity in the handset price, while reflecting changes in the handset market (in which new handsets are constantly being introduced with older models being phased out).

2.13 The prices used for the handsets are shown in table 2.1, where they are compared to the prices that were used in the December 2002 report. In general there is a good degree of consistency between the prices used in the December 2002 study and those used in the current study.

Table 2.1: Handset prices used

All prices in UK£ and including VAT

Results including handset costs

Price index

2.14 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 B.

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

February 2003 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

2.15 From Table 2.2 it is seen that as at February 2003:

• overall, UK prices are second cheapest with services in Sweden only 2% lower; and
• prices in France, Germany and Italy are between 9% and 23% more expensive.

2.16 The UK's position has improved slightly since August 2002 and the main changes between August 2002 and February 2003 are:

• there have been decreases in both tariffs and handset prices in the UK;
• handset prices stayed about the same in France and Germany and decreased significantly in Italy and Sweden for postpay handsets. Pre-pay handsets decreased in all countries to varying degrees, with the largest drops seen in Italy; and
• tariffs in the other benchmarked countries stayed about the same.

2.17 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 package is used) overestimates the prices available to consumers in Italy.

Packages included in the index

2.18 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.

2.19 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].

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

2.21 The overall pattern of type of package that is cheapest, is similar to that as at August 2002.

2.22 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

2.23 The results in Table 2.2 indicate that the UK's relative position has moved relative to that based on August 2002 prices, reported in the December 2002 study. The percentage changes in price between August 2002 and February 2003 are shown in Table 2.4. Price changes are presented in real terms. Changes in Purchasing Power Parity (PPP) exchange rates have some impact on the results.

Table 2.4: Percentage change in price levels between August 2002 and February 2003