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A Price Index for Mobile Telephony |
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October 2000 Background In September, OFTEL outlined its plans to review the mobile market. This review is part of OFTEL’s strategy to focus on effective competition delivering the best deal for consumers. An essential part of this review, particularly in determining whether the customer is getting the best deal in terms of value for money, is an analysis of price trends. In 1998 OFTEL appointed National Economic Research Associates (NERA) to construct a suitable model to allow OFTEL to track price changes over time and reflect the actual experience of different types of customer. The model has been updated to reflect price movements up to June this year. Results Prices of mobile telephony services fell by 3 per cent in the second quarter of 2000. This fall was due almost entirely to a reduction in the cost of pre-paid packages which were 11 per cent cheaper in June than in March. Prices of advance and monthly contract packages were relatively unchanged from March levels.
Overall prices were 16 per cent cheaper in June than a year previously and over 20 per cent cheaper than at the start of 1999 when the monitoring exercise began. Pre-pay prices fell by 34 per cent over the year while advance and monthly contract prices fell by 2 and 12 per cent respectively.
Prices also continued to decline for all types of users, particularly for those customers with a telephone for emergency use or to receive incoming calls only (so called ‘zero-use’ customers). Prices for these customers fell over 7 per cent in the three months to June and are now over 30 per cheaper than in January 1999 (Figure 2). Figure 2: Prices for mobile telephony by usage pattern Prices fell by around 3 or 4 per cent for each of the other user groups between March and June and are now generally around 20 per cent cheaper than in January 1999. Methodological notes The model used to produce these analyses classifies mobile customers into particular categories or ‘profiles’ according to usage patterns and then applies operator tariffs to these profiles. User profiles of typical customers were identified from responses to a consumer survey carried out early in 1999. For each user profile the model estimates the proportion of calls made at peak, off-peak and weekend rates. The model also estimates the proportion of different call types made by each profile. Estimates are made of the proportion of calls made to fixed networks – local, national or international; calls made to mobile networks – own or other; and other calls such as voicemail, fax or SMS. While customer profiles may have changed since the original survey was conducted the model provides an indicative guide to recent price trends. The model does not consider the actual cost of handsets but does take into account connection fees and handset subsidies as well as call charges. Full details of the model were outlined in the NERA report ‘A Price Index for Mobile Telephony’. To reduce monthly fluctuations in the latest figures, however, NERA has used a one-year moving average to estimate subscriber growth and the rate of new connections. This change means that results presented in the original NERA report for January to June 1999 have been revised slightly. In addition NERA has made some small revisions to previously published data following clarification of the charging procedures on some packages. More detailed results are available on request. Data are presented in index form only and are not available for individual operators. Oftel will, however, be looking at relative price levels and other specific trends in the context of the overall review. For further information please contact: Kenny Osborne Tel: 020 7634 8973 Or by e-mail: kenny.osborne@oftel.gov.uk |
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