Mobile Information Superhighway Super Expensive in US Compared to Europe

Perhaps everything's bigger in America, as the old saw goes, but when it comes to mobile phone calls and data usage, US consumers are certainly paying big, sometimes nearly as 20 times as much as Europeans.

If you live in France, you can pay as little as EUR 20 (roughly Rs. 1430) per month for a monthly package featuring 50 gigabytes of data, unlimited domestic and international calls to over 100 countries and unlimited text messages.

In the United States, that much data could cost you $390 (roughly Rs. 25,000) 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 your TV show.

That may be changing though, as another US operator recently dropped its unlimited calls and data package from $180 to $80 (roughly Rs. 12,000 to Rs. 5,300) 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 GBP 27 (roughly Rs. 2,700) each have four national mobile operators. The same goes for Sweden, where the cheapest 50 gigabyte plan is roughly $46 (roughly Rs. 3,000).

Meanwhile in the United States the handful of so-called national operators don't 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 which 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 telcoms 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, he said.

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.

Low income households burdened
But such an explanation is just "smoke and mirrors" said Linda Sherry, a spokeswoman for Consumer Action, a US consumer advocacy group that takes issue with a number of practices that stick consumers with higher bills.

In Europe, if you exceed your data allowance you'll see your speed reduced, but in the United States you'll find an extra charge from some operators.

Long term contracts with subsidised phones make it difficult to change operators to take advantage of a better deal.

The importance of service charges for smartphones is about more than paying a premium to catch the latest episode of Empire.

A US Census report last year found that minorities and low-income households are more likely to only have handheld devices to access the Internet, which is increasingly becoming the gateway for many services.

"We see why people feel this is a critical service," said Sherry.

"It eats up a much larger percentage of their income, but as it is necessary, minorities and low-income families bite the bullet and pay. They are going without something else," she said.