Annex B International price comparisons and development of the prices in the retail market for mobile phone services in Iceland 5 February 2007
TABLE OF CONTENTS 1 METHODOLOGY...3 2 INTERNATIONAL PRICE COMPARISONS OF MOBILE PHONE SUBSCRIPTIONS AND CARDS...5 2.1 INTERNATIONAL PRICE COMPARISONS OF MOBILE PHONE SUBSCRIPTIONS...5 2.2 INTERNATIONAL PRICE COMPARISON OF PREPAID MOBILE PHONE CARDS...6 3 NATIONAL PRICE COMPARISONS...8 3.1 NATIONAL PRICE COMPARISONS OF MOBILE PHONE SUBSCRIPTIONS...8 3.2 NATIONAL PRICE COMPARISON OF PREPAID MOBILE PHONE CARDS...11 4 CONCLUSION...14 2
1 Methodology 1. The retail market price survey of mobile phone services is based on various users calling patterns, using a methodology developed by the OECD and Teligen Ltd and published in July 2002. 1 2. The method consists of creating three price baskets, each containing one-third of the registration or the installation charges, i.e. distributed over a three-year period, a monthly rental charges and any option charges that may accompany a subscription or subscription offer, and a certain number of SMS per month. The three price baskets are composed in the following manner: Low usage basket, with 25 out-going calls and 30 SMS per month Average usage basket, with 75 out-going calls and 35 SMS per month High usage basket, with 150 out-going calls and 42 SMS per month. 3. After consideration of information provided by the electronic communications companies regarding user calling patterns, it was apparent that there was little difference between the average pre-paid usage and low post-paid usage. The low usage basket can therefore be used for both pre- and post-paid tariffs, allowing a simple price comparison between the two types. 4. The methodology mentioned above distinguishes between calls to fixed-line phones and mobile phones as follows: Local area fixed line calls: This excludes calls that have separate charges for the local area. Where this does not apply, such as in Iceland, this type is included with national fixed lined calls. National fixed line calls: This covers all fixed line calls outside the local areas, i.e. excluding instances such as those indicated in the item above. Same network mobile calls (On-net): This includes all calls made to and from mobile phones within the same mobile phone network. Other networks mobile calls (Off-net): This includes all calls to other mobile networks in the caller s country. When the charges are different depending on destination network, the market shares based on subscriber numbers are used for weighting the charges. Up to three mobile phone networks are considered in each country. 5. According to the methodology, the proportion of phone calls is divided up in the following manner: Ratio of Fixed local Fixed national On-net Off-net calls area area mobile mobile Low usage 28% 14% 40% 18% Average usage 24% 12% 43% 21% 1 These are price baskets based on a method which was agreed on at a large workshop in London on 21 October 2001. The participants were representatives of OECD member states, regulators and operators. The price baskets mentioned here are based on averages or on information provided by representatives at the workshop and other information that the OECD called for. 3
High usage 26% 14% 42% 18% 6. As the information received produced little evidence on the split between local and national fixed line calls, the assumption has been used that the ratio should be 2:1 for local: national calls, i.e. 67% local and 33% national. This assumption on averages for fixed line calls was taken due to the limited information available on this aspect. It must be emphasised, however, that the prices for calls within Iceland are not divided by area, so this item does not apply to Iceland. For such instances, the ratio for fixed line calls is 42% for low usage, 36% for medium usage and 40% for high usage. 7. Instead of splitting time and day into distinct times and days the following approach were used: Calls under a daytime tariff on weekdays Calls under an evening tariff on weekdays Calls on weekends. 8. Distributions over time and day for each usage group are as follows: Ratio of Day Evening Weekend phone calls Low usage 38% 35% 27% Average usage 47% 30% 23% High usage 63% 22% 15% 9. The methodology bases call duration for each basket as follows: Minutes Fixed line Mobile Mobile per call National On-net Off-net Low usage 1.6 1.4 1.4 Average usage 2.1 1.9 1.9 High usage 2.2 2.0 2.1 10. Any call allowance value included in the monthly rental is deducted from the usage value once the basket is calculated. The deduction cannot be larger than the actual usage value, i.e. a negative usage is not allowed and no transfer of unused value to next month is taken into account. 11. Any inclusive minutes are deducted from the basket usage before starting the calculation of usage cost. The inclusive minutes are assumed to be used up with the same calling pattern that is described in the price basket, i.e. the same day/evening ratio and the same distribution of calls across destinations. Where the inclusive minutes are clearly limited to specific destinations or times of day, this is taken into account. No transfer of unused minutes is taken into account. 4
12. Any inclusive SMS messages are deducted from the basket before starting the calculation of the SMS message cost. The varying subscriptions of the operators are taken into account and the cheapest package offered by that operator is calculated for each of three baskets (low, average, and high usage). The sample for each country covers at least two of the operators with the highest number of subscribers. The operators included shall have a total market share of at least 50% based on number of subscribers. 13. The following figures show the annual cost for varying mobile usage, comparing the cheapest package between the countries. Call pattern and usage are determined according to the OECD and Teligen definitions. The cost has been calculated in euros with value added tax, adjusted to the purchasing power parity of each country. 2 International price comparisons of mobile phone subscriptions and cards 2.1 International price comparisons of mobile phone subscriptions 14 Figure 1 shows a comparison of the annual cost of mobile phone subscriptions in OECD countries according to August 2005 tariffs and low usage. The cost in Iceland is seen as the sixth lowest in the OECD countries, but the highest of the Nordic countries. Figure 1 Comparison of the annual cost of subscriptions, based on low usage Postpaid subscriptions; Low usage - August 2005 EUR/PPP incl. VAT 500 450 400 350 300 250 200 150 50 - Luxembourg Finland Swiden Denmark Norway Iceland Netherlands Poland Portugal Korea Switzerland Slovak Republic Spain Irland Belgium Italy Hungary Turkey Czech Republic Japan Austria Australia Greece Germany New Zealand UK Canada France USA Mexico Source: Teligen, August 2005 Fixed fee Usage 15. Figure 2 shows a comparison of the annual cost of mobile phone subscriptions in OECD countries according to August 2005 tariffs and average usage. The cost in Iceland is seen as the eighth lowest in the OECD countries, but the highest of the Nordic countries. Figure 2 Comparison of the annual cost of subscriptions, based on average usage 5
Postpaid subscriptions; average usage - August 2005 900 800 700 EUR/PPP incl. VAT 600 500 400 300 200 - Denmark Finland Luxembourg Norway Sweden Netherlands Korea Iceland Canada USA Japan Poland Switzerland Hungary Austria UK Greece France Irland Belgium Portugal Spain Australia Italy Germany Mexico Slovak Republic New Zealand Czech Republic Turkey Fixed fee Usage Source: Teligen, August 2005 16. Figure 3 shows a comparison of the annual cost of mobile phone subscriptions in OECD countries according to August 2005 tariffs and high usage. The cost in Iceland is seen as the ninth lowest in the OECD countries, but the highest of the Nordic countries. Figure 3 Comparison of the annual cost of subscriptions, based on high usage Póstpaid subscriptions; high usage - August 2005 1.800 1.600 1.400 EUR/PPP incl. VAT 1.200 1.000 800 600 400 200 - Denmark Finland Luxembourg Norway Sweden USA Netherlands UK Iceland Korea Austria Canada Japan Hungary Switzerland Greece France Italy Irland Poland Australia Belgium Mexico Portugal Spain Germany Czech Republic Slovak Republic New Zealand Turkey Source: Teligen, August 2005 Fixed fee Usage 2.2 International price comparison of prepaid mobile phone cards 17. Figure 4 shows a comparison of the annual cost of prepaid mobile phone cards in OECD countries according to August 2005 tariffs and low usage. The cost in Iceland is seen as the fourth lowest in the OECD countries, while in the Nordic countries only Norway has higher costs. Figure 4 Comparison of the annual cost of mobile phone cards, based on low usage 6
Prepaid cards; low usage - August 2005 400 350 EUR/PPP incl. VAT 300 250 200 150 50 - Denmark Finland Sweden Iceland Luxembourg USA Canada Austria Irland Mexico Norway Portugal Hungury UK Italy Korea Switzerland Poland New Zealand Belgium Australia Netherlands Greece Germay Czech Republic France Slovak Republic Japan Spain Turkey Source: Teligen, August 2005 Fixed fee Usage 18. Figure 5 shows a comparison of the annual cost of prepaid mobile phone cards in OECD countries according to August 2005 tariffs and average usage. The cost in Iceland is seen as the fifth lowest in the OECD countries, while in the Nordic countries only Norway has higher costs. Figure 5 Comparison of the annual cost of mobile phone cards, based on average usage Prepaid cards; average usage - August 2005 1.400 1.200 EUR/PPP incl. VAT 1.000 800 600 400 200 - Denmark Sweden Finland Luxembourg Iceland France USA Canada Austria Irland Mexico Italy Hungary Portugal Norway UK Australia Switzerland Poland Netherlands Korea Czech Republic Belgium New Zealand Spain Greece Germany Slovak Republic Japan Turkey Fixed fee Usage Source: Teligen, August 2005 19. Figure 6 shows a comparison of the annual cost of prepaid mobile phone cards in OECD countries according to August 2005 tariffs and high usage. The cost in Iceland is seen as the sixth lowest in the OECD countries, while in the Nordic countries only Norway has higher costs. 7
Figure 6 Comparison of the annual cost of mobile phone cards, based on high usage Prepaid cards; high usage - August 2005 3.000 2.500 EUR/PPP incl. VAT 2.000 1.500 1.000 500 - Denmark Sweden USA Finland Luxembourg Iceland Irland France Austria Mexico Italia Hungary Canada Portugal UK Norway Astralia Switzerland Poland Czech Republic New Zealand Korea Belgium Netherlands Greece Spain Germany Slovak Republic Japan Turkey Source: Teligen, August 2005 3 National price comparisons Fixed fee Usage 3.1 National price comparisons of mobile phone subscriptions 20. Figures 7, 8, and 9 show the price developments for varying usage of mobile phone subscriptions with Icelandic mobile operators, comparing in every instance the cheapest subscriptions available at the time. The price comparison shows cost index developments in price levels for each year and for each defined usage, using as a basis (August 2002 = ) the average usage for a given subscription or prepaid card in August 2002. In this report the development of annual costs based on the Teligen definition is set to reflect price developments in which the premises for calculation remain the same following August 2002, while the changes in cost from one time to another are based solely on the price changes during that period. The comparison of prices between Siminn and Og Vodafone (previously Íslandssími) always deals with the subscription which was cheapest at the time for the usage being considered. Only chargeable services are considered. Discounts or free calls to friends are not taken into account, as mentioned above. 21. Figure 7 shows a comparison of prices for mobile phone subscriptions, based on low usage, for the period of August 2002 to August 2005. In August 2002 the prices for this use at Íslandssími were 26.7% higher than that at Siminn, but in August 2005 it was 2.3% higher at Og Vodafone. 22. Siminn s prices rose by 2.5% during this period. Siminn lowered its prices by 4% in the period from August to November 2002, but then raised them from that time to February 2004 by 6.2%. While a 2.4% price decrease occurred at Siminn between November 2004 and February 2005, the price once more increased by 2.7% between February and May 2005. They then remained unchanged from May till August 2005. 23. Og Vodafone s prices fell by 17.5% during this period. Íslandssimi lowered its prices by 5.5% in the period from August to November 2002, but raised them again from February to May 2003 by 3.1%. A price decrease of approximately 4.5% is noticeable at Og Vodafone from February to May 2004, along with another of 9.6% 8
from May to August 2004. Og Vodafone then reduced its prices by about 2.0% from November 2004 to February 2005. They then remained unchanged from February till August 2005. Figure 7 Price developments for mobile phone subscriptions, based on low usage Postpaid subscriptions: low usage 120 Index (=average Aug-02) 110 90 80 70 60 Aug-02. Nov-02. Feb-03. May-03. Aug-03. Nov-03. Feb-04. May-04. Aug-04. Nov-04. Feb-05. May-05. Aug-05. Síminn Íslandssími Og fjarskipti Source: Teligen 24. Figure 8 shows a comparison of prices for mobile phone subscriptions, based on average usage during the period August 2002 to August 2005. In August 2002, prices for such usage were 14.7% higher at Íslandssími than at Siminn, but in August 2005 Siminn's prices were higher by about 3.1%. 25. Siminn's prices rose by 4.7% during this period, first going up by less than 1% in the period from August to November 2002 and increasing again from February to May 2003. While a price rise of 1.6% continued from November 2003 to February 2004, prices fell by 0.6% from November 2004 to February 2005, and then climbed by 3.7% from February to May 2005. They then remained unchanged from May till August 2005. 26. Og Vodafone s prices dropped by 11.4% during this period. From February to May 2003 prices at Íslandssími fell by 2.6%. Og Vodafone showed a rise of less than 1% from February to May 2004. Then Og Vodafone prices decreased by 10.1% from May to August 2004, but rose by 0.6% from November 2004 to February 2005 and finally remained unchanged until August 2005. Figure 8 Price developments for mobile phone subscriptions, based on average usage 9
Postpaid subscriptions: average usage 110 Index (=average Aug-02) 90 80 70 60 Aug-02. Nov-02. Feb-03. May-03. Aug-03. Nov-03. Feb-04. May-04. Aug-04. Nov-04. Feb-05. May-05. Aug-05. Source: Teligen Síminn Íslandssími Og fjarskipti 27. Figure 9 shows a comparison of prices for mobile phone subscriptions, based on high usage for the period August 2002 to August 2005. In August 2002, prices for such usage were 26.2% higher at Íslandssími than at Siminn, but in August 2005 they were around 5.6% higher at Og Vodafone. 28. Siminn s prices declined by 6.4% during the period. The main changes were a drop in Siminn s prices of 1.2% from August to November 2002, then a rise of less than 1% from February to May 2003 and again of 1.8% from November 2003 to February 2004. A decrease of about 10.5% occurred from February to May 2004, followed by the price level remaining unchanged until November 2004 and then falling by less than 1% in February 2005. Siminn s prices rose by 4.5% in the period from February 2005 to May 2005 and finally remained unchanged until August 2005. 29. During this period, Og Vodafone s prices decreased by 21.8%. Íslandssími lowered its prices by 4.4% in the period from August to November 2002, and then again Og Vodafone lowered its prices by 4.6% from November 2003 to February 2004. Og Vodafone reduced its prices by 12.2% from May to August 2004, and then left them unchanged until November 2004. 1.8% price increase was from November 2004 to February 2005, but then the company's prices remained unchanged until August 2005. Figure 9 Price developments for mobile phone subscriptions, based on high usage 10
Postpaid subscriptions: high usage 120 Index (=average Aug-02) 110 90 80 70 60 Aug-02. Nov-02. Feb-03. May-03. aug-03. Nov-03. Feb-04. May-04. Aug-04. Nov-04. Feb-05. May-05. Aug-05. Síminn Íslandssími Og fjarskipti Source: Teligen 3.2 National price comparison of prepaid mobile phone cards 30. Figures 10, 11, and 12 show price development based on the annual costs for low, average, and high usage of prepaid mobile phone cards from Icelandic mobile operators. The comparison refers to the cheapest package available at the time for each category of usage. The price comparison shows the cost index developments with the price levels in each year, presenting each defined usage based on the average cost at the companies in August 2002. 31. Figure 10 shows developments in the prices for prepaid mobile phone cards, based on low usage. In August 2002, the price for this usage was 2.9% higher at Íslandssími than at Siminn, but in August 2005 it was 4.0% higher at Siminn. 32. Siminn s prices rose by 6.5% in the course of this period. The greatest price decrease occurred between August and November 2002, when Siminn s prices fell by 6.2%; however, this was counterbalanced to some degree between February and May 2003, when they rose by 3.1%. There was a price increase of less than 1% from November 2003 to February 2004, after which prices remained unchanged until May 2005, when Siminn raised its prices by 9.9%. They then remained unchanged from May to August 2005. 33. Og Vodafone s prices remained almost unchanged during this period. The greatest dip was from August to November 2002, approximately 4.7%. That decrease was partly cancelled out between February and May 2003, through an increase of 1.3%. Prices then fell by less than 1% from February to May 2004, but increased again by 1.5% from November 2004 to February 2005. By May 2005, prices had climbed by 2.1%, though they then remained stable until August 2005. Figure 10 Price developments for mobile phone cards, based on low usage 11
Prepaid cards; low usage Index (=average Aug-02) 120 110 90 80 70 60 Aug-02. Nov-02. Feb-03. May-03. Aug-03. Nov-03. Feb-04. May-04. Aug-04. Nov-04. Feb-05. May-05. Aug-05. Síminn Íslandssími Og fjarskipti Source: Teligen 34. Figure 11 shows price developments for prepaid mobile phone cards, based on average usage. In August 2002, Síminn s price for this usage was 7.5% higher than that of Íslandssími and 5.9% higher at Síminn in August 2005. 35. Siminn s prices rose by 9.0% between August 2002 and August 2005. Three slight changes are visible in Siminn s prices from August 2002 to February 2005: first, an increase of less than 1% from August to November 2002 and again from February to May 2003; then, a drop of 1.2% from November 2003 to February 2004. After that the prices remained unchanged till February 2005. Siminn s prices for this usage rose between February and May 2005 by 9.0%, and then they remained unchanged until August 2005. 36. Og Vodafone s prices in this period rose by 10.6%. Prices increased by less than 1% between August and November 2002 and then by 8% from February to May 2003. Following that, Og Vodafone reduced prices by 2.8% between May and August 2003. From February to May 2004, a decrease of less than 1% is noticeable, followed by an increase of 2.5% from November 2004 to February 2005. Prices rose by 2.8% from February to May 2005, and then remained unchanged until August 2005. Figure 11 Price developments for mobile phone cards, based on average usage 12
Prepaid cards; Average usage 120 Index (=average Aug-02) 110 90 80 70 60 Aug-02. Nov-02. Feb-03. May-03. Aug-03. Nov-03. Feb-04. May-04. Aug-04. Nov-04. Feb-05. May-05. Aug-05. Source: Teligen Síminn Íslandssími Og fjarskipti 37. Figure 12 shows price development for prepaid mobile phone cards, based on high usage. In August 2002 the price for such use was 16.3% higher at Siminn than at Íslandssími. At the end of the period, the price was 5.7% higher at Siminn. 38. Siminn s prices rose by 1.4% during this period. While the company lowered its prices by 3.2% from August to November 2002, it then raised them once more, by less than 1%, from February to May 2003. Siminn s prices fell again by 3.9% from November 2003 to February 2004, and then remained unchanged until February 2005. From February to May 2005 Siminn s prices rose by 8.4%, but then kept stable until August 2005. 39. Og Vodafone s prices rose by 11.6% during the period. The main changes were a price reduction of less than 1% from August 2002 to February 2003, prior to an escalation of 8.4% by May 2003. Og Vodafone prices then fell by less than 1% from February to May 2004, only to rise again, though by less than 2.5%, between November 2004 and February 2005. Prices rose from February to May 2005 by 1.7% and then remained the same until August 2005. Figure 12 Development of prices for mobile phone cards, based on high usage 13
Prepaid cards; high usage 120 Index (=Average Aug-02) 110 90 80 70 60 Aug-02. Nov-02. Feb-03. May-03. Aug-03. Nov-03. Feb-04. May-04. Aug-04. Nov-04. Feb-05. May-05. Aug-05. Síminn Íslandssími Og fjarskipti Source: Teligen 4 Conclusion 40. The price comparison above shows that prices in the mobile phone market in Iceland are rather low compared to other OECD countries, but high compared to neighbouring countries with a similar purchasing power. An international comparison of subscription costs shows Iceland having gone down the list in all usage baskets since the price comparison was first published with the draft analysis of Market 15 in June 2005, based on the February 2005 tariffs. The greatest switch for Iceland was from the fifth place to the eighth, when subscriptions, based on average usage, are compared. Regarding low usage, Iceland went down one place, to the sixth, and in terms of high usage Iceland went down by two places, from the seventh to the ninth. It seems that prices in Iceland have remained steady or increased, whereas prices in other OECD countries have decreased. 41. Iceland's ranking in the international comparison of costs for prepaid cards has mostly been maintained since the draft analysis of Market 15 was published in June 2005, based as previously mentioned on the February 2005 tariffs. Whereas Iceland's annual cost for average usage is still the fifth lowest, compared with other OECD countries, it is second highest compared with other Nordic countries, where only Norway is higher. Referring to low usage for prepaid cards, Iceland has moved down one place, from third to fourth, but kept its place in terms of high usage. 42. It should be noted that the international comparison takes into account the purchasing power of each country, which gives a better reference than currency exchange rates which takes into account many external effects. It may also be pointed out that index trends are based on prices in Icelandic króna for chargeable services, without considering the discounts or benefits that accompany subscriptions or prepaid cards in Iceland and other countries, such as free calls to certain numbers. 43. A comparison of subscription prices among Icelandic mobile operators shows that prices stayed quite stable from August 2002 to August 2005. Og Vodafone s prices, however, edged downwards to those of Siminn and were lower in reference to average usage in August and November 2004, though they subsequently rose until in 14
February 2005 they were practically the same as those of Siminn. After that, Siminn s prices rose above Og Vodafone s prices for average usage, but were lower than those at Og Vodafone for low and high usage in August 2005. The price stability in every usage basket for subscriptions indicates little price competition between the operators for their respective target groups in the market. 44. A comparison of the prices for prepaid mobile phone cards shows that Og Vodafone prices were at first lower than Siminn s prices in terms of average and high usage. Although Siminn s prices, based on low usage, was lower than that of Og Vodafone from August 2002, subsequent Siminn s increases in the period from February to May 2005 rendered its service in this category more expensive. Prices at Siminn and Og Vodafone remained rather stable in the period from August 2002 to August 2005, with Og Vodafone prices moving upwards to meet those of Siminn for average and high usage. Siminn and Og Vodafone prices for the low usage of mobile phone cards developed in a similar manner, paralleling each other from August 2002 until February 2005; nonetheless, further price rises by Siminn between February and May 2005 left it with higher prices at the end of the period. In August 2005, Siminn prices exceeded those of Og Vodafone in every usage basket for prepaid cards, above all due to Siminn s increases from February 2005. 45. It appears that the two companies have determined to appeal to certain users, without any serious challenge to each other's target groups. However, Og Vodafone took a step towards such a challenge through its decrease in price for the average use of mobile phone subscriptions, which was marked down below that of Siminn for the first time in August 2004. Following Siminn s price increases near the end of the period, its prices were higher than Og Vodafone's in May and August of 2005. During this period, price differences narrowed between the two companies in regard to subscriptions with low and high usage. Price development for prepaid cards were fairly stable throughout the period, ending with prices higher at Siminn than at Og Vodafone in August 2005, especially due to Siminn's high price increases at the end of the period. 15