An article by Johnny Munkhammar

One cause of the impressive economic development in the Nordic countries during the last two decades has been their early deregulations of the telecom market. A symbol for this has been the healthy competition between Nokia and Ericsson. We have not just seen an explosion in the supply within telecom but also 75 per cent in price cuts. The industry as a whole has been able to increase its productivity and the consumers have gained more in freedom and choice.

Last summer, the European Parliament rejected the so called telecom package, and now during the fall – lead by the Swedish presidency – comes a so called reconciliation process. Its purpose is to reach a decision through different compromises. The main part of the telecom package is – to a substantial degree – about doing for the rest of Europe what has already been done in the Nordic countries. The European telecom market will be characterized by more competition and freedom of choice for the consumer.

But in order to make decisions about such a package, there has to be an established need for further decisions about liberalizations. Then one needs to know what reality looks like. On that point, the OECD usually supplies the western world with the most reliable and well-founded information. If one wants to compare growth, employment, pricing and other factors between the 30 OECD member countries, this source is the obvious choice.

Some weeks ago, the OECD presented a study of, among other things, the telecom markets and the price levels in the OECD-countries (OECD Communications Outlook 2009). Their conclusion was that the lowest costs for mobile phone calls were to be found in Finland, the Netherlands and Sweden. So far this seems highly probable. But then they claim that the highest prices were situated in Canada, Spain – and the United States.

In case the United States should have one of the highest prices it would mean that either their market is not particularly free or that a free market does not lead to low prices. In particular the last interpretation, that undoubtedly certain actors would want to make their own, would speak against liberalizations like the telecom package. The truth is, however, that the OECD has made a big mistake, one that renders their data in this case completely useless.

In the United States, according to several studies, by among others Merrill Lynch, the cost per minute for a mobile phone call is on the contrary the lowest compared with all the 30 OECD-countries. How could the OECD have come up with the opposite? The OECD has gathered what they regard as typical amount of phone calls and compared this. But as a matter of fact the average consumer in the United States calls more than three times more than the OECD definition of “high usage”. They have compared apples and pears.

On page 275 the OECD has a small reservation that their ”typical” cases may not necessarily be correct for all countries. But if such a choice of method leads to that an entirely incorrect conclusion, should they not instead have remade the typical cases so that it in fact they are typical for the countries that are compared?

In one of our most important welfare questions, which is a hot topic throughout Europe, the OECD has contributed with false information about reality. The management should take care of the OECD’s good reputation and withdraw the study. Facts remain; Europe needs a freer telecom market, also in order for the consumers to get lower prices. And the United States provides a good example of that.

 

Johnny Munkhammar is Research Director of the European Enterprise Institute.