Young Economics.

Cell phone billing

with 5 comments

So I was all set to rant about cell (mobile) phone billing in North America. Both out of convenience and as a matter of principle, I was enamored with the European model where you only pay for the calls (outgoing) that you initiate. It’s convenient because if you’re account is low, you don’t have to shut off your phone, you just don’t initiate calls. As a matter of principle, if I didn’t initiate a call, why should I pay for it (eg telemarketers)? It seemed so nice… so simple… I should’ve known that it was too simple to be  the whole story.

My searches were futile until I got the terminology: Europe has “Calling Party Pays” (CPP) and we have “Receiving Party Pays” (RPP), sometimes also called “Mobile Party Pays”. CPP is a bit more logistically difficult to setup because calls are actually “paid” by where they terminate. If Alex calls Bob in Europe, there’s got to be a system for Bob’s company to collect from Alex’s. Alex’s company just passes on the fee, so they don’t really care what Bob’s company charges. This creates a monopoly-like situation where every European company jacks up their own termination fees as it only hurts the customers of their competitors. Euro countries have had to put in place termination fee caps because they were skyrocketing. Consequently, the NA system is much more efficient with lower average cost per minute than in Europe. This is one reason why Europeans actual use voice services of there cell phones much less than we do (they text more).

So the NA system is not so bad. Couple this with “first minute free on incoming call” deals, and I think we’ve got the better system. It’s nice to be proven wrong about domestic cynicism.

Refs for the curious:

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Written by Brian Quistorff

May 28, 2009 at 2:22 pm

Posted in Uncategorized

5 Responses

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  1. Hmm, I do not seem to share your enthusiasm about NA billing system vs CPP system. There are a few reasons. To begin with though, from what I heard the reason why the CPP system was not implemented here in Canada and USA was because the cell phones and landlines were using the same area codes: 604 may refer to a Vancouver cell or landline. As a result the calling party has no way of telling who it is calling a mobile or a landline. A caller may end up with hundreds of dollars of surprise charges. In Europe landlines have their area codes and mobile networks have theirs. If you are dialing a mobile network area code from your landline, you automatically know that you will be charged extra.
    Now to your claim of superiority of NA planning. In my experience, Europeans do use sms a lot more but they also use voice service a lot more (no figures, just the impression). The reason is tariffs that are close to 0 within a network. So, if you have a mobile from network A, you can call any cell from network A at 0 per minute (or very little). Typically, if you have prepaid service, you’d have to pay small connection fee. If you are on a monthly plan – no connection fee. If you call two networks, you typically have two cell phones or one cell with two sim cards. The reason for next to zero charges for within-country calling is immense competition (each country has four to five competitors on the market).
    Now consider Canada: we have segmented market (one GSM-based company and two CDMA-based). Moving from one company to another requires more than a sim-card switch: you need a new phone. Lack of competition induces some crazyness: there is a monthly charge on the prepaid accounts (you have to use 10 or 15 dollars a month at least). No nationwide calling on your network – you have to pay long-distance charges (fair enough, Canada is bigger than Ukraine or Sweden, but still- calling Victoria from Vancouver costs 30 cents per minute. Why?). I must admit though: I like the ability to call anyone in Vancouver and not worry whether he or she uses a mobile or landline.

    Andriy

    May 28, 2009 at 2:49 pm

  2. ps. Don’t mean to be too negative – just my two cents…

    Andriy

    May 28, 2009 at 2:58 pm

  3. First, I’m not going to get into the Canadian phone system as I heard it was recently voted the worst cell phone market (in part because of regulation).

    Next, some numbers! In the US we use 6 TIMES the average number of voice minutes as in Europe. Termination cost is around 15 TIMES higher! It’s so bad that many CPP country governments actually subsidize the phone networks to bring down the cost per customer. In the US we now have that costs are so low it’s basically equivalent calling a mobile and a land line (in the UK there’s a 15x difference), so customers in the US don’t have to worry about which number is which (so you don’t have to know the area code). And it certainly isn’t more convenient to carry 2 cell phones.

    Oh, and in the US there’s usually 0 tarriff to call in network, as well.

    + 2 cents.

    bequw

    May 29, 2009 at 8:52 am

    • Fair enough – I was primarily looking at the cell networks here in Canada. And, from what I am hearing, and it is supported by your numbers, price of a minute in the states is much lower than in Canada. With regards to Europe, please bare in mind that Europe itself is not a monolithic entity. Compare Sweden to the UK: if you go in Sweden on a train, probably everyone would be on the phone, while in the UK (just like in Canada) excessive conversations on the mobiles while on public transport are considered to be impolite. Hopefully, Canadian phone market will reach the level of the US market in a few years: Canadian govt has granted licences to more networks – they are supposed to go live by the end of the year. This will hopefully allow Canada to feel all the advantages of RPP arrangements. My only question, where did you get the info about CPP govt subsidising cell phone networks? What countries are those? Don’t mean to doubt this info. Just curious.

      Andriy

      May 29, 2009 at 9:22 am

    • Actually, I just ran into this OECD report. It seems as though US calling plans are among the most expensive in the world: http://www.oecd.org/document/20/0,3343,en_2649_201185_43471316_1_1_1_1,00.html

      Andriy

      August 11, 2009 at 4:20 pm


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