Why Do U.S. Consumers Pay Significantly More For Wireless Services?

-72.42%
Downside
23.09
Market
6.37
Trefis
S: SentinelOne logo
S
SentinelOne

Subscribers in the United States pay roughly twice as much for wireless services compared to the United Kingdom and roughly five times as much as consumers in China. Below we take a look at some of the possible reasons for this disparity.

Wireless_spending_global_1

  • The land area of the United States is large, meaning that carriers need to spend substantial sums in expanding and densifying their network infrastructure. For instance, the population density of the United Kingdom is over 7x that of the U.S. and the population density of Japan is about 10x the U.S. , according to the World Bank. This implies that each wireless tower in the U.K. or Japan can effectively service more people, reducing per-subscriber capital costs. A report from Recon Analytics indicates that wireless capex per inhabitant in the E.U. stood at about $55 in 2013, compared to about $110 in the U.S.
  • U.S. wireless subscribers consume considerably more mobile data compared to many other countries. According to Cisco, North American mobile customers generated about 1.3 GB of mobile data traffic per month during 2015. This compares to about 800 MB for users in Western Europe and 400 MB in the Asia Pacific region.
  • Wireless spending as a percentage of per capita income in the U.S. is also relatively low (about 1%) compared to some other countries. This mean that wireless services are actually not overly expensive on a purchasing power parity basis, since labor and other operating costs in the U.S. are likely to be higher than most other markets.
  • Like many other developed countries, carriers in the United States have historically subsidized the cost of handsets, while charging a higher monthly subscription fee, implying that the true price of wireless services are being overstated. This is in contrast with carriers in many developing markets, where customers supply their own devices. This is likely to change going forward, as all the major U.S. carriers (except Sprint) have now abandoned the subsidy model.

References:

Relevant Articles
  1. Sprint’s Stock Looks Expensive Compared To AT&T After Rising 93% In 2 Months!
  2. Sprint’s Stock Price Doubled In 15 Days; Is Market Overvaluing Sprint Just Before Its Merger With T-Mobile?
  3. Where Is Sprint Corp Spending Most Of Its Money?
  4. Machine Learning Answers: Sprint Stock Is Down 15% Over The Last Quarter, What Are The Chances It’ll Rebound?
  5. Sprint Valuation: Fairly Priced
  6. How Does Sprint Make Money?

1) Wireless ARPU By Country 2015: Bank of America; Merrill Lynch via Statista

2) The Indian Telecom Services Performance Indicators October, TRAI

2)  GDP Per Capita 2014, The World Bank

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment / ask questions on the comments section
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively.
View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research