Affordability

Defining price versus affordability

Defining the 'affordability' of telecom services can be very hard. This question can be answered statistically in different ways, depending on whether we examine:

• Direct comparisons between different operators in a single country or over time. Prices can vary due to: contract length; volume of minutes; texts and data allowances; and whether a handset is included.
• International comparisons: may require adjustments for exchange rates and purchasing power parity between different countries.
  

Standardized price baskets can be used to compare prices between operators and/or countries. Prices significantly influence the profitability of mobile operators, and their ability to survive, upgrade and reinvest in networks. Prices for initial service launches may be high ('premium pricing'), but usually fall as services are rolled out across larger subscriber bases (sometimes due to 'economies of scale' or 'predatory pricing'), sometimes resulting in lower prices for larger operators, with larger subscriber bases.

The 'price' of telecom/ICT services is often cited as a barrier to using telecom services, but there is evidence that what really matters is the 'affordability' or ease of purchasing a service, relative to consumer income. Prices can be expressed as a percentage of Gross National Income (GNI) per capita to show prices relative to the size of the economy of each country, thus pointing to the affordability of each ICT service at country level. Such national averages may not indicate that ICT services are affordable for poorer social classes, or any particular household or individual, but they still give insights into whether telecom services are affordable.

ITU has defined a number of price baskets:​

Baskets provide a helpful standard benchmark for comparisons​, but they have some drawbacks: there are many other packages available to consumers; they may not take account of the evolving consumer behavior over time; and they use a 'weighted average' price, irrespective of number of subscribers that use it.

For affordability, ITU monitors countries where low-consumption data and telecom services are affordable. There is still a small number of countries where data and telecom services are relatively unaffordable, costing above 10% of GNI per capita. 

In 2018, the ITU/UNESCO Broadband Commission for Sustainable Development set out a target for 2025 that entry-level broadband services should be made affordable in developing countries, defined as <2% of monthly GNI per capita.

The lack of internationally comparable data makes it hard to assess the impacts of price bundling on consumer welfare, competition, and universal broadband access. Comparable data is needed, to enable regulators and consumers to compare prices and identify trends. ITU works closely with other regional and international bodies (including the UN, Eurostat, OECD and the Partnership on Measuring ICT for Development and country experts) on developing international definitions, standards and methodologies for telecommunication/ICT data.

The telecom/ICT sector is very complex, with many converged services. Historically, prices used to be paid and settled on the basis of per minute charges or tariffs. Today, however, many operators have moved to Internet Protocol (IP)-based networks and now price their communication services on a 'flat-rate' basis, for a certain amount of data. This relates to the consumption of services (e.g. movies, online games) for large amounts of data.

For mobile services, prices vary hugely between a prepaid or basic entry package and more sophisticated packages. Prices may also vary 'on-net' and 'off-net'.

It can be difficult for consumers to compare the prices for different packages for even a single operator, at any point in time, with the ultimate price often depending on usage patterns among consumers (e.g. many operators offer free calls to 'favorite contacts'/friends & family and/or multiple phones linked with one household .         

Falling prices have been linked to increased subscription rates and greater usage of ICT services. Different stakeholders have a different role to play.

Telecom operators have a vital role in defining, revising and pricing telecom packages for consumers – in terms of monthly subscription prices or prices per traffic. Historically, there is strong evidence to suggest that prices in mobile markets generally fell, following the introduction of strong and effective competition with alternative mobile operators.

ICT regulators often set reference interconnection offers, setting recommended or ceiling interconnection prices between operators (for example, this is what the Nepalese regulator has just done[i]). They often also set national benchmark prices and monitor markets through regular market surveys, to try and define, and ensure 'fair' and affordable prices for consumers, against fair returns for operators, so they can continue to invest and upgrade mobile networks.

Governments (Ministries and regulators) can also play a strong advocacy role, by signaling the importance of advanced 4G and 5G infrastructure at the national level (e.g. through a 5G Action Plan, Digital Agenda or other statement of policy). They can also convene dialogues and national consultations to define national priorities for the rollout of advanced digital infrastructure among different stakeholders​.