- The Washington Times - Sunday, October 11, 2009

ANALYSIS/OPINION:

The Organization for Economic Cooperation and Development provides a useful service by supplying member countries, including the United States, with cross-country economic and social data on a wide variety of issues.

But when it moves from aggregating data to analysis, the OECD often falls on its face. In particular, the OECD’s recent work in the critical information and communications technologies (ICT) sector has ostensibly found problems with the state of broadband and mobile competition in the United States where none exists.

Absent a better quality of analysis, U.S. policymakers cannot rely upon the OECD’s research as justification for additional regulation. Let me provide just a few examples. Twice a year, the OECD publishes rankings of per-capita broadband penetration among its member countries. Though the United States was at the top of these rankings back in the early 1990s, when the Internet was in its infancy, it has fallen to the rank of 15th.

Needless to say, this statistic has been bemoaned widely by politicians on both sides of the aisle as evidence of some sort of policy failure. However, the problem is not with our vibrant ICT sector, but with the way the OECD calculates the index and how others interpret it.

Specifically, the OECD simply adds fixed-line connections by both businesses and households and then divides by population. The more people live in the typical home, the lower your rank.

Consider the following thought experiment: Assume every home and every business in the OECD had broadband in some sort of “nirvana” scenario. Though logic would dictate that all member countries should be tied for first place as we would be “equal” under the OECD’s pedantic methodology, the United States actually would fall to a rank of 20th. That is five places “worse” than where we are now - with no room for improvement because there already would be 100 percent broadband penetration.

Plainly, rank in this context is a meaningless concept, though vociferously defended by the OECD. Another example of the OECD’s careless analysis can be found in its recent report of prices for high-capacity or “special access” telecommunications services. There, the OECD chose a single “rack rate” monthly tariff in the New York metropolitan area as representative of the entire United States.

In ignoring both geographic differences and competitive choices in this complex market, the OECD overstated prices for the most commonly purchased special-access circuits by about 175 percent.

Although the OECD has noted this error and agreed to correct it in future reports, this kind of slipshod analysis is not acceptable for an international agency that receives more than $100 million a year in U.S. taxpayer support.

Finally, we have the OECD’s recent attempt to show the United States has the highest mobile rates in the world. Under the best of circumstances, formulating a price index that can be used meaningfully to compare mobile prices across countries is exceedingly difficult. The OECD approach was to set up three “baskets” of high, medium and low customers in each country and only use, once again, prices from a single U.S. carrier. However, not only did the OECD fail to accurately model usage levels for U.S. consumers (specifically understating actual usage by a factor of 2 to 5), but it ignored essentially all of the pricing options from multiple providers available to consumers today.

Put simply, the OECD’s conclusion can only be reached by ignoring what U.S. consumers use and the prices they face. Because pricing plans for mobile services depend on the types and volumes of usage, large discrepancies between assumed and actual usage are plainly problematic.

To illustrate this point, let’s ask whether American consumers (who the OECD says pay the highest mobile prices) would be better off under price plans offered in the Netherlands (which the OECD claims has the lowest mobile prices).

If we accurately account for the mobile usage patterns and billing practices in the United States and the Netherlands, guess what we find? American consumers actually would pay more for mobile service at current usage levels under the pricing plans offered in the Netherlands. This is true even if we ignore popular, low-price pricing options such as prepaid service and family plans.

Accordingly, the OECD’s international comparisons of non-representative prices across arbitrarily selected and nonrepresentative usage baskets do not provide a reliable indicator of mobile prices.

In sum, the OECD provides a valuable service in collecting and reporting data for research and analysis. And, to be fair, good analysis of the ICT sector is an exceedingly complex and difficult task. Given the OECD’s recent analytical track record, however, perhaps policymakers should first subject the OECD’s findings to some analytical scrutiny before citing its research as gospel.

Lawrence J. Spiwak is president of the Phoenix Center for Advanced Legal and Economic Public Policy Studies, a nonprofit research institute in Washington. The views expressed in this article are his own.

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