Snapshot: How affordable is mobile service in the Caribbean?

In an earlier post, we examined the amount spent on mobile/cellular service in the Caribbean. Now, continuing with the Snapshot series, we look at the affordability of that service across the region.

The development and expansion of telecoms in the region in recent years has been driven, for the most part, by the introduction of lower cost mobile/cellular services. Thanks to their intensive rollout, there has been nearly ubiquitous take-up and use in the English-speaking Caribbean.

Mobile phones have therefore become an extension of the individual and are even seen as status symbols. However, although there is high penetration of the service, and mobile companies operating in the region are thought to be profitable, there is growing concern that consumers are struggling to maintain their subscriptions. Luckily, prepaid plans are the preferred option in the region. They provide greater budgetary control since service is paid for upfront. Nevertheless, to maintain this service, users might be sacrificing other basic needs.

Methodology

In an earlier instalment of this series, Snapshot: How much do we spend on mobile service across the Caribbean?, we determined how much is being spent across the English-speaking Caribbean for different baskets of mobile services. These baskets, which were based on the Revised OECD Telecommunications Price Comparison Methodology (2006), specified three category of mobile user based on the volume of voice calls, text and multimedia messages made within a year (Table 1).

.

Service basket Voice/year SMS/year MMS/year
Low Volume (LV) 360 396 8
Medium Volume (MV) 780 600 8
High Volume (HV) 1680 660 12

Table 1: Service baskets used in mobile spend and affordability calculations (OECD)

The key results of the mobile spend exercise are summarised below. Across the English-speaking Caribbean:

  • LV users spend on average USD 14.29 per month.
  • MV users typically spend USD 33.55 per month.
  • For HV users, their estimated monthly spend is USD 68.89.
  • The lowest monthly spend across all baskets was experienced in Jamaica, where the amounts ranged from USD 5.42 to USD 27.26 per month.
  • The highest monthly spend for all baskets was recorded in the Cayman Islands, where amounts ranged from USD 23.07 to USD 106.48 per month.

To now determine how affordable mobile service offerings across the region might be, we compared monthly spends (previously calculated) against the estimated monthly income, based on the per capita Gross Domestic Product (GDP). These ratios, which were expressed as percentages, indicate the proportion of a person’s income that would be spent on mobile services.

Results

Similar to the graph on mobile spend, Figure 1 shows a wide disparity across the region with regard to the affordability of mobile services. However, for countries where mobile spend might have been considered high, it did not automatically correspond to a large portion of their residents’ income.

Figure 1: Portion of monthly income spent on mobile service

With regard to LV usage, the monthly spend ranged from approximately 0.4% of income in the British Virgin Islands (BVI), to over 5% in Belize, with an average of 1.7% of monthly income across the region. For MV and HV usage, the BVI and Belize again set the lower and upper limits for both of those assessments. In Belize, up to 23.7% of monthly income could be spent as a HV user, whilst in the BVI a consumer would expend only 1.8% of his/her monthly income for the identical basket of services. On average, MV and HV users would spend between 4% and 8.6% respectively, of their monthly income on mobile service.

Discussion

Although there are no hard and fast rules, financial experts usually recommend that no more than 35% of a person’s salary should go towards housing, which would include mortgage (or rent), home insurance, maintenance, utilities, etc. In this context, telecoms is considered a utility, which would also include water, electricity, gas, heating as appropriate. Hence, telecoms should be a relatively minor contributor to the overall monthly budget when all other expenses are considered.

The results of our examination suggest that a person’s mobile service subscription alone can consume a sizeable portion of his/her monthly income, leaving him/her with insufficient funds to cover other (even more critical) needs. Although spending 5% (for example) of one’s monthly income on mobile service might not seem very high, payment of fixed-line, Internet and even cable/subscriber TV service subscriptions might still need to be factored in. Hence, when all expenses and priorities are considered, one might actually find that a relatively large portion of a person’s income is being spent on telecoms services.

As indicated earlier and in How much do we spend on mobile service across the Caribbean?, prepaid pricing plans offer consumers some control over their spending. However, the amount persons are prepared to spend on mobile service, especially prepaid plans, will influence calling rates. It can therefore be a vicious circle to hope for even lower prices, when most people purchase the lowest prepaid amount offered; when call volumes might be relatively low; and when there are considerable operating costs to be covered. Ultimately, there are no easy solutions.

What percentage of their monthly income should people be prepared to spend on mobile/cellular service?

_______________