Revisiting the ‘GigaBite Index’ in a Period of High Inflation

Inflation is back.

After many years of relatively low global inflation, post-pandemic times have experienced jumps in consumer price indexes and actual declines in real household incomes in many countries around the world.

And while there have been some recent indications of a deceleration in general price rises in some major economies, organisations such as the IMF and the OECD are expecting reignited inflation to stick around for a while longer yet.

What has this meant for telecoms prices for Internet connectivity for consumers and businesses alike? One of the International Telecommunications Union’s (ITU) avowed goals for ‘Universal and Meaningful Connectivity’ involves a special focus on improving affordability. But access to the Internet (say through mobile voice and data plans for smartphones or fixed home broadband subscriptions) can vary in terms of size and scope across the world, and are often changing. It’s not so easy to compare price changes directly.

Thankfully, the ITU provides an invaluable service through its Measuring digital development: ICT price trends annual research updates. The ITU team aims to standardise mobile and fixed broadband monthly subscription costs in a way that make them comparable across all countries and over time.

In their latest annual briefing in 2023 (based on data for 2022), ITU reports the good news that standardised ICT services overall became more affordable globally, resuming a downward trend that was interrupted by the COVID-19 pandemic in 2020 and 2021. Moreover, the ITU reports that the global median prices for mobile data and mobile voice and data plans as a percentage of gross national income (GNI) had also reached historic lows.

In contrast, costs for fixed broadband access had largely remained unchanged as a proportion of GNI over the last five years. The ITU goes on to assert that in too many countries around the world, digital divides remain, with Internet access still unaffordable to many people in low-income and least- developed countries. Even in high-income countries, there have been recent concerns over the rate of increases in broadband subscription costs over the last two years or so.

One of the challenges when comparing mobile and broadband fees internationally is that prices (converted to a common currency unit such as the US$) are often higher in richer countries. This makes sense as relatively richer households are more willing (or rather able) to pay higher prices. The costs for labour, land, and infrastructure are higher, too, as inputs in the provision of broadband connectivity services.

The ITU is trying to resolve this issue by converting the domestic prices to a purchasing power parity measure of currency (PPP) and also as a share of gross national income per capita.

But as the OECD notes, PPP calculations entail standardising the prices of a basket of many thousands of goods and services to assess relative affordability, which can be distorting. Gross national income per capita is a useful proxy for the spending power of the average citizen (as the data is readily available across a wide range of countries), but it is also beset by problems. For many countries, GNI per capita can be quite different to actual average post-tax disposable incomes as a truer measure of household spending power.

To circumvent these issues, I proposed an alternative measure of the relative affordability of data, mobile and fixed broadband fees in a previous blog article in 2022 – the GigaBite Index. This utilised the helpful uniformity of the Big Mac around the world and available pricing (as The Economist does!) and uses this as an alternative measure of affordability through a simple substitution effect. Essentially, how many Big Macs do I need to forego to obtain my mobile and fixed broadband internet access?

As both ICT services and Big Macs in any given country must share from similar pools of factor inputs and price competitively to actual household incomes, a substitution calculation might be a better (and conceptually easier) measure of relative pricing and affordability.

The results of the GigaBite index, updated to 2022 (using a similar grouping of 30 of the world’s largest economies) are shown below.

Figure 1 – Comparing the distribution of prices across 30 major economies (2022)

Using a box and whisker chart for 2022 data, the most striking finding initially is just how much mobile data, mobile voice and data plans, and fixed broadband subscription fees vary around the world in comparison to Big Mac prices (as straight LCU:US$ at market prices conversions).

The latter range in price for our 30 countries between the cheapest Big Mac at US$2.34 (in South Africa) to US$6.08 (in Uruguay). In contrast, the cheapest monthly fee for an ITU standardised fixed broadband monthly subscription is US$4.5 (in China) with the costliest at US$76.7 (in Saudi Arabia). A multiple of around 17 times, similar to the multiple in 2020.

How about the substitution calculations using Big Macs across each country by connectivity service?

For the cost of two Gigabytes of data, the variation in number of Big Macs foregone also varies surprisingly. Between 7-12 Big Macs are required in Canada, the USA and Japan according to the ITU data. While in Vietnam, barely a few mouthfuls (0.4) need to be sacrificed.

Since the new inflationary period began in 2021, the good news appears to be that the majority of countries experienced a fall in required Big Macs to purchase mobile data only (increases in Big Mac prices exceeded increases in mobile data). But in some countries (notably Japan, the USA, and Canada) the opposite was true.

Figure 2 – GigaBite Index – Mobile Data Only (2GB)

Similar results appear for both mobile voice and data plans. Most countries appear to have experienced an improvement in relative affordability (in terms of Big Macs), in line with the findings of the ITU. But there is still a surprising amount of variation across countries in relative costs and some notable countries (Japan and the United States again) have seen declines in relative affordability.

Figure 3 – GigaBite Index – Mobile Voice and Data Plans (High Usage)

In contrast to the ITU’s findings however, most countries appear to have experienced an improvement in relative affordability for fixed broadband over the period 2021-2022. But again, some countries (Argentina, Israel, and Japan) have experienced large changes in GigaBite scores. For average fixed broadband subscription costs, China is by far the most affordable, relatively speaking.

In summary, there appears to be some evidence that telecoms prices are rising less quickly than other products during this period of high inflation. As the ITU asserts (and the GigaBite Index suggests), affordability is improving across most countries. But there remain huge variations in relative affordability across countries and in some nations, relative costs actually appear to be rising.

Why this is the case will be a topic for a future article based on recent research.

Disclaimer: Any views and/or opinions expressed in this post by individual authors or contributors are their personal views and/or opinions and do not necessarily reflect the views and/or opinions of Huawei Technologies.