OECD Metrics Make False Monopoly Cries

Posted by Katie McAuliffe & Laurel Kays on Tuesday, March 19th, 2013, 12:03 PM PERMALINK

The Organization for Economic Cooperation and Development ostensibly exists to “promote policies that will improve the economic and social well-being of people around the world.” In pursuit of this mission, the OECD conducts research on the economic conditions and markets of member countries whose tax dollars fund its efforts. Unfortunately, despite such admirable goals, the flawed metrics used in a recent study on member nations’ telecommunications industries have led many to the mistaken notion that Mexican telecommunications giant América Móvil operates as an abusive monopoly. While a discussion can certainly be had as to the merits of América Móvil’s influence in Mexico, OECD’s use of flawed measurements simply lead to inaccurate data and conclusions. 

 The OECD study purports to show that prices for telecommunications services in Mexico are high while investment in infrastructure is low, especially relative to other OECD member nations. However the methodology used to illustrate this is thoroughly flawed. First, in illustrating that investment in telecommunications infrastructure is low, the OECD statistics measure investment per access path and per capita, using only two fixed dates in 2007 and 2009 even though investment spiked in 2008. According to such measurements, which ignored pertinent data, investment in Mexico does appear to be well below levels present in other OECD countries. However, using OECD’s own information from a broader range of dates, the per capita and per access level of investments are quite proportional to the revenue from telecommunications services.

 The OECD also accuses Mexico of charging much higher prices than other member countries. Again, according to OECD analysis, this appears to be true, yet a closer look at the metrics used shows that this is not quite the case. The OECD study uses theoretical constructs based on the idea of “baskets” of consumption to measure prices. Examples of basket categorization include: the number of calls per month, a distribution of call destinations, and the durations and time of origin of the calls. These hypothetical baskets do not even measure broadband data as a cost associated with service.  The baskets exclusively measure voice line and mobile voice services ignoring other bundled services that contribute to cost and access in the telecommunications market worldwide. The use of purchasing power parities (PPP) in OECD analysis further clouds the truth in the presented statistics. In fact, when Mexican prices are measured using real dollar amounts, prices per minute in Mexico are lower than the OECD average. The OECD statistics also do not take into account that since 2006 América Móvil has offered free calls to pre-specified numbers. Despite being informed of this change and the resultant decrease in prices per minute, OECD informed América Móvil that its methodology did not allow them to consider such plans.

Questions about OECD accuracy have been raised a number of times. In April 2007 Ambassador David Gross sent a letter to the OCED Secretary General about the inconstancies and troubling outcomes of their metrics.  Spain and Australia also sent letters questing the OECD evaluative methodology. The OECD has yet to respond to the American inquiry.  Of even further concern is that the OECD will not share data, methodology and models in order for studies to be recreated.  Any scientific peer reviewed journal requires that studies should make their data public to be sure the study can be recreated.  When serious scientific journals require this common procedure, shouldn't an organization as prominent as the OECD comply?  Shouldn’t we be able to recreate their studies, especially when business hangs in the balance?  

If countries fund the OECD in order to be included shouldn’t they have access to so called "proprietary information?"  It would seem that the proprietary information used by the OECD is proprietary to its member countries, which fund its research.  While América Móvil is cited here as a specific example this is a problem for all telecommunications companies and any industry worldwide evaluated by the OECD that will be judged inaccurately.  Such behavior on the part of the OECD calls into question how committed the organization is to authoring a truly comprehensive report, and has been identified as a cause of concern for the United States.

Unfortunately, the Mexican government appears poised to act upon the OECD study regardless of the serious issues present in its metrics. Announced on March 11, the bill would seriously restructure the regulatory regime in an attempt to increase competition. Yet América Móvil already faces plenty of competition from the 668 competing companies, three of which are large enough to invest and compete in every area of service América Móvil provides.

In fact América Móvil’s success and charges of “monopoly” derive largely from its willingness to invest in the infrastructure that allows its services to reach remote rural areas.  América Móvil accounts for 70 – 80 percent of telecommunications investment in Mexico. Of the approximately 120,000 towns where it is the sole provider, many are home to less than 1,000 people. This represents a dedication to reaching areas that were previously underserved, not a dangerous monopoly. If Mexico is serious about spurring investment and competition it should do so based on real facts, not flawed data and scare tactic arguments. 

The OECD occupies a powerful position as an authority on economic conditions around the world. The issues with the organization’s metrics illustrate why governments should not rush to regulation without a close examination of the purported problem. Hopefully Mexico will recognize that the OECD study is flawed and reexamine whether additional regulations are truly necessary.