Abstract
This paper examines the impact of regulatory intervention to cut termination rates of calls from fixed lines to mobile phones. Under quite general conditions of competition, theory suggests that lower termination charges will result in higher prices for mobile subscribers, a phenomenon known as the “waterbed” effect. The waterbed effect has long been hypothesized as a feature of many two-sided markets and especially the mobile telephony industry. Using a uniquely constructed panel of mobile operators’ prices and profit margins across more than twenty countries over six years, we document empirically the existence and magnitude of this effect. Our results suggest that the waterbed effect is strong, but not full. We also provide evidence that both competition and market saturation, but most importantly their interaction, affect the overall impact of the waterbed effect on prices.
Download
Testing the “Waterbed” Effect in Mobile Telephony [Download PDF - 361 KiB]
Abstract
We study how access pricing affects network competition when consumers’ subscription demand is elastic and networks compete with non-linear prices and can use termination-based price discrimination. In the case of a fixed per minute termination charge, our model generalizes the results of Gans and King (2001), Dessein (2003) and Calzada and Valletti (2008). We show that a reduction of the termination charge below cost has two opposing effects: it softens competition and it helps to internalize network externalities. The former reduces consumer surplus while the latter increases it. Firms always prefer termination charge below cost, either to soften competition or to internalize the network effect. The regulator will favor termination below cost only when this boosts market penetration.
Next, we consider the retail benchmarking approach (Jeon and Hurkens, 2008) that determines termination charges as a function of retail prices and show that this approach allows the regulator to increase subscription without distorting call volumes. Furthermore, we show that an informed regulator can even implement the first-best outcome by using this approach.
Download
A Retail Benchmarking Approach to Efficient Two-Way Access Pricing: Termination-Based Price Discrimination with Elastic Subscription Demand [Download PDF - 248 KiB]
Published on
March 4, 2009 in
General.
Ofcom has today published a statement on the regulatory environment for next generation access (“NGA”) investment in the UK. Ofcom’s approach to NGA regulation is to allow wholesale pricing flexibility to enable returns appropriate to the considerable risks of building new networks (but constrained by the market in the interests of customers) and to ensure that any regulatory pricing allows investors the opportunity to earn a rate of return that genuinely reflects the cost of deployment and the associated level of risk.
Published on
March 4, 2009 in
General.
The Telecoms Lunch Workshops aim to be a regular and informal meeting point for academics and practitioners in the industry. The workshops are organized by NEREC-FEDEA and will take place in FEDEA’s meeting room (Calle Jorge Juan 46, 28001, Madrid).
Places are limited and registration is needed to participate. Please, send us an email to info@nerec.es.
Published on
March 4, 2009 in
General.
We thank to Miguel Gil Tertre for sending us this document
10 years after its incorporation, Google is not only the number-one search engine on the Internet, but also the perfect example of a new-technology company: powerful and always innovating. Should it therefore be on every front: browsers, mobile telephones, networks, terminals and social networks? Time flies and Google needs to define what it wants to be in the future or if it wants to be everything at the same time.
An initial doubt arises with the change in the trend of the economy. Despite surviving the dot-com crash, Google is accustomed to a context of permanent economic growth. Will it be capable of maintaining this spirit on a crisis scenario? How will the online advertising market react to this crisis?
The current discussion about Google focuses on a number of concepts: mobile broadband, cloud computing, the concern for user privacy and data security, the effects of the economic crisis on the online advertising market, Obama and net neutrality and possible changes to the perception of its image due to its control of advertising on the Internet and the amount of personal data it processes.
Last year, Google was marked by the G1 telephone, the appearance of Google Chrome (its cloud-computing browser), its participation in the auction for 900 MHz licenses in the United States and its OpenSocial platform. However, the downside reveals the legislators’ opposition to its advertising agreement with Yahoo through the application of antimonopoly legislation.
Diversify or focus on online advertising, controlling costs? What is Google? Where is it going? These are some of the questions this new ENTER analysis seeks to answer.
Miguel Gil Tertre
miguel.giltertre@gmail.com
+ 00 32 495182375
Download
Google, 10 años después (Spanish) [Download PDF - 1.4 MB]
Published on
March 3, 2009 in
General.
Abstract
This paper analyzes competition between two asymmetric networks, an incumbent and a new entrant. Networks compete in non-linear tariffs and may charge different prices for on-net and off-net calls (”on-net pricing”). The incumbent benefits from a larger installed base and consumers face switching costs. With on-net pricing, departing from cost-based access pricing allows the incumbent to foreclose the market in a profitable way. If the incumbent benefits from customer inertia, then it has an incentive to insist in the highest possible access markup even if access charges are reciprocal and even if the absence of actual switching costs. If instead the entrant benefits from customer activism, then foreclosure is profitable only when switching costs are large enough, and is best achieved through either a limited access markup or through an access subsidy. In all cases, foreclosure is profitable only when it keeps the entrant entirely out of the market. We also show that on-net pricing is a key factor. In its absence, foreclosure is either not profitable (in a caller pays regime) or not feasible (in a receiver pays regime). The analysis supports a qualified call for regulatory authorities to set bounds on access markups (and subsidies) and/or on-net pricing.
Ángel L. López and Patrick Rey
18 November 2008
Download
Foreclosing Competition through Access Charges and Price Discrimination [Download PDF - 404 KiB]
Published on
February 26, 2009 in
General.
Ángel Luis López | SP-SP – Public-Private Sector Research Center
Postdoctoral Research Fellow
Ph.D. in Economics, University of Toulouse 1
M.Phil in Mathematical Economics and Econometrics, University of Toulouse 1
M.Sc. in Transports and Networks Industrial Economics, University of Toulouse 1
B.S. in Economics, University of Las Palmas
Link: Ángel Luis López personal webpage
Ángel specializes in the Economics of Telecommunications. His research focuses on the broadband market and mobile telephony, and on the impact of access charges on retail competition. His main research interests are also competition policy, energy and industrial economics.
In 2008 Ángel was awarded the “Juan de la Cierva” research fellowship from the Spanish Ministry of Science and Innovation.
Ángel will be the host of the Nerec’s First Telecom Lunch Workshop: “The Ladder of Investment in Spain”.
Some interesting Telecom News
February 25, 2009 – IT Pro:
Large sticks at the ready as Google joins anti-trust brigade
February 25, 2009 – Bloomberg.com:
AT&T Wins as U.S. High Court Curbs Antitrust Suits
February 21, 2009 – New York Times:
Everyone Loves Google, Until It’s Too Big
February 20, 2009 – TMCNews:
Court dismisses Swisscom claims against bitstream regulation
February 15, 2009 – New York Times:
What Convergence? TV’s Hesitant March to the Net
February 14, 2009 – New York Times:
Do We Need a New Internet?
February 13, 2009 – advanced-television.com:
Canal+ claims unfair competition from Orange
February 11, 2009 – European Commission:
Commission clears Dutch regulator OPTA’s proposal to enhance competition in the broadcasting markets
February 9, 2009 – Financial Times:
Vodafone and Hutchison to merge in Australia
February 9, 2009 – euractiv.com:
ETNO: Commission ‘cheerleader’ for NGNs