Abstract
Fixed-line incumbents often also own the largest mobile network. We consider the effect of this joint ownership on market outcomes. Our model predicts that while fixed-to-mobile call prices to the integrated mobile network are more efficient than under separation, those to rival mobile networks are distorted upwards, amplifying any incumbency advantage. This result is robust to changes in the competitiveness of the fixed market and to the presence of fixed-mobile substitution. As concerns potential remedies, a uniform off-net pricing constraint leads to higher welfare than functional separation, and even allows to maintain some of the efficiency gains.
Notes
For example, Telefonica de Espana is merging its Brazilian mobile and fixed-line affiliates.
The most notable exception is the UK, where BT sold its mobile arm O2 to Telefonica in 2005. Until the 2010 merger between Orange and T-Mobile, it remained the largest mobile operator in the UK.
In a companion paper (Hoernig et al. 2013) we study the substitution between fixed and mobile access, analyzing the impact of varying levels of fixed and mobile termination charges on consumers’ subscription decision of fixed-only, mobile-only or both fixed and mobile services. A key question is in particular how the different regulatory treatment of termination on fixed and mobile networks has affected the development of fixed and mobile penetration. Hansen (2006) considered the short-run effects of access substitution on the choice of termination rates.
A higher termination rate on network 2 would amplify the effects described below.
Alternatively, one could assume that fixed subscribers are heterogenous and then derive a downward-sloping demand curve. This would lead to the same conclusions about call prices.
We assume that \(H<1/\sigma \), so that the equilibrium candidate is stable in customer expectations (see Laffont et al. 1998).
In the following, superscripts \(N\) and \(I\) refer to non-integration and integration, respectively.
The waterbed effect has some empirical relevance, as shown by Genakos and Valletti (2011). In particular, their results suggest that, although regulation in Europe reduced termination rates by about 10 % to the benefit of callers to mobile phones from fixed lines, it also led to a 5 % increase (varying between 2–15 % depending on the estimate) in mobile retail prices.
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Acknowledgments
Acknowledges funding through grant PTDC/EGEECO/100696/2008 of the Ministry of Science and Technology.
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Appendix: Integrated Incumbents in the EU15
Appendix: Integrated Incumbents in the EU15
In the following Table we report the historical fixed-line incumbent operators in each country of the EU15, as well as their mobile subsidiary and its respective market share. In the last column we also report the number of mobile network operators (MNOs) which are active in each country. The data are drawn from the Telecom Market Matrix, Merrill Lynch/Bank of America (April 2012).
State | Fixed incumbent | Controlled mobile | Market shares | Number of MNOs |
---|---|---|---|---|
Operator | (Subscribers, 2012) | (2012) | ||
Austria | Telekom Austria | A1-Mobilkom | 40.7 % (L) | 4 |
Belgium | Belgacom | Proximus | 41.1 % (L) | 3 |
Denmark | Tele Danmark | TDC Mobil | 46.5 % (L) | 4 |
Finland | Sonera | Sonera | 34 % (S) | 3 |
France | Orange | Orange | 41.4 % (L) | 3 |
Germany | Deutsche Telekom | T-Mobile | 30.5 % (S) | 4 |
Greece | OTE | Cosmote | 48.5 % (L) | 3 |
Ireland | EIRCOM | Meteor | 20 % (S)* | 4 |
Italy | Telecom Italia | TIM | 35.4 % (L) | 4 |
Luxemburg | P&T Luxemburg | LuxGSM | 60 % (L)* | 4 |
Netherlands | KPN | KPN Mobile | 41.3 % (L) | 3 |
Portugal | Portugal Telecom | TMN | 42.8 % (L) | 3 |
Spain | Telefonica de Espana | Movistar | 40.5 % (L) | 4 |
Sweden | Telia | Telia | 46.6 % (L) | 4 |
UK | British Telecom | O2 (up to 2005) | 26.5 % (2005, L)**\(^{\mathrm{,a}}\) | 4 |
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Hoernig, S., Bourreau, M. & Cambini, C. Fixed-mobile integration. J Regul Econ 45, 57–74 (2014). https://doi.org/10.1007/s11149-013-9230-y
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DOI: https://doi.org/10.1007/s11149-013-9230-y