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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.

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Notes

  1. For example, Telefonica de Espana is merging its Brazilian mobile and fixed-line affiliates.

  2. 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.

  3. Using data from the US Cingular/AT&T Wireless merger, Zimmerman (2007, 2008) shows that the degree of vertical relationship between wireline and wireless firms highly affects the incentives to compete for customers.

  4. 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.

  5. A higher termination rate on network 2 would amplify the effects described below.

  6. 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.

  7. We assume that \(H<1/\sigma \), so that the equilibrium candidate is stable in customer expectations (see Laffont et al. 1998).

  8. In the following, superscripts \(N\) and \(I\) refer to non-integration and integration, respectively.

  9. 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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Correspondence to Carlo Cambini.

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

  1. L Market leader, S second-biggest operator
  2. \(^{\mathrm{a}}\) In 2012, O2 had a market share of 28.8% and became the second-largest operator only after the 2010 merger of Orange and T-Mobile
  3. *\(\,Source\) Company web site,
  4. **\(\,Source\) Ofcom (2005), “The Communications Market-Telecommunications”

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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

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