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Journal of Regulatory Economics

, Volume 49, Issue 2, pp 113–151 | Cite as

Substitution between fixed-line and mobile access: the role of complementarities

  • Lukasz Grzybowski
  • Frank Verboven
Original Article

Abstract

We study substitution from fixed-line to mobile voice access, and the role of various complementarities that may slow down this process. We use survey data of 160,363 households from 27 EU countries during 2005–2011. We estimate a discrete choice model where households may choose one or both voice technologies, possibly in combination with internet access. We obtain the following main findings. First, there is significant fixed-to-mobile substitution, especially in recent years: without mobile telephony, fixed-line penetration would have been 14.1 % higher at the end of 2011. But there is substantial heterogeneity across households and EU regions, with a stronger substitution in Central and Eastern European countries. Second, the decline in fixed telephony has been slowed down because of a significant complementarity between the fixed-line and mobile connections offered by the fixed-line incumbent operator. This gives the incumbent a possibility to protect its position in the fixed-line market, raising market share by 2.7 %, and to leverage it into the mobile market, raising market share by 5.4 % points. Third, the decline in fixed telephony has also been slowed down because of the complementarity with broadband internet: the introduction of DSL avoided an additional decline in fixed-line penetration of 8.7 % points at the end of 2011. The emergence of fixed broadband has thus been the main source through which incumbents maintain their strong position in the fixed-line network.

Keywords

Fixed-to-mobile substitution Incumbency advantage Broadband access 

JEL Classification

L13 L43 L96 

Notes

Acknowledgments

Financial support from the NET Institute, www.NETinst.org is gratefully acknowledged. We thank Marc Bourreau, Yutec Sun, Steffen Hoerning, Joao Vareda and participants at the 2014 ICT Conference at Telecom ParisTech, 2014 FSR C&M scientific seminar at the Florence School of Regulation, 12th Annual IIOC Conference in Chicago and 2014 CRESSE Conference in Korfu for helpful comments. All errors are our own.

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Copyright information

© Springer Science+Business Media New York 2016

Authors and Affiliations

  1. 1.Department of Economics and Social SciencesTelecom ParisTechParisFrance
  2. 2.Faculty of Commerce, School of EconomicsUniversity of Cape TownCape TownSouth Africa
  3. 3.University of Leuven and CEPR (London)LeuvenBelgium

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