The impact on broadband access to the Internet of the dual ownership of telephone and cable networks

In Portugal, until recently, the telecommunications incumbent offered broadband access to the Internet, both through digital subscriber line and cable modem. We estimate the impact on broadband access to the Internet of the structural separation of these two businesses. Using a panel of consumer level data and a random effects mixed logit model, we estimate the price elasticities of demand and the marginal costs of broadband access to the Internet. Based on these estimates, we simulate the effect of structural separation on prices and social welfare. Our estimates indicate that structural separation would cause a substantial welfare increase. These results raise questions about the policy of some countries of allowing the dual ownership of telephone and cable networks.     

Analysis of an integrated plan for expanding broadband access in Colombia

Colombian telecommunications exhibit remarkable growth in the mobile sector and television market evolution and some degree of stagnation in fixed telephony and broadband access. Only recently the Colombian government has started to seriously address the need to deploy a plan for rapid and effective broadband growth, adding to the worldwide wave of government planned investments on fibre-optic broadband access expansion. This paper analyses the current state of the Colombian government’s broadband plan, named Vive Digital, comparing its proposed actions with the plans and achievements of three OECD countries’ experiences on broadband policies. Several aspects, either collectively or individually, from the three international cases are used as guidelines of what an integrated, efficient broadband policy may be. The analysis takes consideration of the contextual differences between the studied cases for the benefit of identifying the strengths and weaknesses of the Colombian plan, and is focused on the incentive structure needed to advance the development of infrastructure, services, applications and user involvement.     

Quality-adjusted international price comparisons of mobile telecommunications services

Many countries' policymakers have conducted international price comparisons of mobile telecommunications services to prevent service operators from overcharging subscribers. However, those comparisons have become more complicated because of the escalation in service usage and telecommunications expenditures spurred by the proliferation of smartphones and broadband LTE wireless internet service networks. The basket-based methodologies that have been widely used for international price comparisons are also limited—first, because the baskets for comparison may not be representative of actual service usage patterns in some countries; second, because they are difficult to apply to highly differentiated service plans due to the significant increase in wireless internet service usage and widely used plans with unlimited voice call service and SMS/MMS; and third, because they cannot consider the quality of service, such as upload and download speed in various service environments, at all. As an alternative, this paper proposes a hedonic pricing model that accounts for service quality and its variation in potentially disruptive environments, as well as fixed charge for a mobile phone additional to the price of service plans. The model was used to derive quality-adjusted price indices of mobile telecommunications services for twelve cities in ten countries with broadband LTE wireless internet service. The empirical results confirmed that the price index of each city varied significantly across the specifications,—both within the United States and internationally—depending on whether the model was constructed to reflect service quality and its variation on roads, in buildings, and in subways. The price index of each city also varied depending on whether the subsidized price of a mobile phone was considered part of the monthly price of a service plan. These results have important implications for policymakers seeking to understand the ultimate level of mobile telecommunication service prices for their country in a global context.     

Unbundling and infrastructure competition for broadband adoption: Implications for NGA regulation

The common idea of open access policy is that it refers to the sharing of particular elements, such as wholesale access networks, backhaul, under-sea cable and internet exchange points in fixed and mobile networks. In broadband networks, the use of open access policy usually refers to the infrastructure parts, which are considered a bottleneck. Many regulators have generally focused open access policy on fixed broadband networks, especially digital subscriber line (DSL) technology, in the last decade. Local loop unbundling (LLU) regulation is one of the main strategies for the regulator to open access to an incumbent’s bottleneck network in order to soften its monopoly power and encourage competition in the DSL broadband market. The OECD countries have different strategies regarding unbundling local loop and infrastructure competition, as the characteristics and infrastructure networks of countries vary. There are currently more choices of next generation network (NGN) technologies to develop. While local loop unbundling may not be applied fully to NGN development (the cost is not sunk, more technologies are available to implement, incentive of investment by operator), it can indicate benefits and drawbacks of open access policy in the past decade that can be adapted to NGN.The empirical results of this study show that during 2002–2008, LLU regulation was one of the strategies used to increase broadband adoption in countries that had difficulty encouraging infrastructure competition. Unbundling regulation can therefore be implemented carefully and differently in each country that has inefficiency that is harmful to consumers in its market from a monopoly incumbent. Infrastructure competition, on the other hand, is introduced as another strategy to increase broadband adoption. The empirical results of this study indicate that infrastructure competition can be used as a strategy when there are already enough infrastructures in the area or country. These results support the idea of using open access and infrastructure competition policy depending on the existing competition of broadband infrastructure in each country.     

Broadband expectations and the convergence of ranks

Broadband Internet service to widely held to be a significant contributor to economic development and global competitiveness, and comparison of adoption rates across countries are common. This paper presents evidence that the relative broadband Internet adoption ranks across the Organisation for Economic Co-Operation and Development (“OECD”) countries are converging to the wireline telephone adoption ranks in the mid 1990s. This was a time when wireline telephone service had reached maturity, but before consumers began to abandon traditional telephone services for mobile services and Internet telephone technologies. As such, in the absence of better data on household adoption, wireline telephone rank is a useful proxy for a country's ultimate fixed-line broadband penetration rank. Having such an educated guess available regarding broadband rank should reduce the amount of anxiety over rankings, since similar rankings across the two services implies suitable broadband performance. Large departures, alternately, may be a cause for concern or delight. Like prior analyses, the findings suggest that the adoption of communications services is largely an economic and demographic issue.     

Identifying the determinants of broadband adoption by diffusion stage in OECD countries

Governments worldwide actively promote broadband development, owing to its positive impact on economic growth. Although many studies have identified the determinants of broadband adoption, this study re-examines the determinants by applying Arellano–Bond GMM dynamic panel data estimation with more complete panel data for OECD countries. The estimation can not only closely capture the dynamics of broadband diffusion but also solve an endogeneity problem existing in the estimations of previous studies. The estimation results indicate that content is also a significant factor, in addition to previous broadband penetration and platform competition, as commonly identified in previous studies. This study further examines and compares determinants in different stages segmented by adopter categories proposed by Rogers. The results reveal different determinants in different stages. The key determinants are income, education, and content in the innovator and early adopter stage; platform competition and previous broadband penetration in the early majority stage; and broadband price in the late majority and laggard stage. Governments should thus devise and implement appropriate strategies for the major potential adopters in each stage instead of adopting a one-size-fits-all strategy. The results of this study provide a valuable reference for countries in early stages of broadband development or for those planning or reviewing their strategies.     

A two-sided model of paid peering

Internet users have suffered collateral damage in tussles over paid peering between large ISPs and large content providers. Paid peering is a relationship where two networks exchange traffic with payment, which provides direct access to each other’s customers without having to pay a third party to carry that traffic for them. The issue will arise again when the United States Federal Communications Commission (FCC) considers a new net neutrality order.We first consider the effect of paid peering on broadband prices. We adopt a two-sided market model in which an ISP maximizes profit by setting broadband prices and a paid peering price. We analytically derive the profit-maximizing prices, and show that they satisfy a generalization of the well-known Lerner rule. Our result shows that paid peering fees reduce the premium plan price, increase the video streaming price and the total price for premium tier customers who subscribe to video streaming services; however, the ISP passes on to its customers only a portion of the revenue from paid peering. ISP profit increases but video streaming profit decreases as an ISP moves from settlement-free peering to paid peering price.We next consider the effect of paid peering on consumer surplus. We find that consumer surplus is a uni-modal function of the paid peering fee. The paid peering fee that maximizes consumer surplus depends on elasticities of demand for broadband and for video streaming. However, consumer surplus is maximized when paid peering fees are significantly lower than those that maximize ISP profit. However, it does not follow that settlement-free peering is always the policy that maximizes consumer surplus. The peering price depends critically on the incremental ISP cost per video streaming subscriber; at different costs, it can be negative, zero, or positive.     

Quantifying the Effects of Price Discrimination Under Imperfect Competition*

This article analyzes the effects of broadband carriers switching from price discrimination to uniform pricing. Broadband carriers often use third-degree price discrimination. In Colombia, broadband carriers rely on government-issued socio-economic information to segment markets. I use demand and marginal cost estimates to quantify the effects of switching from price discrimination to uniform pricing in an environment of high income disparity. The results provide direct evidence of large consumer surplus transfers from poorer to wealthier households. Poorer households respond by subscribing to slower Internet plans, which may undermine prior efforts to increase download speeds in this demographic.     

Estimating broadband diffusion in the EU using NUTS 1 regional data

In this paper we use panel data on NUTS 1 regional data for 27 EU countries in the years 2006–2010 to analyze determinants of broadband diffusion. We estimate both linear demand specification and the logistic diffusion function. We find that, after controlling for regional differences due to socioeconomic factors, inter-platform competition approximated by an inter-platform Herfindahl index has a significant positive impact on broadband diffusion. Broadband deployment is lower in countries in which DSL has a greater share in Internet access and it is higher in countries in which cable modem has a greater share in Internet access. Moreover, we find that competition between DSL providers has a significant and positive impact on broadband penetration. First, higher prices for a fully unbundled local loop connection, which represent the cost of providing copper-based Internet services, have a significant and negative impact on broadband penetration. Second, a greater incumbent share in DSL connections has a significant and negative impact on broadband penetration.     

Demand for telecommunication services in developing countries

Living standards and economic growth in developing countries are invariably linked to the availability and use of telecom services. Effective policy decisions require the best estimates of the drivers of these services. In this paper, telecommunications demand is estimated in models for residential mainline and mobile telephone service for developing countries for the period 1996–2003. The paper tests for cross-price effects between mainline and mobile service and its findings have important policy implications. It finds residential monthly price elasticity to be insignificant for developing countries, but the connection elasticity is larger than generally found in the literature. Mobile monthly price elasticities are very large. A new and important empirical finding is that although wireline phones are substitutes in the mobile market, the contrary is not true—mobile phones are not substitutes in the wireline market, and in fact may be considered complements. This lack of symmetry has important implications for properly defining telecom markets. Universal service subsidies and competitive market initiatives should be reevaluated in light of the paper's elasticity estimates. Increased competition, income growth and enhanced education may be the ultimate universal service promoters.     

Critical factors for the expansion of broadband in developing countries: The case of Peru

Many studies have been made on the diffusion and development of broadband, however there are few published studies on the critical factors for advancing broadband services in developing countries. Thus, the purpose of this paper is to understand and identify the critical success factors for the development of broadband services in a developing country context, using the case of Peru. In this regard, this study uses data collected from interviews with Peruvian telecommunications professionals, policy makers and regional telecommunication experts, which is supplemented by official reports and statistical data to determine the critical success factors for broadband in this country. The four factors derived are; (i) expand the availability of infrastructure, (ii) define a national broadband policy that aligns the interests of stakeholders, (iii) develop effective competition in the broadband market, and (iv) stimulate the demand for broadband services. Through a MACTOR analysis the authors found that the objectives of sharing infrastructure, the further deployment of infrastructure and the development of competition in the market for broadband services are those that generate the most divergence between actors. Additionally, the MACTOR analysis determined that no disagreement existed for the objectives related to demand stimulation. Thus, four proposals are offered for the development of Peruvian broadband. The results are relevant for academics and policy makers interested broadband development in developing countries and for rural areas of developed countries.     

Long-term crop productivity response and its interaction with cereal markets and energy prices

Crop yields are endogenous as long as economic agents adjust to permanent changes in expected prices. The literature, however, does not offer a definitive value of how much yield would change in response to sustained price changes. To fill the gap, we use available scientific findings and data to estimate yield elasticities that enable agricultural commodity and food policy analysis. Using a world market model with short- to long-run yield response, we show the impacts of sustained energy price shocks on global cereal supply and demand. The results highlight substantial differences in quantity and price effects depending on the yield elasticities. These results demonstrate the need to recognize yield response when assessing impacts of energy prices or biofuel production on food uses or, more generally, on food security in the face of income and population growth, evolving dietary patterns, climate change implications, or other long-run pressures.     

Discounts and Public Service Obligations in the Airline Market: Lessons from Spain

We examine the impact of the universal service policy that was applied to the Spanish airline market during the period 2001?C2009. Our analysis shows that routes that benefit from price discounts that were granted by the government to island residents enjoy higher demand than the rest of the country??s domestic routes. However, the lower elasticity of demand of these routes allows airlines to set higher prices. We also find that airlines that operate inter-island routes on which their services are regulated by price caps and frequency floors charge lower prices and schedule higher flight frequencies than is the case on unregulated routes. Overall, our analysis suggests that price discounts for island residents help guarantee the profitability of routes that are regulated by public service obligations.     

Collusion in a price-quantity oligopoly

In the context of an infinitely repeated oligopoly game, we study collusion among firms that simultaneously choose prices and quantities. We compare a price cartel with a price-quota cartel and analyze when and why firms prefer the latter to the former. Output quota may be required to solve coordination and incentive problems when market demand is sufficiently elastic. If market demand is sufficiently inelastic, then the cartel faces a trade-off between increasing prices and the amount of costly overproduction. We find that a price cartel prices consistently below the monopoly price to mitigate excessive production. In this case, a quota arrangement allows firms to avoid overproduction and to sustain the monopoly price. From a policy perspective, our findings suggest that an overall price increase in conjunction with more stable prices and market shares is indicative of collusion in industries where production precedes sales and outputs are imperfectly observable.     

A new look at residential electricity demand using household expenditure data

Many electricity demand estimates have been obtained based on the assumption that consumers optimize with respect to known marginal prices, but increasing empirical evidence suggests that consumers are more likely to respond to average prices. Under this assumption, this paper develops a new strategy based on Generalized Method of Moments to estimate household electricity demand. Our demand estimation approach uses publicly available expenditure data and utility-level consumption data from several major U.S. cities, complementing studies that use individual billing data which are richer yet often proprietary. We estimate the price elasticity near − 0.50, which is at the upper end (in magnitude) among the estimates from previous studies. This could have important implications for policy analysis such as those on climate policies that may affect electricity prices.     

Access regulation, competition, and broadband penetration: An international study

The evolution of broadband penetration has shown substantial differences between OECD countries. This paper empirically investigates to what extent different forms of regulated competition explain these international differences. It distinguishes three modes of competition between broadband internet access providers that result from regulatory policies: (1) inter-platform competition; (2) facilities-based intra-platform competition; and (3) service-based intra-platform competition. In most countries these forms of competition co-exist although their intensity varies from country to country. Intra-platform competition may differ among countries depending on the degree of mandatory access obligations imposed by the regulator on the dominant network firm. Based on a sample of OECD countries, the analysis finds that inter-platform competition has been a main driver of broadband penetration. The two types of intra-platform competition have a considerably smaller effect on the broadband penetration. Linking these findings back to access regulation suggests that the “stepping stone” or “ladder of investment” theories might not provide the justification to impose extensive mandatory access obligations on DSL incumbents.     

Mobile-only consumers arise from heterogeneous valuation of fixed services

Mobile-only users are usually perceived as a consequence of fixed-mobile substitution. This study uses a unique dataset based on a survey in France, combined with interviewee's telecommunications billing data, to reveal heterogeneous consumer preferences for fixed services. With the same mixed logit model we estimate the willingness to pay (WTP) for fixed communications services and fixed-mobile relationship. Results show a very large heterogeneity of WTP for fixed services among consumers. In addition, we show that fixed and mobile data are complement for all consumers. Mobile-only consumers have a much lower but non-zero WTP, and higher price sensitivity compared to fixed-mobile consumers. Consequently, an increase in the fixed offer price would reduce the demand for fixed service. Heterogeneous preferences for fixed services constitute an alternative explanation for the existence of mobile-only users, despite the complementary nature of fixed and mobile broadband. Counter-factual simulations show that the share of mobile-only could also be driven by the way to subsidize mobile handset. For instance, making the handset subsidy only available to fixed-mobile quadruple play subscribers could reduce the share of mobile-only by half.