Competition reform and household welfare: A microsimulation analysis of the telecommunication sector in Ethiopia

This paper presents a novel simulation method for estimating the likely welfare effects of policy reforms aimed at increasing competition in strategic economic sectors such as mobile phone services. The proposed method relies on a partial equilibrium simulation approach and estimates the welfare impacts on current consumers and the potential welfare effects among new consumers brought into the market by changes in prices due to competition. This approach is applied to the information and communication technology (ICT) sector in Ethiopia, one of the three countries in the world with a monopoly in the market for mobile phone services. Based on household budget survey data for 2015/16 and departing from a baseline reform scenario that dilutes the market share of the state-owned monopoly to 45 percent, the simulation model estimates a 25.3 percent reduction in the price of mobile services and an increase in 5.7 million new users of mobile services. The predicted drop in prices and increased users would generate a combined relative welfare gain of 1.18 percent (1.09 percent among current users and 0.09 percent among new users), that could be translated into a 0.31 percentage point decline in the national poverty rate and equivalent to lifting about 275,000 people out of poverty. Alternative reform scenarios that dilute the market share of the monopoly to 75 percent and to 30 percent are expected to reduce poverty rate in 0.13 and 0.52 percentage points, respectively. The method proposed in this study represents a useful tool for promoting competition reforms in developing countries, particularly in sectors known for excluding significant segments of the population because of high consumer prices.     

Estimating consumer surplus in the mobile telecommunications market: The case of Korea

This paper estimates consumer surplus in the Korean mobile telephone services (MTS) market. The Korean mobile telecommunications market has grown rapidly since 1997 when competition was introduced and Code Division Multiple Access (CDMA) technology was commercialized. Because consumer surplus is relevant to the controversy over establishing an appropriate price level between consumers and service providers, the need for a robust measurement of benefit from MTS is increasing. The measured net consumer surplus estimated by means of elasticities of demand reached about US$48.8 billion in the period 1996–2004 and the changes amounted to about US$8.8 billion during the same period. In particular, after competition was introduced into the market with an accompanying price decrease and increase in the number of subscribers, consumers have benefited greatly. Therefore, it can be inferred that a facility-based competition policy and the reduction in price of access such as handset subsidies all played a positive role in the early diffusion of MTS in Korea. The estimated consumer surplus in this paper does not include network externality (option externality); if this were considered, the total social welfare of the consumer would be larger.     

Investigation of factors affecting the diffusion of mobile telephone services: An empirical analysis for Vietnam

This paper analyzes the diffusion of mobile telecommunications services in Vietnam and examines how telecommunications regulation and potential substitute/complement services affect the growth of the number of mobile telephone subscribers. Using a logistic diffusion model, it is found that fixed telephone services are a complement while data services have a negative relation to mobile telephone services in Vietnam. As for regulation, the policy of introducing competition has been found to be the most effective in influencing the adoption of mobile services. Another important result is that the estimated potential market is roughly 76% of the total population. The findings suggest that suitable regulation that guarantees competition in the mobile telecommunications market in a developing country such as Vietnam is one of the most important factors for a positive diffusion process.     

Switching mobile operators: Evidence about consumers’ behavior from a longitudinal survey

The rate at which consumers switch providers is a key indicator of the level of competition among mobile telephone operators. This paper uses a longitudinal survey of 4110 mobile users in Spain in 2015 and 2016 to analyze what drives consumers’ decisions to switch mobile operators. After controlling for a number of individual characteristics, including gender, age, education level and employment status, switching was found to be significantly less common among satisfied customers and those whose mobile service was bundled with fixed services. Moreover, the more complex the bundle was, the lower the rate of switching was. Considerable consumer inertia was also found: inattentive consumers and those who had not switched previously were much less likely to switch. The implications of these results for regulators and operators are discussed.     

The impact of regulating mobile termination rates and MNO-MVNO relationships on retail prices

A mobile virtual network operator (MVNO) provides mobile telecommunication services by eluding the constraints of the radio communication infrastructure and establishing an agreement with a hosting network operator (HNO) for the use of its spectrum. Thus, MVNOs offer a wide range of mobile services and directly compete with every mobile network operator (MNO). This paper studies the economic justifications for potential regulatory intervention that defines the level of mobile termination rates (MTRs) and negotiations and agreements among MVNOs and HNOs. The results show that symmetric MTR reduction leads to competition growth among operators, forcing every operator to reduce retail prices and, consequently, to enhancing consumer welfare. The paper also finds that a collaborative strategy adopted by an HNO and an MVNO is advantageous for both and induces a reduction in retail prices, thus weakening other MNOs.     

Demand for coffee in Sweden: The role of prices, preferences and market power

There is a widespread belief that consumer coffee prices are high relative to bean prices and that lower consumer prices would lead to substantial increases in bean exports from Third-World countries. This issue is evaluated by analysing how retail prices, preferences and market power influence coffee demand in Sweden. A demand function is estimated for the period 1968–2002 and used, together with information on import prices of coffee beans, to simulate an oligopoly model. This approach gives estimates of the maximum average degree of market power and shows how coffee demand would react to reductions in marginal cost to its minimum level. The maximum level of market power is found to be low, but it generates large spreads between consumer and bean prices because the price elasticity has low absolute values. Moreover, the impact of a price decrease would be small because long-run coffee demand is dominated by changes in the population structure in combination with different preferences across age groups. Hence, a change to perfect competition would only have a negligible effect on bean imports.     

How does income inequality affect market outcomes in vertically differentiated markets?

The distribution of consumer incomes is a key factor in determining the structure of a vertically differentiated industry when consumer's willingness to pay depends on her income. This paper computes the Shaked and Sutton (1982) model for a lognormal distribution of consumer incomes to investigate the effect of inequality on firms' entry, product quality, and pricing decisions. The main findings are that greater inequality in consumer incomes leads to the entry of more firms and results in more intense quality competition among the entrants. More intense quality competition raises the average quality of products in the market as firms compete for the shrinking share of higher-income consumers. With zero costs of quality improvements and an upper bound on the top quality or when costs of quality are fixed and rise sufficiently fast, greater heterogeneity of consumer incomes also reduces firms' incentives to differentiate their products. Competition between more similar products tends to reduce their prices. However, when income inequality is very high, the top quality producer chooses to serve only the rich segment of the market and charges a higher price. The conclusion is that income inequality has important implications for the degree of product differentiation, price level, industry concentration, and consumer welfare.     

Between a rock and a hard place: Recession and telecoms taxation

Excessive taxation in the telecoms services sector is rarely found in developed economies as it hinders high technology investments, confines innovation and eventually impedes economic growth. Recession eventually complicates this process. In this paper the repercussions of multi-layer service taxation on the Greek mobile sector during the last five years are studied. It is found that public revenues, companies and subscribers would significantly benefit from a direct decrease of the special levy imposed on the use of mobile services today. An econometric model that links the consumption propensity of mobile voice service usage with the disposable income of the users and the price of the product is applied. The results of this research indicate that the adoption of high sector specific service taxes with the objective of increasing government revenues creates an economic distortion that lowers service usage, shrinks sector revenues, and, ultimately, jeopardizes the competitiveness of the mobile telecommunications sector.     

Bertrand equilibrium with differentiated products considering fixed costs: Korean price regulation in the mobile telephone industry

In some industries such as telecommunications and electricity, the fixed costs are so high that competition is not sustainable without considering the fixed cost in pricing. The sustainability of competition is as important as enhancing competition when an industry is in the transitional period from being a monopoly owned or managed by the government to a competitive market structure driven by the market. A price competition model with asymmetric firms and product differentiation is considered in which firms compete with a normal profit constraint. The constraint is related to the sustainability of competition and can be realized through price regulation. With this constraint, firms gain only normal profit in equilibrium despite the asymmetry, and consumer surplus is maximized. The equilibrium is meaningful in defining the industry performance intended through the regulation. Moreover, the price regulation of the Korean mobile telephone market is considered to discuss any implications of this equilibrium.     

Consumer protection in the telecommunication sector: A comparative institutional analysis of five African countries

The telecommunications sector has proliferated in recent years, especially in developing countries. However, little attention has been paid to consumer protection issues. As more people get connected to telecommunication networks and competition becomes increasingly fierce, it becomes essential to revamp institutions that ensure consumer protection in the telecommunication markets. This paper analyses the current status of institutions that protect consumers in the telecommunications sector in five African countries from the perspective of three pillars of sound institutional design. The findings indicate that while all cases analysed herein have some form of institution that upholds consumer protection, in most cases, such protection is limited to mobile communications. Furthermore, in most cases, there are only general sanction provisions that are either too weak to bind service providers or that leave overly discretionary powers to regulatory agencies, which can lead to corrupt practices, hence weakening consumer protection. This paper describes current affairs with regard to consumer protection in the telecom industry, identifies its weaknesses, and proposes areas of improvement to attain a healthier telecommunications sector.     

Do International Roaming Alliances Harm Consumers?

This paper develops a model of international roaming in which mobile network operators (MNO's) compete both on the wholesale market to sell roaming services to foreign operators and on the retail market for subscribers. To allow their subscribers to place or receive calls abroad, they have to buy roaming services provided by foreign MNO's. In the absence of international alliances, competition between foreign operators would drive wholesale unit prices down to marginal costs. However, international alliances are endogenously formed since they serve as a commitment device to soften competition on the retail market, leading to excessively high roaming per‐call prices.     

Another instance where privatization trumped liberalization: The politics of telecommunications reform in South Africa—A ten-year retrospective

Soon after the first democratic election in 1994, South Africa passed legislation to revamp the telecommunications sector—to roll out telephone service to the previously disadvantaged and establish an independent regulator to oversee the reform. The Government sold a 30 percent stake in the state-owned incumbent network operator, Telkom, to expand telephone service to under-serviced areas and populations. Ten years on, the reform has largely failed. Telkom, granted a 5-year period of exclusivity to expand the network, has used its monopoly power to thwart competition. It has raised prices so high as to be damaging to the economy. The Regulator has been largely sabotaged by the Government, in part due to the consequences of the haste to privatize, in part because the ANC leadership has been loath to trust democratic structures outside of its immediate control. The situation has opened up opportunities for rent-seeking under the ideological aegis of Black Economic Empowerment. The paper examines the relative failure of reform in South Africa in the context of internal South African politics and against a backdrop of sectoral reform in similarly situated countries.     

Tariff structures and access substitution of mobile cellular for fixed line in South Africa

The phenomenal growth of mobile cellular relative to fixed line phone ownership in Africa has been attributed to a wide range of factors, including institutional factors (such as competition and private foreign ownership), ease of access (low waiting times and no credit history for prepaid access) and of course the mobility. What has not received any attention is how the tariff structures in mobile have influenced consumer preferences. This paper examines how the difference in tariff structures between fixed line and mobile have accounted for the relative popularity of cellular in South Africa. It finds that the balance between fixed monthly and usage fees makes mobile both affordable and cheaper than fixed line for the bottom 50–60% of households that spend relatively little on communication. This is reflected in household behaviour where lower-income households treat cellular as a substitute for fixed line (owning only one or the other), while higher-income households treat the two as complements (owning both).     

The food system transformation in developing countries: A disaggregate demand analysis for fruits and vegetables in Vietnam

Food systems in developing countries are currently undergoing a rapid transformation towards high-value products and modern supply chains. While supply side aspects of this transformation have been analyzed previously, issues of consumer demand have received much less attention. This article analyses demand patterns for fresh fruits and vegetables in Vietnam, using household survey data and a demand systems approach. Demand for products from modern supply chains – particularly supermarkets and non-traditional imports – is highly income elastic, and the income effect is stronger than the impact of prices and supermarket penetration. This highlights the importance of considering demand side aspects when projecting future trends. Our results imply a continued restructuring of the food sector in the further process of economic development.     

War die Strommarkt-Liberalisierung in Deutschland bisher ein Flop?

By observing the last 10 years of power market reform in Germany, this paper challenges the public view that the first Energiewirtschaftsgesetz (EnWG) from 1998 had less impact on market liberalization than the second EnWG from 2005. According to the author, the opposite is true, at least in the power sector, if traditional competition indicators such as efficiency of the sector, institutional changes and electricity prices are taken as reference. While the first EnWG had changed much in the direction of liberalization and competition, progress since 2005 is rather slow — with the exception of the number of supplier shifts on the retail level and the installation of a regulation authority. The discrepancies between reality and public perception claim for a sound theoretical analysis, from which conclusions can be drawn concerning the further direction of the electricity market regulation.     

Optimal mobile termination rate: The Brazilian mobile market case

This paper presents a study of the impacts of changes in the mobile termination rate in Brazil using 2008 as the base year. For this we use an extension of the monopolistic competition model used by Wright, Thompson, and Renard (2007) allowing for the charge of interconnection fee also from calls originating on mobile networks and differentiated prices for on-net and off-net calls. After calibration of the model parameters and estimation of the price elasticity of demand for mobile services, we conduct a comparative static analysis varying the mobile termination rate in order to find the optimal value for that parameter. Finally, we provide some discussions on policy regulation in that sector depending on the objective of the regulator agency.     

Was household internet adoption driven by the reform? Evaluation of the 2013 telecommunication reform in Mexico

In 2013 the Mexican Telecommunications and Broadcasting Reform was launched with the goal of promoting competition and access in the telecommunications sector. The aim of this paper is to evaluate whether the 2013 reform had an impact on household fixed internet adoption and to what extent Mexican households, classified into ten wealth groups, had adopted internet. For the assessment, after a revision of supply and demand Reform's measures to reduce the digital divide, data from the 2010 Census and 2015 Intercensal Survey were used to create adoption indexes using Poisson estimations. The results were analyzed by ten wealth groups, constructed on principal components based on household characteristics (type of dwelling, electricity availability, availability of drinking water, sewer system, internet and ICT devices: computer, telephone, cell phone and internet). Additionally, the impact of both indexes was validated by a difference in differences method. The results suggest a 66% overall increase in internet adoption between 2010 and 2015. The decile analysis showed considerable internet adoption in the low and middle wealth groups (deciles 2–8), while in the highest wealth groups (deciles 9–10) the impact of internet adoption has been relatively moderate. It is worth noting that internet adoption is unequally distributed, as less than 1% of households in deciles 1 to 6 had adopted internet in 2015, while nearly all of the wealthiest ten percent of households have internet access. Nevertheless the increment in internet adoption was not only the result of the reform but the combination of the broadband penetration trend and the reform together.     

Diffusion and competitive relationship of mobile telephone service in Guatemala: An empirical analysis

The purpose of this paper is to analyze the characteristics of diffusion process of mobile telephone service and the competitive relationships between mobile and fixed-line services in Guatemalan telecommunications market. We investigated the best-suited model to explain the diffusion process of mobile telephone in Guatemala by estimating diffusion curves using empirical data. Moreover, we explored affecting factors which characterize the diffusion pattern of mobile telephony in Guatemala through statistical analysis. Finally, in order to understand the effects of competition in the diffusion process of Guatemalan mobile phone service, we attempted to clarify the competitive relationship between mobile and fixed-line services using the Lotka-Volterra model. As a result, the logistic model was found to be the best model for describing the diffusion pattern. Moreover, investment in telecommunications, the subscribers of fixed-line services, and the number of operators in mobile market were found as significant determinants of mobile diffusion process. Results from the Lotka-Volterra model showed that the relationship between mobile and fixed-line services has changed from pure competition to amensalism.     

Economic growth,telecommunications development and productivity growth of the telecommunications sector: Evidence around the world

This paper studies the relationships between economic growth, telecommunications development and productivity growth of the telecommunications sector in different countries and regions of the world. In particular, this study assesses the impact of mobile telecommunications on economic growth and telecommunications productivity. The results indicate that there is a bidirectional relationship between real gross domestic product (GDP) and telecommunications development (as measured by teledensity) for European and high-income countries. However, when the impact of mobile telecommunications development on economic growth is measured separately, the bi-directional relationship is no longer restricted to European and high-income countries. This study also finds that countries in the upper-middle income group have achieved a higher average total factor productivity (TFP) growth than other countries. Countries with competition and privatization in telecommunications have achieved a higher TFP growth than those without competition and privatization. The diffusion of mobile telecommunications services is found to be a significant factor that has improved the TFP growth of the telecommunications sector in Central and Eastern Europe (CEE).