Structural separation versus vertical integration: Lessons for telecommunications from electricity reforms

Structural separation between network and retail functions is increasingly being mandated in the telecommunications sector to countervail the market power of incumbent operators. Experience of separation in the electricity sector offers insights for policy-makers considering telecommunications reforms. Despite apparent competitive benefits, the costs of contracting increase markedly when short-term focused electricity retail operations are separated from longer-term generation infrastructure investments (which require large up-front fixed and sunk cost components). The combination of mismatches in investment horizons, entry barriers, and risk preference and information asymmetries between generators and retailers leads to thin contract markets, increased hold-up risk, perverse wholesale risk management incentives, and bankruptcies. Direct parallels in the telecommunications sector indicate exposure to similar complications, intensifying many of the contractual risks arising from regulated access arrangements. Thus, as in electricity, competition between vertically integrated telecommunications providers would likely induce more efficient and sustainable investment and competition than would separation.     

Network neutrality and difference in efficiency among Internet application service providers: A meta-frontier analysis

As Internet applications evolve and require wider and more stable bandwidth, Internet service providers (ISPs) try to maximize their profit by controlling application service providers (ASPs); this has caused a network neutrality debate. This article categorizes ASPs into four groups by bandwidth-usage attributes and latency sensitivity. By estimating the efficiency of these groups, their efficiency differences are estimated, indicating evidence of discrimination of ISPs when network neutrality is not maintained. Meta-frontier analysis is used to compare efficiencies across companies using different production function technologies. Finally, a Tobit regression model is used to determine which variables explain the difference of efficiencies. The estimation result indicates that the discrimination of ISPs against ASPs is not significant enough to decrease the efficiency of any application group.     

Policy implications of technology for detecting P2P and copyright violations

The effectiveness of many proposed policies regarding both online copyright protection and network neutrality depend on the extent to which it is technically possible to detect peer-to-peer file sharing (P2P), the transfer of copyrighted files, or both. There are many detection approaches, some performed primarily by network operators and some by application-layer agents. This paper describes capabilities, limitations, privacy issues, and policy implications of detection technologies and their countermeasures, in part through quantitative analysis of empirical data. Different approaches are better for different purposes. Network operators are well-positioned to estimate how widespread copyright violations are, but application-layer detection from outside entities has important advantages when the purpose is punishment. Detection is also imperfect, so policies should require more transparency regarding how it is done than we see today. It is shown that, although network operators may not detect every transfer, and they typically miss more video than audio, they can identify most individuals who share copyrighted files via P2P after several weeks of monitoring provided that traffic is unencrypted, which is useful for some purposes. However, it is also shown that encryption is already in use, and it effectively prevents network operators from detecting transfers of copyrighted content. Thus, if network operators are held responsible for monitoring illegal file sharing, there is a tension between using detection to identify violators of copyright law for punishment, which may motivate even greater use of encryption, and using detection for other purposes such as creating fair compensation schemes for copyright-holders, warning users that they may be violating copyright law, or allocating network resources. Alternatively, there are forms of detection that are not evaded through encryption, and application-layer agents rather than network operators are primarily responsible for these. These copyright policy issues are intertwined with network neutrality policy in subtle ways. Network neutrality rules do not protect illegal transfers of copyrighted content, but if network operators are responsible for enforcement (as in “graduated response”) then regulators must determine when it is reasonable to terminate or degrade service based on allegations of copyright violation given the limitations of detection technology to prove those allegations. Allegations of copyright violation should be considered invalid unless they are accompanied with information about how detection was performed and an opportunity for rebuttal. Such transparency has been routinely lacking in both laws and industry agreements.     

Impacts of mobile Internet use intensity on the demand for SMS and voice services of mobile network operators: An empirical multi-method study of German mobile Internet customers

Scholarly and business publications alike convey the message that past and future strong growth in mobile Internet (MI) access and service demand has solely positive commercial implications for mobile network operators (MNOs). This position neglects the possibility that increasing MI use intensity may lead to demand decreases for the highly profitable short messaging service (SMS) and mobile voice telephony. The extant literature provides few insights on relations between MI use intensity, on the one hand, and SMS as well as mobile voice call use intensities, on the other hand. This study developed hypotheses concerning the presence or absence of impacts of MI use intensity and circumstances of MI use (e.g., device type, tariff scheme) on the demand for SMS and mobile voice telephony at the individual customer level. The hypotheses were tested by analyzing actual use behaviors of 304 MI adopters in Germany, for whom objective use intensity data were extracted from the billing system of an MNO. These non-reactive measures were combined with responses collected from the adopters through a telephone survey. Multivariate regression results suggest that though MI use intensity significantly negatively affected both number of SMS sent and received, these effects were so small that their practical relevance is highly doubtful. Further, customers who used MI more intensively did not generate lower volumes of outgoing or incoming mobile voice connection minutes. Conclusions are drawn for MNO, telecommunications sector regulators and scholarly researchers seeking to explain the acceptance of mobile communications services.