Horizontal Cooperation on Investment: Evidence From Mobile Network Sharing

Abstract

We present a structural model to investigate the effects of horizontal cooperation on investment in the context of telecommunication networks. More specifically, we estimate the effect of network sharing in the mobile telecommunications industry on prices, network quality and consumer welfare. The presented framework allows estimating the effects of different types of sharing agreements including common ownership of shared assets in a joint venture company or collaboration via geographical separation (geo-split principle). The proposed identification strategy relies on differences in the costs of network deployment of shared versus non-shared network infrastructure, with different costs affecting operators' optimal choice of price and network quality. We apply the structural model to estimate the effects of a network sharing agreement in the Czech Republic, using a combination of unique datasets on prices, network quality measured as average download speed and operator's costs of network deployment. The results of our model indicate that horizontal cooperation on investments may be beneficial for consumers. Specifically, the network sharing agreement under study generated cost savings for the sharing parties, which were passed-on to consumers in the form of lower prices and higher average download speed. Our findings are of relevance to the assessment of network sharing agreements, which, considering the substantial investment cost associated with the 5G technology, are likely to play an even greater role in the telecommunications industry in the future. The findings are also of relevance to the general literature on horizontal cooperation on investments.

Co-Investment in the Sharing of Telecommunications Infrastructures

“…Anyway, empirical studies do not seem to highlight this point. Cojoc et al (2020) present a structural model of the Ran sharing agreement in the Czech Republic between the two leading operators in the market. They found that the cost savings are passed on to consumers who benefit from lower prices and a higher download speed.…”

Co-operative investment by downstream rivals: network sharing in telecom markets

“…However, if the impact of investment quality is more homogeneous (i.e., the "loyalty" parameter is prices. In a companion paper, Cojoc et al (2020) set up a structural model that indicates that network sharing benefits consumers through lower prices as well as higher quality (measured by download speed). close to zero), it may be preferable for both consumers and economic welfare to ban any cooperation, i.e., network sharing should be prohibited altogether.…”