Impact of Competition, Investment, and Regulation on Prices of Mobile Services: Evidence From France

Abstract

In this paper, we assess the impact of competition, investment, and regulation on prices of mobile services in France. We estimate hedonic price regressions using data on tariff plans offered by the main mobile telecommunications operator in France between May 2011 and December 2014. In this time period, the obtained quality‐adjusted price index decreased by about 42.8% as compared to a decline in weighted average prices without quality‐adjustment of 8.7%. In a second step, we relate the quality‐adjusted prices to a set of competition, investment, and regulation variables and find that the launch of 4G networks by mobile operators was the main driver of price reductions for classic tariffs with commitment. Low‐cost tariffs without commitment which were introduced to pre‐empt the entry of low‐cost competitor declined at the time of entry. Moreover, we find that regulation, which is approximated by the level of mobile termination charges and international roaming price caps for voice and data, has a joint significant impact on quality‐adjusted prices. In percentage terms, competition is responsible for about 23.4% of total price decline and investments in 4G for 56.1%. We conclude that the reduction in quality‐adjusted prices in the last years was largely caused by competition between operators for a new 4G technology and by entry of a fourth low‐cost operator. (JEL L13, L50, L96)

Market Entry, Fighting Brands and Tacit Collusion: The Case of the French Mobile Telecommunications Market

“…However, the rising price does not necessarily imply the higher unit cost of consumption for consumers since both the consumption speed and allowances have also increased, particularly with the introduction of the 4G technology around 2014 (Nicolle et al, 2018). Figure A.1 in the appendix reveals a similar pattern for the MVNOs: they have lowered their prices over time, which appears to be at least partially attributable to the increased competition among other factors.…”

“…In a study of the U.S. mobile telecommunications market, Seim and Viard (2011) show how entry reduced prices and induced firms to offer a greater variety of pricing plans. Nicolle et al (2018) use hedonic regressions to quantify the price impact of Free Mobile's entry in the same French mobile market analyzed in this paper. Finally, Genakos et al (2018) study the impact of entry and mergers in mobile telecommunications markets for a panel of OECD countries.…”

“…The dataset contains information on the monthly subscription of each consumer. In any given time period, a vast number of tariff varieties were available in the market due to the high frequency of new product arrivals (Nicolle et al, 2018). Yet they can be broadly categorized in three unique payment schedules that vary with marginal prices of consumption: prepaid, postpaid, and forfait bloqué, with different configurations of fixed, variable and over-usage fee structure.…”

“…14 To account for possible changes in the composition, we aggregate the tariffs across a predetermined set of price tiers whenever feasible. Our measurement approach is not ideal, but developing a price index is by itself a complex and resource-intensive task in the telecommunications markets (Nicolle et al, 2018). While one may alternatively consider the price basket approach used by organizations such as OECD or ARCEP, it relies on representative usage profiles calibrated from actual consumption patterns, which are endogenous to the price itself.…”

“…Table 3 provides a more detailed description of how the entry of Free Mobile has affected the market October), we lacked sufficient sample size for the quarter due to their limited availability and therefore removed them from the analysis. 17 Price caps were imposed on the call termination rates by ARCEP, and the incumbents were not allowed to charge discriminatory prices (Nicolle et al, 2018). Table 3: Change of market shares by the service pricing types competition asymmetrically.…”