The Effects of Forced Handset Unbundling on Output and Price in Mobile Sector: ----An Empirical Study with International Data

Transcription

1 The Effects of Forced Handset Unbundling on Output and Price in Mobile Sector: ----An Empirical Study with International Data Zhong Liu, PhD Associate Professor, School of Business Administration

2 Such a sector with astonishing growth The global number of mobile subscribers overtook that of landline in 2001 It cost only 20 years for mobile to acquire 1bn subscribers. In contrast, it cost 125 year for landline to do so in the world The global number of mobile subscribers was 2bn in 2005, 3bn in 2007 and 4bn in 2008 (accelerated growth) Mobile service revenues reached US$364bn in 2002, US$506bn in 2004 and US$636bn in 2006 Source: ITU Zhong Liu 2

3 Handset bundling (related) Mobile operators sell services with handset together (or tying in economic term). Concurrently, Often operators may offer handset subsidies in exchange of subscribers long-term commitments (Early termination Fee may apply); Operators may often lock handsets so that those handsets cannot be used in competing networks of the same standard if without unlocking Operators may not allow subscribers to use handsets, which subscribers purchase from the third party, on their networks, Operators may pre-program handsets to disable some functions (for example, WiFi or Skype) so that those functions cannot be used in their specific networks Zhong Liu 3

4 Advocates of forced unbundling With reference to Carterfone principle in landline sector, they require regulators To prohibit operators from locking handsets (Wireless Carterfone) To order operators to allow any equipments/applications running on their network, subject to not incurring damage (Basic Network Neutrality) Doing so, they claim, can increase choices by customers meaning lower rate and higher call volume (output) can promote innovation (handset and value-added services) meaning lower rate and higher call volume The most influential academic article was written by Tim Wu (2007) who claims that four areas warrant particular attention in mobile sector -- Network attachment Product design and feature crippling Discriminatory Broadband Services Applications stall FCC has partially adopted their requirements in the bidding design for 700Mhz spectrum (Band C), which was vacated from digital television conversion (Digital Dividends) Zhong Liu 4

5 Opponents of forced unbundling They argue that bundling can encourage investment and innovation because of long-term commitments from subscribers (in exchange of subsidies) Network investment and innovation: Standard cannot replace complicated coordination between handsets and network iphone and Apple Store Walled Garden in the US but the most innovative case in wireless sector Forced open access not succeeded in the broadband access sector of the USA Zhong Liu 5

6 Economic theories: non-conciliatory On the one hand, vertical integration (tying) Can solve the issue of hold up Can lead to risk sharing Can solve the issues related to incomplete contracts See Williamson(1975),Holmstrom and Tirole(1989),Perry (1989),Newbery and Stiglitz(1981),Grossman and Hart(1986),Hart and Moore(1990) On the other hand, in a vertical integration setting, The vertically-integrated firm can foreclose its competitors from competitive sector Locking can reduce social welfare See Tirole(1988,Tirole and Laffont(2000), Armstrong, Cowan and Vickers(1994), Rey and Tirole(2003), Klemperer(1987, 2006) Zhong Liu 6

7 Previous empirical studies All are one-unit study On Finland Tallberg,et al, Impacts of Handset Bundling on Mobile Data Usage : the Case of Finland, Telecommunications Policy 31 (2007) On South Korea Kim, et al Mobile handset subsidy policy in Korea: historical analysis and evaluation, Telecommunications Policy 28 (2004) On Portugal Handset Subsidies an Empirical Investigation commissioned by Portuguese Competition Commission This study attempts to fill the gap of multi-unit econometric analysis Zhong Liu 7

8 International practice In 1999Q4-2004Q2, among 30 countries (economies) In Belgium and Finland, operators were prohibited from bundling unconditionally (no subsidies, no-locking) In Singapore, operators were prohibited from bundling unconditionally (subsidies allowed but locking prohibited) In Hong Kong, handset locking is allowed when subsidized; otherwise illegal Thus, we design Test 1: dummy variable of unlock1=1 for Belgium, Finland,Singapore and Hong Kong;unlock1=0 for others Test 2: dummy variable of unlock2=1 for Belgium, Finland,Singapore;unlock2=0 for others Test 3: dummy variable of unlock3=1 for Belgium, Finland; unlock3=0 for others Zhong Liu 8

9 Null Hypotheses (H 0 ) If forced unbundling can realize its anticipated goals, Those economies with forced unbundling can achieve higher output, or Those economies unbundling can achieve lower rate Zhong Liu 9

10 Output Equation(Test 1 as an example) H H : : log Q UNLOCK1 MNP RPP it 0 1 it 2 it 3 4 it 5 6 it 7 8 it it log log log HHI log GDPPC log log POPULATION log Q DENSITY SPECTRUM FIXEDRATE it HHI log it 2 log log GDPPC it DENSITY Q Q 14 it, 1 15 log Q it, 2 i it it it 2 SPECTRUM 2 it Zhong Liu 10

11 Price Equation(Test 1 as an example) log RPM UNLOCK1 MNP RPP it 0 1 it 2 it log HHI log HHI log HHI log HHI 4 it 5 it 6 i 7 i log DENSITY 8 it 9 10 it log SPECTRUM FIXEDRATE log GDPPC it it log DENSITY 14 it 15 log SPECTRUM log POPULATION log POPULATION 2 log RPM P P 16 it, 1 i it it 2 it 2 it H H 0 1 : 0 1 : Zhong Liu 11

12 Variables Q:monthly total output RPM:revenue per minute a surrogate for price HHI:Herfindahl-Hirschman Index, reflecting sector concentration DENSITY:population density SPECTRUM:total spectrum for mobile sector FIXEDRATE: the log of the rate of three-minute call of landline at peak time GDPPC:GDP per capita (at PPC purchase power parity) POPULAION:population MNP:mobile number portability UNLOCK1-3:as introduced before RPP: Receiving party payment Zhong Liu 12

13 Descriptive statistics (part) Variables Obs. Mean St. Error Min. Max. logq logq_norm logrpm logrpm_norm unlock unlock unlock mnp loghhi logdensity logspectrum fixedrate loggdppc logpopulation Zhong Liu 13

14 Results (output equation,part) Test1 Test2 Test3 Variable RE_RO PCSE PWGH RE_RO PCSE PWGH RE_RO PCSE PWGH alpha1 co-ef p mnp co-ef p rpp co-ef p loghhi co-ef p loghhi_s q co-ef p logq1 co-ef p logq2 co-ef p constant co-ef p R-square overall Zhong Liu 14

15 Results (price equation,part) Variable Test1 Test2 Test3 RE_RO PCSE PWGT RE_RO PCSE PWGT RE_RO PCSE PWGT beta1 co-ef p mnp co-ef p rpp co-ef p loghhi co-ef p loghhi_s q co-ef logrpm1 co-ef p constant co-ef p R-square overall Zhong Liu 15

16 Marginal effects at mean of HHI of economies (part) logq_norm logrpm_norm country idn effect P> t turning effect P> t turning Greece Hong Kong Hungary Ireland Italy Sweden Switzerland UK US Venezuela Chile Mean Median Std Dev Zhong Liu 16

17 Marginal effects at each country (chart) Quantity Equation, Log HHI logq_norm Price Equation, Log HHI logrpm_norm Zhong Liu 17

18 Marginal effects at each country (chart) Quantity Equation, Log GDPPC logq_norm Price Equation, Log GDPPC logrpm_norm 表述结果 Zhong Liu 18

19 Marginal effects at each country Quantity Equation, Log Fixed Rate Argentina Austria Brazil Colombia Denmark France Greece Hungary logq_norm Italy Netherlands Norway Singapore Sweden UK Venezuela Price Equation, Log Fixed Rate logrpm_norm 表述结果 Zhong Liu 19

20 Marginal effects at each country Quantity Equation, Log Density logq_norm Price Equation, Log Density logrpm_norm Zhong Liu 20

21 Marginal effects at each country Quantity Equation, Log Spectrum logq_norm Price Equation, Log Spectrum logrpm_norm Zhong Liu 21

22 Marginal effects at each country Quantity Equation, Log Population logq_norm Price Equation, Log Population Argentina Austria Brazil Colombia Denmark France Greece Hungary Italy Netherlands Norway Singapore Sweden logrpm_norm UK Venezuela Zhong Liu 22

23 Conclusion No conclusive econometric evidence to demonstrate that forced bundling can achieve higher output and lower rate These results are evidenced by the recent deregulation of the following countries Finland Hong Kong South Korea Belgium (very recently) Since regulation is costly, Wireless Cartefone should not be applied at least now. Let market do! Zhong Liu 23

24 Questions? Thank you! Zhong Liu 24

25 附 基本形式 y x x x x 2 2 it 1 it 2 it 3 i 4 i dy 122x324xi dx 国家 / 地区 1 和 2 dy 122x 1324x1 dx dy 2 x 2 x dx Zhong Liu 25