1 / 11

Is two enough? Analysis of a possible scenario

Is two enough? Analysis of a possible scenario. The Future of Telecoms Regulation 2006 Robert Stil, Head of Economic Analysis Team. Market developments in NL. The market moves towards bundled multi-play offers supplied by DSL and cable operators

tara-mcleod
Download Presentation

Is two enough? Analysis of a possible scenario

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Is two enough?Analysis of a possible scenario The Future of Telecoms Regulation 2006 Robert Stil, Head of Economic Analysis Team

  2. Market developments in NL • The market moves towards bundled multi-play offers supplied by DSL and cable operators • Cable operators successful in VoB, KPN introduces lP TV at large scale • KPN rolling out fibre optic all-IP network to the street cabinets, thereby making MDF locations obsolete • Consolidation of cable companies. #1 and #2 control > 90% of connections • KPN is acquiring ISPs and independent DSL operators

  3. What is the likely scenario? • A new monopoly, a wide oligopoly, a tight oligopoly, …..? • Possible scenario: A duopoly of vertically integrated operators offering (substitutable) multi-play bundles • Research question: Can a duopoly of KPN and a cable company be effectively competitive in the absence of regulation?

  4. Competition in oligopolies • Non-competitive outcomes as a result of normal profit maximisation • Degree of competition depends on • Price (+) v.s. quantity competition (-) (= Bertrand v.s. Cournot) • Number of firms (+) • Level of product differentiation, switching costs, barriers to entry (-) • Countervailing buying power (+), bidding markets (+) • NRF threshold for intervention is a dominant position. Non competitive oligopoly is currently not captured under single dominance (monopoly) or joint dominance (tacit collusion).

  5. Collusion in oligopoly • Tacit collusion: behaviour aimed at reaching an implicit cooperative agreement • Market circumstances that enable tacit collusion • Few firms, high entry barriers, frequent interaction (+) • Market stability, transparency, symmetry (++) • Countervailing buying power, network effects (-) • Structural links, multi market contact (+) • In the NRF tacit collusion is captured under the concept of joint dominance

  6. What drives competition in broadband? • Europe: • ERG statement: regulated intra-platform competition drives inter-platform competition • Most competitive countries have cable platforms supplying broadband next to (regulated) DSL • US: • Natural experiment in the US (deregulation of DSL line sharing) • increased penetration speed DSL vs. Cable • prices DSL dropped more than Cable prices • “Technology has replaced regulation as the main driver of competitive threat to the Bells.”

  7. What is the most relevant model of oligopolistic competition? • Probably players set capacity first and then compete on prices -> some form of capacity constraint • Products are differentiated to a certain extent - > no perfect substitutes • Customers are locked in to a certain extent and face switching costs -> some level of demand inelasticity • Therefore: No pure Bertrand type of competition. Cournot type more likely

  8. Results of the analysis (1) • Likelihood of collusion = ambiguous • Essential criteria for collusion are met- Few firms, - high entry barriers, - frequent interaction • But: - market is highly dynamic, products are differentiated (-)- interoperability regulation neutralises network externalities (+)

  9. Results of the analysis (2) • Likelihood of a effective competition in the duopoly • No pure price competition. • Product differentiation • Switching costs • Low potential entry • No countervailing buying power • Significant risk that competition is not effective > prices above long-run average costs, but lower than monopoly.

  10. Hypothesis If the electronic communications market in The Netherlands develops into a duopoly of cable and DSL, effective competition will not be a likely outcome, and the current regulatory framework is not able to deal with this situation.

More Related