Abstract
Since 1998, the European telecommunications industry is entered into a liberalization phase. In mobile markets, the liberalization policy induces the introduction of competition between a larger number of competitors and a decrease in retail prices. However, the assessment of national markets reveals insufficient competition between network operators and a new regulation was proposed to facilitate private investments into this mature industry.This paper investigates the determinants of the fringe entry into European mobile telecommunications markets between 1998 and 2005. More precisely, we intend to answer the following question: how do cross-national differences in the market structure and the regulatory design (regulatory incentives and governance) affect the number of Mobile Virtual Network Operators’ (MVNOs) in mobile markets? We test a set of hypothesis using internationally comparable variables of economic and regulatory determinants and allowing for ten European Member States and temporal fixed effects on 8 years. We infer the hypotheses to predict cross-national variations in the number of MVNOs entries. We then control for the potential effects of the contractual governance of the MVNOs’ access to the incumbents’ mobile networks. We demonstrate that the amount of fringe entry into a mature industry is the result of both the strategic behavior of the incumbents towards hosting MVNOs on their networks and the adoption of credible regulations to prevent the exercise of strategic entry-deterring activities. Our findings are salient for policymakers and practitioners alike.
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Notes
- 1.
For a survey on MVNOs definitions, see Dewenter and Haucap (2006).
- 2.
Some business studies have argued that the definition by the ownership of certain key assets was flawed because it assumes that the use of these assets can only be achieved by acquiring them entirely. MVNOs are ranged according to the degree of control over some aspects of service design (Analysys paper 2005, “The future of MVNOs”).
- 3.
Tele2 (Denmark, Finland or Sweden), or BT (UK) or Saunalahti (Finland) belong to the “full MVNO” type.
- 4.
Virgin Mobile (UK) belongs to the “intermediate MVNO” type.
- 5.
Telmore, Tesco Mobile or Sun Telecom is belonging to the “thin MVNOs” type.
- 6.
Concentration refers to the aspect of the competitive process that is driven by the size distribution of the dominant incumbent firms within a given resource space.
- 7.
European Commission, 2005, 11th report on implementation of the regulatory framework, Annex 1, p.22.
- 8.
The Telecompaper Mobile MVNO/SP List was previously called the “Takashi Mobile MVNO/SP list” and is accessible on: http://www.telecompaper.com/research/mvnos/
- 9.
Following external comments, the authors fully acknowledge the limits of the paper due to the availability of data on the dependent variable. However, it results from the data selection process that the selected list of MVNOs was the most detailed and updated source that distinguishes between MVNOs and other mobile service providers over the time period. It is also acknowledged that the subsequent construction of the dependent variable may have some impact on the conclusions to be drawn from the econometric model.
- 10.
This means that prices are set close to costs and the incumbent only earns at some competitive return.
- 11.
The dynamic panel approach is ruled out, as we do not suppose correlation between explanatory variables and residuals. This allows ruling out Arellano-Bond estimator as the lagged endogenous variable is not included in the set of regressors. In this context, there is no persistence effect arising from the total number of MVNOs.
- 12.
The unobserved international differences across countries are captured by the fixed effects. A random structure for individual and time effects is also tested, but the results are not reported. Besides, Poisson fixed effect model can also be properly estimated by adding individual or time dummies to the set of explanatory variables. It is not the case, however, for a negative binomial distribution.
- 13.
Even in the absence of explicit regulatory framework variable in the first test, regulation is not neutral as the related effect may be embodied in the market structure itself. Adding these variables to the test leads to the estimation of the combined effects of regulation and market structure on entry.
- 14.
We must acknowledge that our data do not allow us to control for this prediction. Due to the specificity of spectrum licensing process, the market concentration is fixed externally so that the number of MNOs has not really decreased as their licenses have been renewed between 1998 and 2005. However, European Commission regularly stresses the distinction between active and non-active licenses. We can not exclude the decrease in the number of active MNOs.
- 15.
We do not take into account other factors of churn variation as independent variables.
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Riccardi, D., Ciriani, S., Quélin, B. (2009). Does Regulation Impact the Entry in a Mature Regulated Industry? An Econometric Analysis of MVNOs. In: Curwen, P., Haucap, J., Preissl, B. (eds) Telecommunication Markets. Contributions to Economics. Physica, Heidelberg. https://doi.org/10.1007/978-3-7908-2082-9_17
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