Working Paper: CEPR ID: DP10045
Authors: Lukasz Grzybowski; Frank Verboven
Abstract: We study substitution from fixed-line to mobile voice access, and the role of various complementarities that may influence this process.We use rich survey data on 160,363 households from 27 EU countries during 2005-2012. We estimate a discrete choice model where households may choose one or both technologies, possibly in combination with internet access. We obtain the following main findings. First, there is significant fixed-to mobile substitution, especially in recent years: without mobile telephony, fixed-line penetration would have been 14% higher in 2012. But there is substantial heterogeneity across households and EU regions, with a stronger substitution in Central and Eastern European countries. Second, the decline in fixed telephony has been slowed down because of a significant complementarity between fixed-line and mobile connections offered by the fixed-line incumbent operator. This gives the incumbent a possibility to maintain to some extent its position in the fixed-line market, and to leverage it into the mobile market. Third, the decline in fixed telephony has been slowed down because of the complementarity with broadband internet: the introduction of DSL avoided an additional decline in fixed-line penetration of almost 9% in 2012. The emergence of fixed broadband has thus been the main source through which incumbents maintain their strong position in the fixed-line network.
Keywords: broadband access; fixed-to-mobile substitution; incumbency advantage
JEL Codes: L13; L43; L96
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| household demographics, regional GDP per capita, operator type (R20) | telecommunications services choice (L96) |
| mobile telephony (L96) | fixed-line penetration (L96) |
| fixed-line incumbent operator (L96) | mobile service adoption (L96) |
| broadband internet (DSL) (L96) | fixed-line penetration (L96) |
| fixed-line and mobile services (L96) | substitution (C34) |