Tomasso Valetti presentation - Competition Policy International
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Transcript Tomasso Valetti presentation - Competition Policy International
Platform regulation in
other industries:
Lessons from telecoms
Tommaso Valletti
Imperial College London, Telecom
TOMMASO VALLETTI
Invisible prices (to us)
Interconnection between
telecommunications networks
Call termination is one of the most
important interconnection services
Interconnection prices are “invisible” to
us, but affect competition and,
ultimately, the tariffs we pay
TOMMASO VALLETTI
Very interesting findings
Competitive “bottlenecks”
Some prices are “monopolised”
“Two-sided” markets (platforms) and
skewed pricing structures
Policy question: intervene to achieve
efficiency (regulation vs. competition
policy)
General features of 2SM
Relative prices versus rents
General problem that applies to many
situations
Two ways of looking at this problem:
– Even under perfect competition, a 2SM
carries inefficiencies
– Intervention typical of 1SM does not
work in 2SM
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Fallacies in 2SM
(LR)IC = efficient?
Individual mark-ups indicate market
power?
More competition implies a more
balanced price structure?
Removal of cross-subsidies will benefit
the side that pays above (LR)IC?
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The “waterbed” effect
Mobile telephony largely unregulated,
with the important exception of Mobile
Termination Rates (MTR)
Mobile customers bring a “termination
rent”
Competition for customers might
exhaust this rent
Justification for regulatory intervention to
cut MTR -> BUT this can potentially
increase prices for mobile subscribers
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Genakos and Valletti (JEEA, 2011)
Is there a waterbed effect?
–MTR down -> retail prices up?
Is it “full”?
–Sector fully competitive, so just a rebalancing
of structure of prices?
–Or market power, so negative impact on
operators’ profits?
Empirical strategy
–Exploit differential regulation between
countries and, within countries, between
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Average Price Around the
Introduction of Regulation
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Evolution of the waterbed effect
(post-paid)
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Evolution of the waterbed effect
(pre-paid)
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Main results, and why do we care
Waterbed effect strong and significant (-10% in
MTR -> +5% in bill)
Effect diluted for pre-paid consumers, where
regulation counteracts the “collusive” effect of
access charges
Magnitude of the waterbed effect key to assess
costs and benefits of regulation of termination
charges (externalities and elasticities)
Implications for the current regulation of
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Static - What about investments
Another hot topic is “net neutrality”
Concern: technology allows Internet
Service Providers (ISPs) to discriminate
between data packets quite easily
Regulate the internet to preserve
openness and neutrality?
Leave the internet free to develop
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according to market forces?
Net neutrality
(Non-academic) debate can be summarised as
follows:
– CEO of AT&T (ISP): “Now what they would like to do is use
my pipes free, but I ain't going to let them do that. We have
spent this capital and we have to have a return on it”
– Google (CP) affidavit to FCC: “The Internet is awesome, let’s
keep it that way!”
Economic models to analyze the tension
between content innovation and network
expansion to avoid congestion: edge vs. core
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