are wireless networks a substitute for fixed networks
DESCRIPTION
Presented at 6th Mandela Institute Competition Law and Economics Conference, 2012TRANSCRIPT
Are wireless networks always a substitute for fixed networks?
Why open access fixed line policies matter in South Africa
Prepared by: Ryan Hawthorne*
6th Competition Law and Economics conference, Mandela Institute
* Views reflected here are my views and do not necessarily reflect Neotel’s views
Why should we care about open access fixed line policies when we have multiple mobile networks in SA?
Source: Informa Telecoms & Media
Full-loop and shared loop unbundling
Sub-loop unbundling
Duct access
Access to street poles
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…the US merger guidelines require that supply-side substitutability be taken into account when examining effects, and not at the market definition stage
Would a hypothetical monopolist be able to raise prices by 5-10%?• or would customers use
substitutes?
Would a hypothetical monopolist be able to raise prices by 5-10%?• or would entry by other suppliers be
timely, likely and sufficient?
Relevant market is defined
Assess effects in the relevant market of the merger / abuse of dominance
SSNIP = Profitable
SSNIP = profitable
This leaves out the possibility of “price discrimination” markets, using demand side only analysis
Which means that the anti-competitive effects affecting a
group of customers are missed
This question is addressed through market definition, and specifically whether there are ‘price discrimination markets’ or groups of vulnerable customers
Are there groups of broadband customers in South Africa that are not able to use both fixed and wireless broadband that would constitute “price discrimination markets”?
Industry or public recognition of the submarket as a separate economic entity
The product’s peculiar characteristics and uses
Unique production facilities
Distinct customers
Distinct price
Sensitivity to price changes
Specialized vendors
We could use the “Brown Shoe” criteria to assess this:
Alongside other evidence of customers’ ability to switch
Candidate customer groups for which mobile broadband is not a substitute for fixed broadband are:
Online gaming; 0.6; 0% Video Communications; 7.9; 2%
Web and
other data; 54.7; 14%
File shar-ing;
22.8; 6%
Video; 317.5; 79%
Online gaming; 0.1; 0%
Video Communications; 0.1; 0%
Web and other data; 0.7; 1% File sharing; 0.199999999999999; 0%
Video; 6.7; 8%
Data; 75; 91%
High usage Residential customers
Consumer internet use, 2016
Small and medium enterprises (1-200 employees)
Business IP network use, 2016
Source: Cisco VNI, available at: http://ciscovni.com/, last accessed on 13 August 2012
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Only a very small % of business data and consumer video will be transmitted over mobile…
Fixed internet; 46.1; 61%
Managed IP; 25.9; 34%
Mobile; 3.7; 5%
Fixed in-ternet;
239.7; 74%
Managed IP; 32.5; 10%
Mobile; 53.2; 16%
Consumer video (PB) by network, 2016
Business data (PB) by network, 2016
Source: Cisco VNI, available at: http://ciscovni.com/, last accessed on 13 August 2012
… and there is industry recognition and survey evidence that suggest that wireless is not a substitute for fixed for those customers
“We are focused on increasing the penetration of our ADSL services to retail and high-end residential customers through targeted direct advertising to high internet usage subscribers.”
• Telkom Limited SEC filing (Form-20 F – annual report), p. 73, 2007
According to World Wide Worx:63% of
businesses use DSL for connectivity
73% of businesses use DSL for connectivity
2008 2009
A quick explanation of the DSL product before we look at prices for DSL services…
ADSL access lines, and Analogue line charges are the focus of the next slide
Source: MyBroadband, http://mybroadband.co.za/news/telecoms/39095-telkom%e2%80%99s-access-line-deficit-%e2%80%93-the-info-you-want.html
Telkom’s Residential and Business DSL line charges provide some evidence of price differences being sustained over time
Aug-02 Jan-03 Jan-04 Jan-05 Sep-05 Aug-06 Aug-07 Aug-08 Aug-09 Aug-10 Aug-11 Aug-120
100
200
300
400
500
600
700
800
900
1000
Residential line rental plus highest speed DSL Business line rental plus highest speed DSLResidential line rental plus lowest speed DSL
Source: Telkom Annual Reports filed with the US Securities and Exchange Commission, available at: http://www.sec.gov/edgar.shtml, last accessed on 13 August 2012, and MyBroadband: http://mybroadband.co.za/news/adsl/11740-adsl-prices-then-and-now.html , last accessed on 10 August 2012
Usage of the Telkom network also bears out the fact that business customers are not switching away from fixed lines
Year to March 2002
Year to March 2003
Year to March 2004
Year to March 2005
Year to March 2006
Year to March 2007
Year to March 2008
0
500
1000
1500
2000
2500
3000
20452183
2684
2207
0
412
Total business (Postpaid PSTN plus ISDN channels)Total residential (Postpaid PSTN plus Prepaid PSTN)Total DSL lines
Note: Excludes payphonesTelkom Annual Reports filed with the US Securities and Exchange Commission, available at: http://www.sec.gov/edgar.shtml, last accessed on 13 August 2012.
Various Competition Tribunal decisions highlight the reasons why wireless lines are not substitutes for fixed lines
Thro
ughp
ut(M
egab
ytes
)
Speed (Megabits per second)
MobileFixed
Capped mobile data (Rands per Megabyte)
“Uncapped” mobile data
“Other factors that render WiMAX an unsuitable substitute for fixed line access lines are limited availability to establish high sites, limited bandwidth availability, reliability and quality and large capital investments into
infrastructure. WiMax also operates on the basis of a shared base station. Hence the ability for it to serve large organization’s needs is limited by the number of users utilising the base station at the same time. While radio engineering can ameliorate that problem to some extent this is limited.”
See Competition Tribunal decision in case no. 51LMJun06.
SummaryTwo groups of customers that cannot use mobile broadband instead of fixed
Small and medium enterprises
High usage residential customers
Largely because of the shared nature of wireless networks and their limited physical capacity
Businesses largely use broadband connections for data, and > 95% of data will be over fixed networks in 2016
Only a small proportion of consumer video will be delivered over mobile networks: 16%. The rest will be delivered over data
Industry recognition and sustained price differences suggest that these customers cannot use wireless networks
High margin of business DSL over residential sustained for a long period of time
Business DSL widely recognised in industry as being in a separate market
Telkom targets high usage residential customers with DSL
Usage of Telkom network over time is skewed dramatically towards business customers
SMEs are an important group of customers
Access to broadband linked to higher productivity and greater competitiveness