Impact of competition, investment and regulation on prices of mobile services: Evidence from France

Impact of competition, investment and regulation on prices of mobile services: Evidence from France, joint with Christine Zulehner and Lukasz Grzybowski.

Published in Economic Inquiry, 56: 1322-1345. Full paper.

In this paper, we assess the impact of competition, investment, and regulation on prices of mobile services in France. We estimate hedonic price regressions using data on tariff plans offered by the main mobile telecommunications operator in France between May 2011 and December 2014. In this time period, the obtained quality-adjusted price index decreased by about 42.8% as compared to a decline in weighted average prices without quality-adjustment of 8.7%. In a second step, we relate the quality-adjusted prices to a set of competition, investment, and regulation variables and find that the launch of 4G networks by mobile operators was the main driver of price reductions for classic tariffs with commitment. Low-cost tariffs without commitment which were introduced to pre-empt the entry of low-cost competitor declined at the time of entry. Moreover, we find that regulation, which is approximated by the level of mobile termination charges and international roaming price caps for voice and data, has a joint significant impact on quality-adjusted prices. In percentage terms, competition is responsible for about 23.4% of total price decline and investments in 4G for 56.1%. We conclude that the reduction in quality-adjusted prices in the last years was largely caused by competition between operators for a new 4G technology and by entry of a fourth low-cost operator.