Triple play as a separate market?
Zoltán Pápai
22ndEuropean Regional ITS Conference
Budapest, 18-21 September, 2011
The paper:
Zoltán Pápai - László Lőrincz – Balázs Édes
Triple play as a separate market?
Empirical findings and consequences to
broadband market definition
Bundling
Bundling is a widespread phenomena on the
current electronic communications markets
Strategic advantages are the main motivations on
the side of service providers
increasing subscriber base or „revenue generating units”
increasing customer loyalty thereby reducing churn
marketing complementarities
Price discounts and one stop shopping/single bill
are the main considerations of customers
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Terminology used
only considering subscriptions
definitely to a bundle
multiplay: at least two services
bundled
2-play: two services bundled,
but the composition can be:
telephony + internet
television + internet
television + telephony
3-play: telephony + internet
+television
no mobile telephony or mobile
internet are considered here
telephone
2-play
(i+t)
2-play
(t+tv)
3-play
(i + t + tv)
internet
2-play
(i+tv)
television
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Multiplay in Europe
2-play and 3-play household penetration in the EU* (2009)
penetration is
growing
60%
50%
40%
2-play
3-play
30%
corelation with
GDP
mixed picture
20%
10%
0%
BE
BG
CZ
CY
DK
DE
EE
EL
ES
FR
IE
IT
LT
LU
LV
MT
NL
PL
PT
SE
SI
SK
UK
source: EU 15th Report
• lack of data from some countries
• methodological confusion
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The regulatory problem
how increasing presence of bundles affect market definition
of single services?
broadband, telephony
retail markets, wholesale markets
what if a bundle is a separate market?
testing against market power is needed on the bundle market
tendency towards bundles may pose competition concerns even on
the single product market
under the current European regulatory framework it is not a
theoretical issue
market definition according the rules and requirements
have to give the answer
it is an empirical question
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Aim of the study
Testing empirical methodolgy for giving answer to
the market definition question
pilot study
using survey data
Critical Loss test for SSNIP
Supported by the grant from Hungarian
Competition Office
budget and time constraints
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The Survey
sample: N=1000 ; national survey; representative by: sex, age, strata
2010 April – May
face to face electronic questionnaire supported by laptop
combined revealed preference and stated preference approach
subgroups: questions tailored to the current (revealed) choice context
testing reactions:
to the 10% relative price increase of the used bundle (who subscribed to a
bundle)
to a bundle offer getting 10%, 20% discount (who hasn’t got a bundle)
investigation of attitudes behind revealed and stated choice
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Service share by technology
telephone
N=1000
internet
N=1000
television
N=100
0
PSTN/ISDN
37,4%
Cable
20,5%
Cable
56,1%
Cable
5,9%
ADSL
16,2%
Analog
terrestrial or free 19,0%
satellite
VOIP
0,2%
Mobile
internet
4,2%
Paid Satellite
15,4%
Micro, Wifi
2,3%
IPTV
3,5%
ISDN
0,5%
Digital terrestrial
4,0%
Other
2,8%
Other
2,0%
Total:
100%
No
56,5%
No
53,5%
Total:
100%
Total:
100%
Hungarian special characteristics: high share of cable in TV, and leading role in
broadband
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Service combinations and bundles
3-play:
8.6%
Multiplay: 31.2%
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Bundle types
Relative popularity of different bundles
3-play
25%
tv + net
44%
tel+net
16%
tv + tel
15%
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Reactions: having 2 servicess
12
Reactions: having three services (1)
13
Reactions: having three services (2)
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Reactions to price increase
~275HUF = 1EUR
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Critical Loss test
widely used in competition cases for market definition
according to SSNIP
hypothetical monopolist of the product increase the price
with 10%, if expected loss is higher than the CL threshold →
10% price increase resulted in profit loss → not a separate
relevant market
CL threshold value
depends on the proportion of fixed costs in price (Lerner index- L)
minimum is 9.1% if L=1, maximum100% if L=0, nonlinear
we used L=0.9 → CL threshold = 10%
conservative accounting of the results: bias towards refusing the
separate market hypothesis
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Expected loss at 10% increase in price
TV+net
TV+phone
phone+net
3-play
All bundles
Do not switch
69.6%
73.6%
72.3%
59.6%
68.0%
Search for a cheaper
bundle
24.9%
16.2%
18.7%
31.8%
24.5%
Break up the bundle
4.8%
3.3%
3.9%
7.4%
5.1%
Break up and discard
one of the
services
0.7%
6.9%
5.2%
1.1%
2,4%
100.0%
100.0%
100.0%
100.0%
100.0%
with corrections: those who would like to have a cheaper bundle, but cannot were recoded to break up the bundle
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Interpretation of the results
bundles expected loss: range: 5.5% -10.2%
3-play expected loss: 8,5% → suggests that it was a
separate market in Hungary in 2010
the aim (i.e. to demonstrate that the methodology
works) was fulfilled
results are rather indicative
constraints on survey
competition economic approach, but sociologic
methodology
can be improved for regulatory purposes
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zoltan.papai@infrapont.hu
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