The mobile and fixed broadband battle in Sweden

Erik Bohlin Chalmers University of Technology, Sweden

International Conference: Mobile broadband-Competitive dynamics and policy implications

September 11-12, 2012

Hotel Radisson Blu Royal, Brussel, Belgium

Current situation in Swedish broadband market

0,0

1,0

2,0

3,0

4,0

5,0

6,0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Mill

ion

FB MB

Source:PTS (as of August 2012)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2006 2007 2008 2009 2010 2011

Fiber and fiber-LAN Mobile broadband Cable xDSL Dial-up and ISDN

Current market share

TeliaSonera; 37,20%

Tele2; 16,40%

Telenor; 21,80%

Hi3G; 9,60%

Comhem; 6,70%

Other; 8,20%

Source:PTS (as of August 2012)

Market shares: broadband technology (2010)

(a) DSL (b) Cable

(c)LAN/Fiber

59,90 14,25

7,97 6,88

3,74

7,25

Telia Bredbandsbolaget Glocalnet Tele2 Comhem Others

70,56

9,81 4,67

1,40 13,55

Comhem Telia Tele2 Bredbandsbolaget Others

25,84

15,77

8,39 8,05 6,04 5,03

4,36

26,51

Bredbandsbolaget Telia Bredband 2

Bahnhof Tele2 Comhem

Alltele Others

(d) MBB 33,48

21,46 15,45

12,88

5,58 3,43

3,43 4,29

Telia Tre (3) Tele2Telenor Glocalnet BredbandsbolagetIce.net Others

4

Is broadband at the crossroads?

Is mobile broadband a complementary or substituting service to fixed broadband ?

How should regulators react

to the convergence of fixed and mobile broadband markets?

Relevant literature

Many studies have investigated Fixed Mobile Substitution (FMS) but few papers have investigated FBB/MBB.

Cardona et al. (2009) consider substitution patterns on BB market and demand estimations in Austria by using survey data. Their results suggest that DSL and cable are part of the same market at the retail and wholesale level.

Cardona et al. (2009) suggests that there is an increased competitive pressure

from MBB on FBB in the Austrian market. However, they conclude that MBB is in a too early stage of development to draw firm conclusions on market definition.

Definition of fixed and mobile broadband in this study

Fixed broadband A connection to the high-speed

Internet via fixed infrastrucure i.e. DSL, cable and fibre.

More than 30% of households have a broadband connection with a speed of over 21 Mbit/s (PTS, 2010).

Mobile broadband High-speed Internet which

delivered via wireless networks.

In Sweden, the MB subscriber can access broadband Internet service at speeds of 3.1-14.4 Mbit/s, which is comparable to a DSL connection.

There are two types of mobile broadband subscriptions: - stand alone subscription (no voice) - add-on subscription (with voice)

This study focuses only on stand alone subscription

Sample

Characteristics Total sample

Swedish national statistics

Age (head of household - mean) 44.13 44.00

Education: primacy school 12% 19%

Education: secondary school 46% 49%

Education: college and university 41% 32%

Gender: male 54% 49.77%

Household size (mean) 2.52 2.1

Housing: renting a private apartment 24% 34.35%

Housing: renting a co-operative apartment 21% 14.78%

Housing: having own house 55% 50.87% Note: National sample in 2009 with 1563 respondents, with 56% response rate

Description of variables

Independent variables Description

PRICE Monthly fee for broadband connection

MALE =1 if the respondent is male; Otherwise =0

HHLESS35 = 1, if the respondent is aged less than 35 years; = 0, otherwise

HHMORE55 = 1, if the respondent is aged more than 55 years; = 0, otherwise

HHSIZE Number of household members

ED1 =1, if the respondent has primary school as highest education ; Otherwise =0

ED2 =1, if the respondent has secondary school as highest education ; Otherwise =0

HOUSE1 =1, if the respondent renting an apartment ; Otherwise =0

HOUSE2 =1, if the respondent renting a co-operative apartment ; Otherwise =0

LINCOME =1 if the annual household income is less than 200 kSEK; Otherwise =0

MINCOME =1 if the annual household income is between 200 - 400 kSEK; Otherwise =0

BIG3CITIES =1, if the respondent living in Stockholm or Gteborg or Mlmo ; Otherwise =0

TELIA =1, if the respondent subscribing Telia as a broadband provider ; Otherwise = 0

Research highlight #1- Determinant factors for broadband

Price has the expected negative sign and is highly significant.

It suggests that the probability of broadband access declines with the increase in the monthly fee.

Type of housing, income, age, area of living and broadband provider are important factors for broadband access.

People who live in a rental apartment, either private or co-operative, are biased towards cable and LAN/Fibre connection due to the exclusivity agreement of the landlord.

The direction and magnitude vary from technology to technology and availability of broadband technology in each area however.

Research Highlight #2 FB to MB substitution

The own-price and cross price elasticities show that mobile broadband is substitute service to fixed broadband in most geographic areas.

An empirical analysis is divided into three areas regarding the availability of broadband technologies.

Area 1 has all four BB technologies (DSL, LAN/Fiber, Cable and MB) Area 2 consists of three BB technologies (DSL, LAN/Fiber and MB) Area 3 has only DSL and MB available to end-users

12

Empirical evidence- Area 1 Main findings Price, demographic characteristics

and type of housing are significant factors

The own-price elasticity of all types are in range of -3.623 to -1.342

The cross-price elasticity are in range of 0.219 to 0.945

Cable has the lowest price elasticity

DSL and MB have relatively high cross-price elasticity

Cable xDSL

Fiber MB Intuition There is substitution among BB

connection in area 1

Subscriber of cable connection are less sensitive to changes in price of other BB technologies

13

Main findings

xDSL

MB

Fiber

Price and other factors provides similar results as Area 1

Own-price elasticities are in range of -1.553 to -2.667

Cross price elasticities are in range of 0.370 to 0.845

Empirical evidence- Area 2

Intuition All of BB connection are elastic

MB connection is the most price

sensitive

LAN/Fiber is less sensitive to price changes of other BB connection

14

Empirical evidence- Area 3

Intuition There is little substitution between

DSL and MB

This may indicate that those who still use DSL do not perceive MB as equally good

In other words, MB could not be in the same market as DSL in this area

xDSL MB

Main findings Magnitude of cross price-elasticities

are 0.163 and 0.811

How should regulators react to the convergence of fixed and mobile broadband markets?

Policy implication

Broadband Internet access should be revised FB and MB can be substitute services in some geographical areas in

Sweden

Further investigation is needed for revising broadband market definition

Geographical market definition should be taken into consideration

Competition may not be sufficient, however, as there is still entry barrier due to the exclusivity agreement of landlords

Moreover, there is a possibility that BB service providers could avoid regulations in the fixed broadband market by encouraging people to use more MB services

Extra slides

How can we know? A random nationwide postal mail survey of Swedish households was commissioned by the

PTS in 2009. The questionnaire consist of about 78 questions which covers several types of

telecommunication services, including fixed phone, IP phone, mobile phone and Internet and broadband.

However, only 20 of the questions are specifically related to Internet and broadband usage, and 4 of them are used for this study. In addition, 4 questions represents socio-economic background are included.

The response rate in the survey is 56%. Of these, about one third chose to response via the Internet.

Number of observation was 1563 and the demographics of samples are fairly representative of Swedish household (as compared to Statistiska Centralbyrn).

The secondary data from the website of service providers also use since the price information for broadband Internet service is not included in this questionnaire.

Descriptive statistics

52,26% 47,74%

Male Female

(a) Gender (b) Age

6,98%

15,26% 17,98% 17,98%

19,95% 21,85%

0,00%

5,00%

10,00%

15,00%

20,00%

25,00%

10s 20s 30s 40s 50s 60+

(c) Education

13,02%

45,78%

41,20%

Primary Secondary College and university

(d) Household size

18,31%

40,71%

17,06% 15,04%

5,45% 8,88%

0,00%

5,00%

10,00%

15,00%

20,00%

25,00%

30,00%