Essays on telecommunication economics

Abstract

This dissertation involves discussion of substitutability between pairs of potential services, demand estimation, interactions between firms in the past and the present, and roles of prices in the current competition. We draw implications on whether the firms seem to have engaged in several types of collusions. The dissertation comprises two major sections. The first pertains to consumption behaviors regarding selection of services among potentially substitutable services, whereas analyses in the second section focus on interactions between firms in the mobile market. Limiting the scope to just mobile market is justified by results from the first section. Thai mobile market has been liberalized since early 2000s. The market penetration exceeded 100% since 2010s, meanwhile the penetration in 2024 situated at almost 180%. This implies relative saturation of the market. Average revenue per user has been decreasing overtime. Mobile number portability has been available since 2010, thereby lowering switching costs and promoting competition. Many key events might have reshaped the competitive landscape including the key spectrum auction in 2015 where DTAC, the third largest mobile network operator (MNO), failed to win the much-needed spectrum. In early 2023, True, the former second largest MNO, officially merged with DTAC, rendering the retail mobile market duopolistic. Later the same year, AIS, the largest MNO, acquired TTTBB who provided fixed broadband access. There are two main objectives. The dissertation, first, aims to investigate which services constitute the same relevant market. We examine relations between demands for pairs of services in the Thai mobile market. We find lack of substantial substitutability between mobile and fixed broadband access and one-direction complementarity from over-the-top platform to traditional voice calls. Secondly, the dissertation aims to investigate (1) interactions between the firms; (2) roles of prices in shaping competition between operators in the context of switching. We find no evidence in support of explicit collusion between the firms, though estimation of demand and elasticities over the years indicates lowering intensity of competition via prices. Furthermore, we find that MNO switching leads to saving in monthly expenses to a considerable extent, but only some non-switching users have their monthly payments correspond to expressed levels of price sensitivity. Most of these users subscribe to the mobile tariff plan with higher search cost than other types. Although pricing plays a significant role in competition as seen in the recruitment of new subscriptions via MNO switching, our findings also hint at the possibility of firms’ exploitation of the common classification of consumers. The dissertation provides several policy implications. The lack of substantial substitutability between the mentioned pairs of services implies that these services should form a separate market. This is helpful for regulation by ways of market definition, which forms the basis for drawing the scope of competitive constraints faced by undertaking firms. The regulator is encouraged to promote the usage of mobile number portability and raise users’ engagement with their MNOs. Furthermore, the regulator should watch out for unfair promotional deals regarding their structure and implementation. Some deals may offer attractive introductory prices but come with subsequent price hikes. Lastly, our estimated demand system rationalizes a situation where one of the two largest firms by subscriptions perceives price as a strategic complement following the other largest firm’s price increase. Though we find that pricing remains an important facet with which firms compete, rationalizability of strategic complementarity between pricing behaviors is concerning especially after the True-DTAC merger in the telecom industry. The regulator is, thus, encouraged to monitor conduct, especially pricing of mobile tariff plans. Keywords: mobile services, broadband internet, over-the-top services for communications, substitutability, demand in mobile subscriptions, MNO switching, price discrimination, competition, explicit collusion, tacit collusion, Thailand