4-7 Sept 2004 ITS Biennial Conference, Berlin 1 Usage Substitution Between Mobile and Fixed Telephone in the U.S. Michael R. Ward University of Texas at Arlington Glenn A. Woroch University of California, Berkeley ITS Biennial Conference—Berlin, Germany 4-7 September 2004
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4-7 Sept 2004ITS Biennial Conference, Berlin1 Usage Substitution Between Mobile and Fixed Telephone in the U.S. Michael R. Ward University of Texas at.
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4-7 Sept 2004 ITS Biennial Conference, Berlin 1
Usage Substitution Between Mobile and Fixed Telephone in the U.S.
Michael R. Ward
University of Texas at Arlington
Glenn A. Woroch
University of California, Berkeley
ITS Biennial Conference—Berlin, Germany
4-7 September 2004
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Fixed-Mobile Substitution• Both provide phone access (dialtone, phone
number) and usage (outgoing local and LD, termination, calling features)– Main differences are mobility and clarity.
• Replacement of fixed line – “Cutting of the cord” has plateaued at about 5% of adults
in U.S., 6% in U.K.– Role of DSL, fax, number portability.
• Shifting of minutes to mobile– Mobile carving into fixed LD, and growing termination.– Growth of mobile calls and mobile-to-mobile calling.
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Policy Issues• Does mobile service constrain fixed line
pricing?– Should local service rate regulation be relaxed?– Is concern over leveraging fixed network
exaggerated?
• Should mobile count toward universal service?– Should USO subsidies target fixed line only?
• How assess fixed-mobile integration?– Allow bundling of fixed and mobile services?
• Is there a need to promote more competition?– Further unbundling of fixed network, or more
spectrum?
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The US vs. ElsewhereThe U.S.• Mobile
– Cellular party pays – Rapidly moving to flat rate– Predominantly subscription– Multiple standards– Intense competition– Negligible SMS
• Fixed – Flat rate local service– Short wait times – Some local competition, Intense
long distance competition– DSL, CM for second fixed lines
Europe, Asia, etc. • Mobile
– Calling party pays
– Low recurring, high usage rates
– Explosive growth of pre-paid
– Uniform standards
– Mild domestic competition
– SMS very popular
• Fixed – Measured service
– Long(er) wait times
– Limited local, LD competition
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The Data• TNST’s ReQuest® Market Monitor Database
– Nationwide, 30K+ per quarter, 10 quarters (3Q99-4Q01).– Survey responses and demographics from omnibus.
• TNST’s Bill Harvesting® Database– Fixed and mobile bill harvesting (25% response rate).– Not a panel but some re-sampling (about 10% of bill
submitters).
• Sampling Problems– Households, not individuals.– Some bias (skews older, white, lower income).– Voluntary bill submission causes data headaches.– Bills mask crucial information.
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Mobile Access and Usage 1999-2001
• Increased mobile access– Number of cellphones in U.S. increased from 76 to 128
million, while number of all (second-line, CLEC) fixed residential lines has fallen from 190 to 188 million.
– Percent of multiple cellphone HHs went from 15% to 25%.
• Increased mobile usage– Average minutes per line increased from 120 to nearly
300 per month.– LD minutes per HH on mobile increased 400% while
fixed LD per HH usage fell 14%. – Also, steady shift from peak to off-peak usage.
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Trends in Mobile Pricing
• Big buckets – Larger usage allowances– Longer off peak hours
• Bundling – Mobile to mobile, LD included.
• Expanded service– Large home zones or no roaming charges
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Summary Statistics
IntraLATAInterLATA Intrastate
InterLATA Interstate
Number of Calls Wireline 148,124 70,410 139,891
Mobile 148,124 34,543 98,371Percent of Calls Wireline 23.9% 67.1% 58.7% Mobile 76.1% 32.9% 41.3%Percent of Expenditures Wireline 42.4% 80.0% 67.4% Mobile 57.6% 20.0% 32.6%
Note: IntraLATA wireline calls only include calls for which toll charges would apply while IntraLATA Mobile calls include all calls placed.
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Source: ReQuest Survey
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Source: ReQuest Survey
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Source: ReQuest Survey
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Source: ReQuest Survey
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Source: Bill Harvesting data
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Source: Bill Harvesting data
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Source: Bill Harvesting data
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Demand Estimation• Estimate LA/AIDS demand “system” for each of
IntraLATA, InterLATA Intrastate & Interstate.
• Share = + mln(Pm ) + wln(Pw ) + “U” + • Consistent with utility theory (Hicksian).• Flexible functional form.• Unit of observation is LATA.• Use total calling as “U” constant.
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Prices
• Wireline easy – linear pricing.
• Mobile hard – non-linear pricing.– Conditional expected price per min. – Versus avg. rev. per min. (ARPM).– Versus simulated two-part pricing.
• Aggregate up to the LATA.
• IVs (LATAs and period dummies) to account for measurement error & possible endogeneity.
Table 4Elasticity Estimates from LA/AIDS Estimation
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Implications
• Discernible moderate substitution– Cross-elasticities are almost always positive.– Strongest results with best data (interstate).– Cross-elasticities there are 0.20-0.33.– Imply own-elasticity for good of -0.3, -0.7 & -
0.7.– Thought experiment: What if no mobile price
decline? If mobile price 100% higher, then wireline minutes 20-30% higher.
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Predictions?
• Are mobile usage prices likely to continue falling?– Mobile usage growing for non-price reasons.
– High FC, low VC technology.
– Prices track falling AC.
• More or less cross-elastic?– Reached limits to call substitutability? (cut cord)
– Mobile neophytes becoming experienced.
– Greater incorporation of mobile into lifestyle.
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Conclusions
• Some Usage Substitution– Surveyed consumers think this is big.– Estimates indicate moderate.
• Policy Implications– Estimated substitution not yet competitive constraint.
Access & interconnection revenues are vulnerable.– Mobile-fixed integration could alleviate inefficient
down-stream decisions of “variable proportions” consumer.
– More spectrum: more competitors or more services?