2004), “Platform Competition and Broadband Uptake

PlatformCompetitionandBroadbandUptake:TheoryandEmpiricalEvidencefromtheEuropeanUnion¤WalterDistasoyPaoloLupizFabioM.ManentixJanuary2005AbstractBroadbandaccessprovidesuserswithhighspeed,always-onconnectivitytotheInternet.Duetoitssuperiority,broadbandisseenasthewayforconsumersandfirmstoexploitthegreatpotentialsofnewapplications.Thishasgeneratedapolicydebateonhowtostimulateadop-tionofbroadbandtechnology.Oneofthemostdisputedissuesisaboutcompetitionpolicies:thesemaybeintendedtopromotecompetitionintheDigitalSubscriberLine(DSL)segmentofthemarket(intra-platformcompetition),ortostimulateentryintothemarketforalternativeplatformssuchascableaccessorfiberoptics(inter-platformcompetition).Usingamodelofoligopolycompetitionbetweendifferentiatedproducts,ourpaperexplicitlystudiestheeffectofinterandintraplatformcompetitiononthediffusionofbroadbandaccess.Theimplicationsofthemodelarethentestedusingdatafrom14Europeancountries.Theeconometricevidenceconfirmstheresultsofthetheoreticalmodelandindicatesthatwhileinter-platformcompe-titiondrivesbroadbandadoption,competitioninthemarketforDSLservicesdoesnotplayasignificantrole.Theresultsalsoconfirmthatlowerunbundlingpricesstimulatebroadbanduptake.Keywords:Broadband,inter-platformandintra-platformcompetition,localloopunbundling.JELclassification:L86,L96.¤Paperpresentedatthe2004EARIEandITSConferences.WewishtothankFedericoMiniandCarloCambiniforusefulcommentsonearlierversionsofthepaper.DistasogratefullyacknowledgesfinancialsupportfromtheESRC,grantcodeR000230006.yDepartmentofEconomics,UniversityofExeter,ExeterEX44PU,UK,e-mail:[e-mail]oeConcorrenza,Autorit`aperlegaranzienellecomunicazioni,CentroDirezionale,IsolaB5-80143Napoli(Italy),e-mail:[e-mail]ssedhereinaresolelythoseoftheauthoranddonotnecessarilyreflectthoseoftheAutorit`aperlegaranzienellecomunicazioni.xCorrespondingauthor:DipartimentodiScienzeEconomiche“M.Fanno”,Universit`adiPadova,ViadelSanto33,35123PADOVA(Italy),Tel.[phone],email:[e-mail].1IntroductionTheincreasedimportanceofinformationandcommunicationtechnologies(ICT)asthemajor“GeneralPurposeTechnology”underlyingtheknowledgeeconomyand,consequently,therapidincreaseininvestmentinICT,areconsideredbymanyasthekeyfactoroftheaccelerationofproductivitygrowthexperiencedbytheUnitedStatesduringthelastdecade.Probably,ofthemanytechnologiesthatfallundertheICTumbrella,Internetistheonethathashadthebiggestimpactintermsofcostsavingsandprofitabilityincreasesinbusiness.1Itiseasy,then,tounderstandwhyInternetpolicyisplayingapredominantroleinmanygovernments’agendas;theEuropeanCouncil,recognizingthatthecontributionofICTtogrowthinEuropewastoolowandthatmuchmorecouldbeexpected,setinMarch2000theso-called“Lisbonstrategy”,aimedatmakingtheEuropeanUnionthemostcompetitiveanddynamicknowledge-basedeconomyby2010.Toachievethisgoal,theEuropeanCommissionandCouncildrawandendorsedtheeEurope2002actionplan,focusedonextendingInternetconnectivityandonreducingaccessprices.Inordertogenerategrowth,connectivityneedstobetranslatedintoeconomicactivities;hencethestrategicimportanceofICTfordeliveringlargebenefitstoconsumersintermsofneworimprovedproductsandservices.2TheEuropeanCouncilconsequentlyendorsedtheeEurope2005actionplan.Theplanisdirectedatstimulatingservices,applicationsandcontentcapableofcreatingnewmarketsandreducingcosts,thankstotwonewtechnologicaldevelopments(deemedabletofurtherexpandingthepotentialitiesoftheNet):multi-platformaccess/convergenceandbroadband.Forthisreason,themainobjectiveofthe2005actionplanistogetawidespreadavailabilityofbroadbandaccessatcompetitivepricesinEuropeby2005.Broadbanddiffusionpoliciesarebeingputinplacenotonlyinconsiderationoftheeconomicandsocialrelevanceofprovidingbusinessandresidentialuserswithhighspeedaccesstechnologies,butalsobecausethereisawidespreadconcernthat,althoughsomedisagree,broadbanddiffusionistakingplacetooslowly,oratleastmoreslowlythanoriginallypredicted.31Varianetal.(2002)estimatedthattheadoptionofInternetbusinesssolutionshadyieldedtoUSorganizations,fromthefirstyearofimplementationthrough2001,cumulativecostsavingsof$155.2billionandincreasedrevenuesof$444billion.2Crandalletal.(2002),forexample,reportthatinUSconsumerbenefitsfromuniversalbroadbanddeployment,thatistosay94%ofUShouseholds,whichisthecurrentleveloftelephoneservice,couldeasilybe$300billionayearandthat50%deploymentwouldresultinbenefitsofaround$100billionannually(benefitsincreasenonlinearlyduetonetworkeffects).3Nonetheless,empiricalevidenceshowsthatbroadbandtake-upisactuallyhappeningquiteatafastpacerelativetotheadoptionofsimilarcommunicationtechnologies.Forexample,OECD(2003b)showsthatattheendof2003,sevenyearsaftertheintroductionofbroadbandaccessservices,thenumberofbroadbandsubscribersacrossOECD1Publicinitiativesimplementedbycentralandlocalgovernmentstostimulatebroadbandadop-tioncanbeclassifiedintwobroadcategories:i)policiesaimedatassistingthebuildupofbroadbandnetworksandii)policiesaimedatenhancingcompetitionthroughtelecommarketsopennessandaccesstoinfrastructures.Al