DIN-CUBE-RED-w2 Profiled in Dynamic Intelligence Network (DIN)

The Demand for Mobile Services in Colombia and the Impact of Asymmetric Mobile Regulation

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Introduction
In 2009 the Colombian telecommunications regulator—Comisión de Regulación de Comunicaciones (“CRC”)—declared Colombian mobile operator Comcel a dominant operator.1 As a result, the CRC imposed asymmetric regulation on Comcel by establishing a retail price cap for its off-net voice calls. The price cap formula requires Comcel to set the off-net price on the basis of its on-net price plus the mobile termination rate (“MTR”).2 Only Comcel must abide by the price cap, other operators are exempt. In practice, this forces Comcel to rebalance its retail rates by lowering its off-net prices and/or increasing its on-net prices.3

We examine the economic and consumer impact of the CRC’s regulation in 2009.4 In the absence of market failure—which we do not believe is a concern in the Colombian mobile market—the regulation of retail prices lowers economic efficiency. In order to determine the impact of the 2009 dominance regulation, we estimate a demand model of the Colombian mobile market during the period 2005 – 2011 using publicly-available data. The estimated model relates mobile output to price, income, technological changes, changes in consumer tastes, and the imposition of dominance regulation in 2009 through a binary variable. We find that the imposition of dominance regulation in 2009 has made consumers worse off than they would otherwise have been. Specifically, we find that the regulation resulted in a lowering of market output by approximately 5% (equivalent to approximately 11,000 million minutes). Given that the model’s estimated own-price elasticity of demand is approximately -0.66, the reduction in market output from regulation results in an effective price increase of approximately 7.5% during the post-dominance period. While consumer benefits increased significantly during the period 2005 – 2011, benefits would have been even greater without the regulation. We find that the change in consumer benefits during the period 2005 – 2011 was approximately USD $900 million. Without the regulation, however, consumer benefits would have been approximately USD $1,000 millions. Thus, we find that the dominance regulation in 2009 lowered benefits to consumers in Colombia by approximately USD $100 million.

We begin this paper with a description of the Colombian mobile market since the late 1990s followed by a discussion on the hypothesized effects of asymmetric regulation on mobile markets. The last section presents our empirical analysis of demand for mobile services in Colombia and the impact of asymmetric regulation.

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