Abstract
The demand for next generation networks (NGN) for communications has mostly focused on the trend in technology. Recognizing that communications is a derived demand, we look at the demand for telecommunications services and then overlay these forecasts on the existing information and communications technology (ICT) infrastructure. We focus on the consumers rather than the technologies. We note that what consumers demand is for communications: The communications may be fixed, mobile, interactive, or unidirectional. With the technology and the move to IP protocol, all of these features can be handled in a few devices and networks – maybe only one. We provide an assessment of the forecast of market trends, and their implications for the regulator. The relevant demand elasticities are nearly unitary. Each of these factors alone implies that the market structure will be monopolist or an oligopoly at best. But amplified in combination, The need for clear, certain regulation of this segment of the ICT sector is an absolute necessity. Demand elasticities must be understood and factored into the consideration of the policy alternatives.
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1 Includes local and long distance expenditures only. Figures derived from BLS (2006) Consumer Expenditure data.
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2ICT expenditure share was derived from Tables 5.10 and 5.11 of the World Bank (2006).
- 3.
3There has been speculation of a move to tiered pricing. Consider the following from Spolsky (2005) “Here’s the dream world for the EMI Group, Sony/BMG, etc.: there are two prices for songs on iTunes, say, $2.49 and $0.99. All the new releases come out at $2.49. Some classic rock (Sweet Home Alabama) is at $2.49. Unwanted, old, crap, like, say, Brandy (You’re A Fine Girl) … would be deliberately priced at $0.99.”
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4See for example a presentation by Nissen (2005).
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5Best practice refers to services that have no quality of service guarantees. These are services provided over the public internet. These services are distinguished from IP-based voice services offered by cable companies over their private networks.
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6IDC (2006) forecast saw VoIP growing to 44 million households by 2010.
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7See the special issue of Communications & Strategies (2007) in particular Bauer (2007) for a discussion of the elements of this controversy.
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8See Rappoport et al. (2004), Table 1.
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9See for example the financial assessment in the September 2006 issue of Broadband Properties (2006).
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10Case in point is Cox Communication’s triple-play offer in Omaha of $69 per month for voice, video and data.
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Recall that when the demand is elastic (a value between negative infinitely and negative one), a decrease in price will increase revenue; however, when it is inelastic (a value between negative one and zero), a price decrease in prices will reduce revenues.
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Bundling for price implies that the price of the bundle is less that the sum of the individual components of the bundle. If the willingness-to-pay for the bundle is greater than the individual prices of the components, then the bundle “adds” value.
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13Unpublished estimates derived from the CENTRIS omnibus survey.
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14Most likely representing a biased view of the music market.
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15Derived from the CENTRIS household survey. See www.centris.com
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16See e.g. Taylor (1994).
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17Although deemed necessary and highly inelastic price elasticity, most countries have imposed universal service obligations on the incumbent carriers, requiring them to support prices below costs and/or provide service in unprofitable areas. See Alleman and Rappoport (2000) for a discussion of the inefficiency of this policy. This leads to other problems as we discuss in the next section.
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Alleman, J., Rappoport, P. (2009). Next Generation Networks: The Demand Side Issues. In: Curwen, P., Haucap, J., Preissl, B. (eds) Telecommunication Markets. Contributions to Economics. Physica, Heidelberg. https://doi.org/10.1007/978-3-7908-2082-9_22
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