Abstract - Vodafone

38
On-net Pricing in Mobile Moving the debate forward • The Policy Paper Series • Number 8 • April 2008
Chart 2
On-net discount
90%
80%
70%
60%
50%
40%
30%
20%
10%
There is no relationship between on-net discounting and HHI
Contract
Pre-pay
0%
2,000 2,500 3,000 3,500 4,000
HHI
4,500 5,000 5,500 6,000
In addition to this, we tested whether there is a relationship
between on-net pricing and the market share of MNOs.
There is no apparent relationship between the size of on-net
discounts and the size of the network operator (in terms
of either absolute size or market share – see Chart 3),
irrespective of whether the MNO is a long established
operator or a new entrant.
Chart 3
On-net discount
90%
80%
70%
60%
50%
40%
30%
20%
10%
There is no relationship between on-net discounting and HHI
Contract
Pre-pay
0%
10% 20% 30% 40% 50% 60% 70% 80%
Market share
From the evidence available for European mobile markets,
it is clear that the existence of on-net pricing is not related
to either the level of competition in a market, or the market
share of MNOs which utilise this pricing strategy.
How important are on-net discounts?
Most MNOs offer a wide range of tariff plan options, many
of which include on-net discounts. Some tariffs will not
distinguish between on-net and off-net for calls made in
bundles, but will distinguish for calls made outside bundles.
The Teligen research shows that, for any individual tariff plan,
on-net discounts (compared to mobile-to-mobile off-net prices)
can range between zero and 100%. The impact of on-net
pricing will, therefore, vary according to how subscribers
distribute themselves between different price plans, and by
their propensity to choose plans according to their on-net and
off-net calling patterns. Subscribers who make few on-net
calls are more likely to choose a pricing plan with no on-net
discounts, whereas those that make a high proportion of
on-net calls will likely choose a pricing plan that allows them
to do this at minimum cost.
Data on take-up of individual tariff packages remains
commercially confidential. But it is possible to model
the impact of on-net pricing by taking a typical mobile
subscriber usage, and selecting the tariff plan that would
optimise that subscriber’s total expenditure. By flexing the
proportion of on-net and off-net calls we can then measure
the impact of on-net pricing. We constructed two user profiles:
one consisting entirely of on-net calls, and one consisting
entirely of mobile-to-mobile off-net calls. In both cases we
took 65 calls a month, at 1.8 minutes per call, corresponding
to the OECD medium user basket. We used the Teligen
T-Basket tool to perform the optimization calculations, on
the database of all tariffs offered by the two largest MNOs
in each OECD country. Results are shown in Chart 4. 6
Results for pre-pay and contract tariffs are then shown
separately. In Chart 5 we show the equivalent results for
August 2002 (the earliest date for which broadly consistent
Teligen data is available).
A number of significant observations can be derived from
this data:
• In only about half the cases are on-net discounts material
for typical medium users if they are optimising their tariff
plan choice. The impact of headline on-net tariffs on
market dynamics needs to be considered in this light;
• Where on-net tariff discounts are material, their range
can be very large – up to 80%, but with a median of 28%
(relative to off-net);
• On-net discounting is more significant in pre-pay than in
contract tariffs; and
• Although effective on-net discounts offered by operators
change rapidly, the overall pattern of on-net discounting
across the OECD has changed little between 2002 and 2007.