The Brand is the Bundle Strategies for the Mobile Ecosystem

The current mobile ecosystem is best understood in terms of a monopolistic competition model, characterised by heterogeneous producers providing a range of differentiated products for consumers with heterogeneous preferences. Product differentiation offers producers some market power, ultimately constrained by imperfect substitutes from rivals and the threat of market entry. To achieve their goals, consumers require a mixture of products from the network, handset and application domains. Reduced search and other transaction costs are a demand-side benefit of product bundling. Producers in this market have high fixed costs and low marginal costs. High fixed costs discourage entry, which increases the market power of producers. Low marginal costs and uncorrelated customer preferences across products for individual consumers encourage producers to expand their sales using supply-side bundling. Thus there are strong supply and demand side benefits from product bundling. We argue that producers will compete in terms of differentiated bundles combining network, handset and application features, with branding as the essential strategy for bundle differentiation. Successful business strategies will require direct access to customers and information about their specific preferences. For illustration, we look at the currently apparent strategies of Google, Apple and Nokia. The mobile ecosystem is complex but not unique. Strong parallels can be drawn between the mobile ecosystem and the television ecosystem. Google appears to be following a "free to air" strategy and Apple a "pay TV" strategy in bundle differentiation. Television manufacturers are largely undifferentiated and have little market power: this may be the fate of handset manufacturers and network operators who are comparatively powerless to withstand the evolutionary development of the mobile ecosystem.Business ecosystem, platform, monopolistic competition, product bundling, heterogeneous demand, business strategies, mobile telephony, mobile applications, branding, price discrimination.

Productivity Questions for Public Sector Fast Fibre Network Financiers

Fast internet access is widely considered to be a productivity-enhancing factor. However, despite promises of substantial gains from its deployment, the evidence from recent empirical studies suggests that the productivity gains may not be as large as originally hypothesised. If substantiated, these findings suggest that current government plans to apply significant sums to bring forward the deployment of fast fibre networks (e.g. in both Australia and New Zealand) may not generate returns to the extent anticipated by their sponsors. Drawing upon the original ‘computer productivity paradox’ literature, this paper develops a critical questioning framework to assist policy-makers in identifying the salient productivity issues to be addressed when making the decision to apply scarce public resources to faster broadband network deployment. Using multiple literatures, the framework highlights the nuanced and highly complex ways in which broadband network speed may affect productivity, both positively and negatively. Policy-makers need to be satisfied that, on balance, government-funded investments in faster networks will likely generate the anticipated net benefits, given the significant uncertainties that are identified.Internet, broadband, productivity, public investment

An Institutional Economics Analysis of Regulatory Institutions in the Telecommunications Sector

This paper takes as a starting point for developing deeper understandings the assumption that both regulatory bodies and the sectors in which they operate are institutions. The body of literature about the operation of institutions provides a means of understanding the actors arrangements rules and culture values and norms that shape the ICTS sector. With this understanding it is then possible to analyse using the same frameworks how these same forces act upon and shape the regulatory institutions and ultimately how the regulatory institutions themselves contribute to shaping the wider ICTS sector in which they operate. The order of the paper is as follows: Section 1 describes the institutional economics conceptualisation of institutions and a specific model of interactions in complex institutional systems proposed by Koppenjan and Groeneweld (2005). Section two then applies this model to explore structures entities and interactions within the ICTS sector generally and those interactions specifically associated with the evolution and functioning of regulatory institutions. Finally section three takes the sector-specific application of the model from section two and applies it in the specific circumstances of the ICTS sector and regulatory change in the European Union in order to draw insights that may contribute to explaining why the attempts to build a common telecommunications market in the European Union have failed to deliver the desired outcomes despite substantial alterations to the regulatory institutions designed to bring them about

Broadband Uptake and Infrastructure Regulation: Evidence from the OECD Countries

Policy organizations such as the OECD and the EU have placed much emphasis on the role of local loop unbundling as a regulatory tool in stimulating the rollout and uptake of broadband technologies and consequently promoting the accrual of economic benefits from electronic commerce. However there is mounting evidence that local loop unbundling has been less successful in promoting broadband rollout and uptake than competition both between duplicate networks of the same technology and between competing technology platforms. OECD evidence of cross-country broadband rollout and uptake supports this contention. Cable modem access and uptake generally exceed that of DSL even in countries practicing local loop unbundling and incountries where no such policy is in force DSL uptake significantly exceeds cable modem uptake. This paper argues that content availability and a cost-benefit trade-off supported by bundled products combining access and content has stimulated demand for the cable product thereby creating competitive pressure on DSL offerings. While local loop unbundling posits faster response to this competitive pressure the OECD data provide little evidence to suggest that the primary driver is infrastructure availability. Rather the evidence implies that application cost-benefit tradeoffs are the primary drivers of broadband uptake. The paper further argues that overall low levels of broadband uptake reflect a fundamental lack of current applications utilising the high speed and high capacity of broadband to meet functional substitution requirements of users in such a way that the benefits of adopting broadband technologies to support information exchange exceed the increased costs. Unless such cost-effective functional substitution user applications are available then the optimal time to invest in broadband for both users and infrastructure providers will be delayed in order to exploit lower costs better technology and the holding cost of interest. Policies that promote infrastructure availability in isolation from the demand-driven applications that utilise this capacity run the risk of encouraging inefficient investment decisions

Strategic Interaction Under Asymmetric Regulation: the 'Kiwi Share' in New Zealand Telecommunications

Regulation binds incumbent firms to a different set of obligations from their entrant-competitors thereby creating an asymmetric set of options from which the firms may select the strategies under which they will interact. Whilst most regulatory obligations are specified in law some take the form of contractual agreements. New Zealand's 'Kiwi Share' obligations bind the incumbent to a set of retail tariff structures and levels that have both restricted the incumbent's choices and opened up a range of new strategic opportunities for its rivals that have had a significant effect upon the development of the New Zealand industry. This paper examines the specific consequences of the asymmetric tariff obligations and ensuing strategic interaction amongst sector participants on sector development - namely the effect of universal service retail prices and the allocation of the ensuing costs on the sector's ongoing regulatory agenda; the role of a 'free local calling' obligation on the evolution of New Zealand's broadband market; and the consequent application of further asymmetric legislative obligations on the incumbent to address apparent "problems" for which the asymmetric tariffs and rivals' strategic choices provide more credible explanations than the incumbent's exertion of its dominant position

Structural Separation and Technological Diffusion

Vertical separation of upstream network operations from downstream retail activities, as the most extreme form of access regulation,has long been considered a legitimate regulatory remedy against use of market powerin upstream infrastructure markets to engage inprice-and non-price discrimination to foreclose competition in downstream retail markets. However, the remedy is increasingly being mandated for new networks, sometimes before any investment has been made.This paper uses theories of General Purpose Technologies and regulatory economics to consider how vertical separation–compared to both access regulation and no regulation-poses challenges to the ability to maximise scale economies at the early stage of a network life-cycle. This suggests greater caution in its use at this stage compared to middle and mature phases of the life-cycle. The theories are examined via case studies of two markets where vertical separation has been mandated for Fibre-to-the-Home networks–Australia and New Zealand–and one where ithas not–the Netherlands. The case studies suggest that mandatory separation imposes additional constraints on the network owner’s ability to achieve scale economies arising from rapid uptake of a new network relative to access regulation when it fails to replicate amongst any retailers the vertically-integrated operator’s incentives to engage in aggressive early-stage marketing. Analysisal so suggests that contractual limitations may have greater effect onthe ability to achieve scale economies than structural impositions and ownership limitation

Comments on the 'Crafar Farms Counterfactual'

A subsequent version of this paper was published in the New Zealand Law Journal [2012] NZLJ 108, April 2012. Also, The National Business Review published Bronwyn's update article after Justice Forrie Miller's decision on 20 April. Link: http://www.nbr.co.nz/article/unpacking-crafar-controversy-11722

Has Local Loop Unbundling Increased New Zealand's Broadband Uptake?

Current Comment is an occasional series providing economic commentary on topical issues. This second issue looks at local loop unbundling and whether this has increased New Zealand's broadband uptake

Contractual Pitfalls in Capitated Primary Health Care: Sharing Random Demand Risk in New Zealand's Strategy

This paper uses the literature on the likely outcomes of the use of capitation contracts in primary health care to critique the arrangements in the New Zealand Primary Health Care Strategy (NZPHCS) introduced in 2002. The New Zealand arrangements provide significant challenges to achieving the desired goals of increased equity in the allocation of available resources according to health need behavioural changes towards more collaborative models of care delivery and an increased focus upon prevention and patient wellness instead of instances of illness. The single capitation instrument chosen to deliver the objectives is unusual in that the capitation funder does not meet the full costs of the commissioned care the independent private sector practitioners receiving capitation payments are able to charge the patient for any costs not met by the funder and the capitation incentive becomes increasingly sharp over time as the funder selectively prioritises different population groups to receive greater proportions of its subsidies. The discussion concludes that the NZPHCS use of capitation is unlikely to be helpful in achieving the desired objectives but is far more likely to lead to substantial increases in the cost of care relative to the previous system and distortions in sector interactions that will result in distributional outcomes diametrically opposed to the articulated objectives. If the desired behavioural changes amongst practitioners do occur this is far more likely to be as a consequence of non-price mechanisms in the NZPHCS than financial incentives