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Telecom market impact assessment

In 2014, the Communications Regulation Commission (CRC) announced a resolution to prohibit fixed duration terms in mobile telecommunications contracts, also known as permanence clauses.

The 2014 Resolution obliged operators to offer mobile terminals and plans in separate contracts, publish individual prices for all the services they provided, and give a detailed description of voice and data plan consumption. In this project we measure the impact of the Resolution on consumer, business, and societal welfare by estimating the structural demand for mobile terminals and creating two counterfactual scenarios. In the first scenario we assume that the Resolution never arose, and in the second we assume that permanence clauses never existed in the Colombian mobile market.

Approach

In this research we use monthly data from a sample of cell phones sold between January 2014 and June 2016. For each mobile reference we looked at several different aspects such as units sold and price. In Colombia, the only ones that could offer bundled sales of handsets and plans were Claro, Movistar and Tigo, as they were the only network operators in the market.
To measure the impact of the permanence clauses, we estimated the demand for mobile terminals using a methodology that takes into account the heterogeneity of consumer preferences and also characteristics that are difficult to observe at the product level. Through this method we are able to identify patterns in consumer substitutions. We take advantage of the panel structure of our data to control for any source of endogeneity as we include product and market fixed effects in both the average utility and cost functions.
On the other hand, to realize the two counterfactual scenarios we use a random coefficient choice methodology. For the first scenario, in which we assumed that the Resolution was never enacted, or that the permanence clauses would still be allowed, the indicator variable took the value of 1 for all handsets sold with postpaid calling plans. For the other where we assumed that the permanence clauses did not exist to begin with, the indicator variable took a value of zero in all cases. For each we calculated the equilibrium price, and compared it with the observed prices. In order to measure changes in consumer welfare in each scenario we used the BLP method, then calculated the firm surplus, and by adding these two results, we were able to estimate the welfare impact on society.

Results

Estimation of the impact of the permanence clauses on the mobile market in Colombia, identification of patterns in consumer substitutions and estimation of the structural demand for mobile terminals in Colombia.

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