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Switching cost is something that is complicated to measure. If indeed the Belgian Telecom act (BTA) does have an effect on the switching cost, we might say that prices are likely to go down on average. Because switching cost used to be high on the telecommunication market, companies could raise their prices after a certain amount of time, as long as this increase in price did not exceed the cost of changing operator. Now that these cost fall because of the BTA, the solution for companies to keep their clients is to lower their price on the long term.
However, before the implementation of the BTA, in order to attract new customers, despite the high switching cost, companies used to propose very interesting entry prices. For example the first 3 months were half price, etc. BTA in this case, might have a negative effect on price, since switching cost are higher, companies do not have to propose such low introductory prices. Still those introductory prices are, as their name suggest, only provisional, and have a smaller effect on average price than the usual price.
Some studies can confirm our intuition. For example they have shown that even with low switching cost, a low switching rate might occur as long as the prices are low, in order to prevent customer from changing of operator. Conversely, high switching cost, does not necessarily conduct to low switching rate if, for example, companies offer introductory prices as in the telecommunication market. Those studies clearly show that today, for companies to keep their clients, the prices are likely to go down.
Before looking at the effect the BTA had on the Belgian telecommunication market, we might ask ourselves: “is the contractual cost the only component of the switching cost?” The answer to this question obviously is no. Other components which are not covered by the BTA also have an impact on switching cost.
– Loss of performance: Regular customer expect from their operator to sometimes offer them some gifts (for example new TV channels during a month). Companies know that most of the turnover is made thanks to those regular customer (about 80%), and usually offer such gifts. Staying Faithfull to a company might then be a clever strategy from the client.
– Uncertainty: In market such as telecommunication where you have to try the new product to really be aware of his effectiveness, there is an uncertainty that prevents the client from moving to another company.
Even though the BTA reduces one of the component, the other two are still well implemented on the market. The effect on price might then not be as high as expected.
On average, prices in the telecommunication market did go down from 2013 to 2014 (8.5% less for a minute of call, 4% less for a text message …). The BTA did have an effect on price, but not as high as we could think in the first place. Compared to other countries of Western Europe, Belgium is considered as average in term of prices in this market.
References:
1) http://trends.levif.be/economie/entreprises/l-evolution-des-tarifs-de-la-telephonie-mobile-depuis-2013/article-normal-441717.html
2) https://works.groupon.fr/blog/clients/pourquoi-faut-il-prendre-soin-de-ses-clients-reguliers/
3) http://www.telecompaper.com/news/belgian-prices-are-average-compared-to-neighbours-bipt–926288
4) Valérie Lesgards, « L’évaluation des coûts de changement de fournisseur sur le marché résidentiel de l’énergie », Revue d’économie industrielle [En ligne], 122 | 2e trimestre 2008, document 5, mis en ligne le 15 juin 2010 (http://rei.revues.org/3832)
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The regulations that are being imposed would give consumers more information on the true speed on there connection and reduce switching costs for them, creating more informed consumers that can change operators much easier. This will increase competition in the market and push providers be more competitive, likely lowering prices in the process by decreasing ability of a firm to create a monopoly and increasing incentives to improve service.
Being from North America I probably have a slightly different view when it comes to the telecom industry as in both Canada and the US, the market is dominated by very large players. And there is actually something very interesting occurring in the market right now. Years ago Google became fed up with the American telecom industries complete lack of any real competition as it was slowing progress and preventing incentives for any real progress to be made on the infrastructure side. Telecom providers in the US have operated with relative monopolies for years creating what could be described as cartels (telecom giants staying out of each others way). Seeing this Google started to purchase dark fiber lines and laying their own fiber infrastructure throughout the US and providing high speed internet at a more affordable cost than competitors. What happened next became known as the Google Fiber effect. This effect is that as soon as Google “announced” it was entering a new market, other providers would follow suit and scramble to improve their own price and service to compete with the internet giant. This shows that the providers have the ability to improve their service but with the lack of real competition had no incentive to.
http://www.nytimes.com/2012/11/28/opinion/break-up-the-telecom-cartels.html
http://www.cnet.com/news/google-wants-dark-fiber/
https://www.technologyreview.com/s/514176/google-fibers-ripple-effect/
http://www.cnet.com/news/googles-fiber-effect-fuel-for-a-broadband-explosion/
http://time.com/money/3820109/google-fiber-has-internet-providers-scrambling-to-improve-their-service/
We can infer from this that one of the most effective way to improve telecom providers service and price is to increase competition. This is exactly what the Belgian telecom act accomplishes by reducing switching costs and allowing consumers to be more informed. As a Canadian I wish we would implement laws like this and can’t wait for Google fiber or a similar service to reach us and break up the lack of competition in the market.
https://www.ic.gc.ca/eic/site/028.nsf/eng/00471.html
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Since 2013, the prices in the telecom market are actually lower: for example, the average prices in 2015 (in comparison to 2013) of a minute call fell of 8.5%, of a SMS of 4%, of mobile data diminished of 51%, etc. But I think we could have predict that those prices would go down because the telecom market had a good example of what could happen, with the electricity market.
The EU’s liberalisation of energy markets in 2007 was meant to maximise competition and offer wider consumer choice but also to make it easier for utility customers to switch supplier. At that time in Belgium, Electrabel was the monopoly actor on the market (with 66.4% in supply of electricity in 2011) and EDF-Luminus the number 2 (with 17.5% of the market in 2011). They were both designated as default operators.
Results of the EU’s liberalisation of energy markets have been most marked in liberalised markets, such as Belgium, Britain and Sweden, where rates range from 10 to 15% of residential customers per year. Once the prices were transparent, a lot of consumers switched of supplier of electricity because those 2 default operators had no incentive to offer attractive prices to their customers and so, their offers were less attractive. Indeed, in Belgium, the energy market was dominated by foreign companies, so authorities – free from bias for national players – have embraced competition to lower prices, even providing official price comparisons between suppliers. Customers were therefore leaving once-dominant Electrabel, in droves, forcing it to lower prices. In 2012, Electrabel’s market share fell to 57.2%, from 66.4% in 2011, while competitors like Italy’s Eni and Essent Belgium, owned by Germany’s RWE, gained ground. Lampiris, Belgium’s only independent energy retailer, has grabbed 3.5% of the market by volume of electricity sold, but 8.5% in terms of number of households served, since it does not sell power to corporate clients.
In conclusion, the liberalisation had not produced any significant decrease of price as expected but the customer switching rate was high and consumers who change suppliers benefited from lower prices. The share of the 2 dominating operators thus diminished.
With the Telecom Act in 2013, if the telecoms companies didn’t have lower their prices, a lot of consumers could have switch for other operators like it happened in the electricity market. To still be competitive and keep their customers, they had to change their prices and find new offers more adapted to face the challenge of new operators that are online operators. Indeed, those new operators (like Jim Mobile, Dommel or Numericable) don’t have any real shops or not much but make theirs deals on their online shops and make offers at lower prices than the main actors of the market (like Mobistar, Base or Proximus). Online comparison also have make the market more competitive because, the prices are not just more transparent but, it’s also really easier to compare prices and so, the actors of the telecom market had to review their prices and their strategy to gain loyalty of their consumers.
References:
Association Belge des Consommateurs Test-Achats asbl (2013),” Recommendations of Test-Achats to rebalance EU Energy Market to better take account of consumers’ expectations and concerns”, Brussels.
http://www.4psquare.com/articles/liberalisation-belgian-energy-market-where-has-power-gone
http://www.euractiv.com/section/energy/news/energy-switching-picking-up-in-belgium-as-clients-desert-electrabel/
http://www.bipt.be/public/pressrelease/fr/103/FR_Persbericht_2015.pdf
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Since the Telecom Act has been adopted in Belgium, there has been a cut in the prices of mobile telephony. Indeed, according to the IBPT Barometer published last December, there has been a drop in the prices of the traditional uses of phones, calls and texts, of 8,5% and 4% respectively. The growing use of mobile data has also induced operators to decrease the price of it, and has led to a 50% cutback.
However, the begin of 2016 reveals an opposite trend: prices are increasing again. Due to the very high internet data consumption, some operators have to review their prices to remain competitive and be able to invest in network capacity. The expansion of applications like Whatsapp, Facetime, Viber,… put a competitive threat on the operators. Traditional “voice” subscriptions aren’t popular anymore and the operators have to invest and review their strategy to integrate new habits of consumers. Budgets are used to focus more on mobile data and large investments are made to keep up with these trends. This is the case of Proximus and Telenet.
The CEO of Telenet John Porter has announced that some of the telecom packs, Whop & Whoppa will be 3% more expensive (€ 67,48 & € 77,93) starting from today ( 14 February 2016). Also phone subscriptions and mobile data face an increase. (1) What concerns Proximus, some packs face an increase up to 1-2€/month and a series of ancient mobile “formulas” will increase up to 5%. The CEO justifies this by higher download speeds.
These increases in prices, although announced well in advance, haven’t known of response from consumers yet. Knowing the effects switching costs have on consumers, the probability of an actual response and a drastic change is rather low. Moreover, the telecom market in Belgium doesn’t know fierce competition compared to other European countries, their monopoly position is only slightly affected. Regarding mobile telephony, market share is 40.3% for Belgacom, 24.6% for Base Company (KPN Group Belgium), 30.9% for Mobistar and for Telenet 4.2%. (2) Legally, consumers still can cancel their subscription before the end of the month of March, so we’ll have to keep an eye open the coming days.
(1) http://monargent.lecho.be/budget/Augmentation_tarifaire_chez_Telenet.9717709-1783.art?ckc=1&ts=1455467759
(2)http://economie.fgov.be/fr/consommateurs/Internet/Telecommunications/teledistribution/
http://trends.levif.be/economie/entreprises/l-evolution-des-tarifs-de-la-telephonie-mobile-depuis-2013/article-normal-441717.html
http://www.test-achats.be/hightech/internet/en-direct/apres-proximus-voici-venue-la-hausse-de-telenet
http://trends.levif.be/economie/high-tech/ces-applications-qui-bouleversent-le-monde-des-telecoms/article-normal-399233.html
Very informative, thanks.
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Everyone had, one day, to make a choice for his mobile phone, his cable television or even his car fuel. The first thing that we do is to consider the price, but also the promotions. Finally, we are also influenced by the latest trend to make our choice. But after some times, it is possible that we want to change due to the new technologies, the influence of friends or to all the new promotions that firms provide. We will see that in mobile competition it is not always easy to change from one brand to another even with the new Belgian telecom Act. Indeed, it provides to consumers to lower their switching costs. But has said in the article the price will be low at the beginning and higher when the consumers have chosen their product.
We can observe that before the Belgian Telecom act [1]: The most obvious effect of switching costs is to give firms some market power over their existing customers, and thus to create the potential for monopoly profits. [2] After the Act has been introduced, reducing the time of the switch, six months instead of two years for example, it has a consequences on the products’ price and so on the firms’ profit: The intuition, of course, is that firms’ first-period prices [consider no switching cost] are lower than if they were simply maximizing first-period profits, because they are competing for market share that will be valuable to them in the future. […] Thus the presence of switching costs can explain “price wars” when (a) new markets open […] or (b) a new group of customers enters the market and can be sold to separately from others. So, we can observe that a decrease in the switching period brought a harder price war for the firms because they want to attract and accustom their consumers as quickly as possible because once they have choose their product, it will be more difficult and costly for the consumer to switch to another product. What I think is that the price provided by the firms will be lower than it could be proportionately to the technology they used to make their product.
We will take as an example the IPhone in comparison with Samsung. Of course there exist a lot of other situations like Voo or Belgacom which can be similar to the problem that we will analyze. During years, Apple and Samsung are competing in the same market. A consumer may have chosen to buy an IPhone years ago and now he wants to change because Samsung seems less expensive ( more or less 550 € for the Samsung and 750 € for the new IPhones [3]) even if the “visible” cost to change from one device to another is low, the switching cost itself is high in terms of time (because the devices are not completely the same even if they are substitution product, you have to take time to learn to use it), software (when you are on IOS you have to change the software that you are using in order to use Android application) and you have even to change your sim card and transfer all the contacts thanks to the company where you bought the phone. [4]Because of that, Samsung (like any other companies) suggest to consumers to trade their old mobile phone, even those from competitors, in order to attract the consumers and show them that the switching costs seem not so high because they will have the feeling to win more money than losing it [5].
References:
[1] http://www.bipt.be/public/files/fr/1738/2013-10-22_corrig%C3%A9e_Wet2005_elektronische%20communicatie.pdf
[2] http://www.nuffield.ox.ac.uk/users/klemperer/competition.pdf
[3] http://www.nl.fnac.be/?LanguageChoice=NL
[4] http://bgr.com/2015/08/28/samsung-vs-apple-iphone-switch-incentive/
[5] http://shop.samsung.com/uk/s6tradein/
Samsung’s strategy is a nice example of ‘pay-to-switch’. Interestingly, competitors may react with a ‘pay-to-stay’ strategy.
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The Act implemented since October 2013 aims to create a more even playing field for competitors and a fairer buying market for consumers. Consumers now only have to wait 6 months to switch operators without being subject to a penalty i.e. switching costs such as losing out on service provider-customer relationship and any loyalty perks that may have come with that.
The consumer also has the opportunity to gain access to more information regarding the service being provided. The Act introduced the facilitation of deal comparison between operators. More information available to consumers means they are not as ‘naive’ to short-term cheap deals, and also justifies an operator’s charging a higher price.
The act reducing switching costs significantly presents a temporary benefit for consumers; an increase in welfare if prices decrease due to increased competition. Consumption behaviour is influenced by short term incentives when the consumers are lured into a contract with low prices ‘carrot’ and end up having to pay increased prices over time (stick).
The results of this Act have seen ex post competition increases with this Act, and ex ante competition reduces, smoothing consumption to an extent. However, a 6 month contract is quite short, and isn’t long enough to build a lasting relationship between a service provider and a consumer. I agree with ‘Wolverine’ that consumers are lazy, and that a lot of effort is needed to switch operator every 6 months in order to make it worth their while i.e. cost efficient?
Thus throughout these price wars, there still exists a possibility that consumers will switch to prepay? “Belgium is the second cheapest country, 48% of mobile callers to use a prepaid card, this information is not unimportant “says BIPT. (http://www.levif.be/info/actualite/belgique/les-prix-de-la-telephonie-mobile-en-baisse-mais-l-internet-haut-debit-reste-cher/article-4000519266021.html)
Operators now face the challenge of finding a way of retaining consumer loyalty. They may be able to guarantee a longer term low price, the consumer can leave if they want but the price of staying with that network is lower and the consumer would receive a higher gain than the switching costs.
It seems that the future of competition will see prices being lowered, but not to the extent that there is no longer competition within the market- there will always be a segment of consumers searching for an operator or looking for a change.
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It is a fact that the new Belgian Telecom Act will increase the competitivity between providers by making easy to switch operators and forcing providers to show the actual connection speed rather than the maximum so consumers can now compare more wisely between the offers.
But the question is : How much can the new law increase the competitivity and will that rise be enough to decrease the prices?
In terms of marketing,Belgium’s mobile telecommunication market is an oligopoly dominated by three providers(Proximus by Belgacom with 38% market share,Mobistar with 30% and Base with 27% according to https://fortumo.com/countries/belgium) where competitivity is low by its nature because of the facts like difficulty of entrance in the market who asks for a large amount of capital.In our case,the three providers have comparable market shares with the little exception of the leader Belgacom whose former CEO made some declarations against the new law from which we can understand that he fears to lose his market share to his competitors.
If we get into more details,the market seems to be a natural oligopoly where the goods or services are quite similar.Especially,the competitors are highly influenced from the others when it comes to determine the price.In our case,we can see that the three providers have almost the same pricing strategy as we can see on their web pages:For 15 Euros you can have 250 MB internet connection,illimited SMSes and 50-90 minutes or 15 Euros of call credit which makes the most difference.
http://www.mobistar.be/fr/offre/cartes-rechargeables/dauphin
http://www.base.be/en/mobile/base-check/prepaid.html
http://www.belgacom.be/personal/products-and-services/proximus-telephony/paygo-max.html?tabnav=1
To sum up,we can observe that it’s not the prices which are the determining factor in terms of competitivity,it’s the quality of service you get.For example,Proximus provides 4G network instead of 3G for their internet connection and they are the first one according to their web site http://www.belgacom.be/personal/customer-advantages/the-belgacom-service/make-the-most/of-my-network.html?tab=2&tabnav=1 .
For conclusion,i can not tell if the new law will decrease the prices but it will certainly increase the quailty of service provided by the three competitors.
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It is a notable trend that the prices of telecommunication in Belgium had decrease; we can easily see it on a day to day basis as daily consumers. Switching the operators after 6 months instead of 2 years has shown that Telecommunication companies were taking advantage of their position. Furthermore, people were and are still often dealing with an obsolete tariff plan according to an article in Belgian press [1]. We can argue that the Telecom act, had a significant impact on the global society’s welfare concerning the prices, but that there are still many problems that have to be take into account, therefore, some significant changes still have to be done. This changes may be mainly seen on an individual basis, changes on the behavior, a lot of things are facilitated for the consumer to change their operators, but it is shown that few people tend to complain and make the effort to do the few administrative’ demarches in other to switch from one operator to another. As a personal experience I can notice that the ex ante competition can be lowered, but this is according to a condition, the initiative of the customer to make the demarches. With very low time investment, we can easily change our operators, even without warn your old operator, Proximus has done it for me, contacting Mobistar that my contract with them was over and that I switched to Proximus.
As a conclusion, I think that we can go even further in the diminishing of prices. The Telecom Act had seriously decrease the prices and seeing that companies are not in a critical position by respecting the Act may highlight the fact that companies were intending for pricing. Many changes should also come on an individual level, making them aware that they are not stuck with one operator that can take advantage from the dominant position.
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I believe that the consumers would be better off in this new situation, as prices would go down due to increased competition. I consider these services in Belgium currently expensive (especially compared to my home country Finland), and thus there is potential in noticeable price decreases.
Already in 2008 the switching rates were relatively high in mobile and internet services according to study by the European commission (http://ec.europa.eu/public_opinion/flash/fl_243_sum_en.pdf ). It states that car insurances is the most switched service (25% in the last two years), followed by broadband internet (22% in the last two years) and mobile telephone (19%). The lowest switching rate was in the banking sector, which is discussed in the other post. This tells us that the switching costs in internet and mobile sectors are after all relatively low. However the internet and mobile services are also in the top of the list of problems and difficulties in switching. This may be due to the different contract types which make it harder for the consumer to compare the services. The new telecommunications law in Belgium should lower the difficulties as the contracts are shorter while increasing switching. If we assume that people only switch to better services, the people should be better off.
The average switching rate of Belgium was below EU average switching rate. As an EU average the lack of interest in switching is between 70 and 80% in all sectors, which shows that after all we are talking about a relatively low proportion of people who are thinking of switching service providers. Thus the claims of Belgacom CEO seem to be exaggerating, as most people are still generally lazy and would keep the service for longer than 6 months.The study also notes that if the switching rate is high in a sector, then the prices tend to remain the same or be lowered due to more competition in the markets. As a total of all sectors 69% of people who switched, got a cheaper contract.
The new law should thus increase the share of people switching, which creates more competition and thus lower prices. I believe that the hardware will standardize itself in a few years, especially in the fixed broadband internet, thus lowering the switching costs. Currently there has been no need to do this, as the customers always received the box from the provider, but it would be easy for the service providers to separate the hardware in the bill (which happens in some EU countries, as you can either buy the box from the service provider or rent it or buy one from an electronics store). This would also increase transparency, and people might also buy their hardware from somewhere else, at a cheaper price. The hardware side of this problem makes it more complex, but I believe that the effect is still relatively small, and the lower prices in the actual service will benefit the consumers. And as for mobile telephony, I have always bought my telephone and service separately, and believe it is easy and cheaper, and your switching costs are minimal.
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I found the declarations by the former CEO of the Belgian telecom firm quite amusing. I would put them this way: condemned prisoners will be worse-off with death penalty abolishment because they will no longer benefit from their last meal free choice.
It is said that some services that were usually provided for free as a gesture of goodwill may end. How contradictory this free gesture of generosity is? If it was goodwill, then it does not make sense to stop it because of the “Telecom act”. These services are obviously not free, they are paid by the consumer, but instead of paying them in the present, they will pay in the future. So it is a simple temporal transfer. This transfer is totally legitimate, but in order to rationally thing about the consequences of the “Telecom act”, it is important to understand it is not a gesture of kindness.
Firms take advantage of the well documented time inconsistency of human behaviour. People tend to take decisions that give them current satisfaction, even if that reflects in being worse-off in the future. A group of economists, psychologists and neurologists found not only evidences, but the neurological explanation for this fact [1].
I will try to disentangle two effects: the free services effects on prices and the competition effect.
Regarding the former, if firms provide these “free” services, it is because they can extract enough from a locked in consumer to do so. Therefore, if consumers can no longer be locked in and firms see it isn’t profit enhancing to provide the “free” service, then consumers are simply no longer paying for it. I believe this is welfare enhancing because consumers will end up paying less in the future and their time inconsistency behaviour is no longer as easily explored.
The papers mentioned in the article can give us some possible evidences about the effect of competition. First, switching costs do decrease product substitutability [2] and individuals who are less willing to switch carriers frequently pay significantly higher prices [3]. Moreover, decreasing switching costs decrease prices and increase competition [4] and considerably increase consumer welfare [5].
This means that based on these two effects, it is quite straightforward that the final effect of decreasing switching costs is to decrease prices, even incorporating the end of “free” services. Besides, it clearly seems to be welfare enhancing.
Notwithstanding, two other effects must also be taking into consideration: economies of scale and capacity to invest.
If “free” services are able to attract brand new costumers that, in the absence of these services, would not buy from none of the existing firms (which I think is highly unlikely since telecommunications are essential services), then a lower number of consumers would reflect higher fixed costs, which would be welfare detrimental.
Furthermore, if less locked in consumers reflects a decrease of firms’ profits, then it is important to consider what effect that may have on R&D investment and on the quality of the service provided.
References:
[1] McClure, S. M., Laibson, D. I., Loewenstein, G., & Cohen, J. D. (2004). Separate neural systems value immediate and delayed monetary rewards. Science, 306(5695), 503-507.
[2] Grzybowski, L., & Pereira, P. (2007). Subscription choices and switching costs in mobile telephony. Available at SSRN 1021324.
[3] Epling, N. (2003, August). Price Discrimination amid Heterogeneous Switching Costs: A Competitive Strategy of the Long Distance Telephony Fringe. TPRC.
[4] Viard, V. B. (2007). Do switching costs make markets more or less competitive? The case of 800‐number portability. The Rand Journal of Economics, 38(1), 146-163.
[5] Kitano, T., & Ohashi, H. (2011). Effects of Mobile Number Portability on Switching Costs: Japanese Mobile Telecommunications.
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In this post, I will try to answer to the following question: did price decreased due to the new Belgian Telecom Act? I found an interesting article written by Test-Achat (http://www.test-achats.be/nt/nc/communique-de-presse/telecommunications-mobiles-le-marche-ne-cesse-de-bouger-et-la-concurrence-ferait-baisser-les-prix).
They said that, due to the new law, the consumer is better protected and the competition is stimulated. That leads to a decrease of prices: “they propose cheaper tariffs for the different user profiles”. It is easy to see that for example with Mobistar: they have the kangaroo formula or the dolphin, or the panther. To see the decrease of the price, they give the example of an unlimited formula with Base: the price is 39€ per month and before it was more than 60€ a month.
Test achat made a previous survey in 2009 and they concluded that in Belgium we paid more in Belgium for the telecoms compare to others countries of the EU. Today, there are two countries cheaper than Belgium in EU: France and UK. In general others countries are more expensive.
This article was written in June 2013: 8 months after the new law and we see the decreased of price. So we can expect, that today (8 months after the publication of the article), the trend goes in the same direction. Moreover, recently, a new actor came in the market: VOO. And the price that they proposed is cheaper that the unlimited formula of Base (if we are already a client VOO). Indeed, the price of the unlimited formula of Base is still 39€ per month and the new formula of VOO is 32€ per month if we are a client. So we can expect that the price will continue to decrease overtime.
We saw in the course of IO with professor Scarmure that there may be creation of a cartel in this sector. It is due to the fact that they clearly announce the price of the goods and services in advance. So it is very easy to see whether the competitors decrease his prices or not. And even if it is not “a real cartel”, it can be an implicit one: they see the prices of the competitors, so they have no incentive to decrease prices, because they know that if they do that, the other firm will replicate with the same diminution of price. So they have interest to keep higher price.
To conclude, since the introduction of the new law, a decrease of price occurs in telecoms. In this case we can say that the diminution of the switching cost led to a market more competitive, and the price diminished.
Show lessThe Belgian Regulator for telecommunications (IBPT) confirms that prices for mobile telephony have decreased over the last year; see http://www.levif.be/info/actualite/belgique/les-prix-de-la-telephonie-mobile-en-baisse-mais-l-internet-haut-debit-reste-cher/article-4000519266021.htm
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It’s interesting to notice that Belgium now has the third cheapest offer in Europe, behind France and UK. I see an interesting parallel with the recent decrease of prices in the French mobile telephony, which was in that case not triggered by the removal of switching costs but by the entry of a new low cost competitor, Free Mobile, which caused a war on prices in early 2012. Now, as the joke says, changing the on-hold music of their call center to “I Want to Break Free” by Queen wasn’t enough, and Orange, SFR and Bouygues had to adapt their rates, as shown on this article : http://www.lefigaro.fr/societes/2012/01/11/04015-20120111ARTFIG00287-free-mobile-les-concurrent-contre-attaquent.php.
Moreover, the trend in the European Union has seen decrease in rates lately, thanks to European directives and regulations such as the “Eurotariff”, which aims at lowering the roaming prices (see http://ec.europa.eu/information_society/activities/roaming/regulation/archives/current_rules/index_en.htm).
Belgium is not an isolated case when it comes to the decrease in pricing plans, but if the effect on prices seems pretty clear, it might be more difficult to quantify the weakening effect on ex ante competition. The link to Belgacom promo packs in the main article at least shows that such incentives still exist.
Nice point.
Decreasing switching costs not only foster competition between incumbents as well as decreases barriers to entry.
As barriers to entry themselves, as well as, a lower number of firms in a market make collusion more sustainable, then lower switching decrease the likelihood of collusive outcomes.
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The new law in the telecom sector in Belgium will increase or decrease the prices in the telecom market? These two scenarios are possible of course. However, since the instauration of the Telecom Act in Belgium we are facing a price reduction in mobile telephony. This has been characterized by a drop of de 6,2% of the price for the small consumers in 2013 in comparison to August 2012 and up to 45% for the other categories of consumers. In addition to this, the IBPT (Institut Belge des services Postaux et des Télécommunications) claims that in 2014 the price of a call was reduced by 8,5% and a text by approximatively 4% in comparison to 2013.(1) (2)
Nevertheless, the opposite effect is coming. One example of this increase of the price is the case Proximus. From July 2015 they raised the prices of some functionalities. First of all, the price of the “former packs” -which are packs of TV, Internet, fixed telephony and mobile telephony that the consumers subscripted before April 2012- is 2€ per month higher than before (we can say that is a surtax). Moreover, the communication from a fixed phone increased too and for all the clients. Finally, the prices of cellular data’s, calls and texts from a foreign country increased – often a lot- too. It should be noted that the aim of these increases is maybe to force the consumers to give up the simple formulas and to move on the newest packages (more interesting for Proximus). Additionally, some of these increases are really difficult to detect and it could be a problem for some consumers but it is not the purpose of this commentary. (3) In addition to this, we can remark that Proximus is not the only one to raise his prices. Telenet for instance do it too. (4) (5)
(1) http://www.sudinfo.be/711322/article/culture/medias/20-ans-du-gsm/2013-04-25/3-vrais-operateurs-et-quelques-virtuels
Show less(2) http://www.telecom-info.be/2015/12/16/diminuer-facture-gsm/
(3) http://trends.levif.be/economie/high-tech/numerik/proximus-des-hausses-de-prix-visibles-et-moins-visibles/article-normal-396301.html
(4) http://www.test-achats.be/hightech/internet/en-direct/apres-proximus-voici-venue-la-hausse-de-telenet
(5) http://www.killmybill.be/fr/augmentation-prix-telenet-janvier-2016/