An analysis of residential customers' substitution of traditional fixed telephony with IP-based and mobile telephony - PTS-ER-2006:38
10/11/2006
This report has been produced as part of PTS's market analysis work in accordance with Chapter 8, Sections 5 and 6 of EkomL.
According to established case law, a relevant product or service market includes all products or services that purchasers regard to a sufficient extent as being interchangeable or substitutable on the basis of their characteristics, their price and the intended use.
This report investigates whether the different categories of IP-based telephony and mobile telephony represent a substitute for traditional fixed telephony and, if that is the case, whether they should be included in the markets that are directed first at access to the public telephony network via a fixed interconnection point for residential customers and second at publicly available local and/or national telephony services provided via a fixed interconnection point for residential customers. The report divides IP-based telephony into four categories, with the crucial dividing line being whether or not providers control the last mile network.
The substitution analysis has been carried out in three stages.
The first stage describes the development trends of recent years where these concern changes in the price and quantity for traditional fixed telephony, mobile telephony and IP-based telephony. The aim of this is to paint a picture of how the demand for different kinds of telephony has changed, both as regards subscriptions and telephony services – actual traffic minutes – in order to get an understanding of the extent to which residential customers are substituting between the different types of telephony.
The second stage compares the characteristics of the respective types of telephony in order to see whether, from the perspective of a residential customer, they may be viewed as interchangeable with each other. The starting point for this comparison is the characteristics used by the first generation's SMP decisions to define the product markets in question. In addition to this, a number of additional characteristics are taken into account that are considered of interest for the consumers' perception of whether the different types of telephony are interchangeable with each other.
The third stage discusses the factors that may influence the residential customer's substitution of traditional fixed telephony with mobile telephony and/or some form of IP-based telephony in the future.
The summarised assessment is that there are reasons to regard the IP-based category of telephony being offered by providers who control the last mile network, as to a sufficient extent interchangeable with traditional fixed telephony. The summarised assessment of the other categories of IP-based telephony and mobile telephony is that they are not, to a sufficient extent, interchangeable with traditional fixed telephony. The implications of this assessment partly depend on what the European Commission's recommendation on relevant markets will be at the time of the next generation's SMP decisions. The implication in relation to the current recommendation is that IP-based telephony offered by providers who control the last mile network should be included in markets 1 and 3.
The implication in relation to the proposal for a new recommendation is that IP-based telephony offered by providers who control the last mile network should be included in market 1.