Pricing strategies and competition in the

mobile broadband market ±

Joan Calzada* and Fernando Martínez-Santos+

May 2016

Abstract

This paper analyzes mobile broadband plan prices from 37 countries between
2011 and 2014. Mobile network operators typically commercialize usage-based
plans that include an access fee, a usage allowance (number of GB included in
the tariff plan), and a penalty system should consumers exceed the contracted
allowance. Our empirical model shows that the prices of these plans are lower
than those of unlimited contracts, and that they depend on the type of penalty
that is used. The prices also reflect service characteristics, including the
technology provided, the download speed, and telephone call allowances. Plans
that bundle mobile broadband plans with smartphone devices have longer
contract duration and may be more expensive than plans that only include a SIM
card. Specifically, broadband service plans are priced higher when they include
an iPhone or a Samsung smartphone. The paper also discusses the impact of
market structure and entry regulation on prices.

Keywords: Telecommunications, Mobile Broadband, Price Discrimination,

Smartphones, Competition, Regulation.
JEL: L51, L86, L96.

                                                            

±
We thank two anonymous referees as well as Joan Ramon Borrell, Xavier Fageda, Lukasz Grzybowski, Teodosio
Pérez-Amaral and Carlos Velasco for their useful comments and suggestions. We also thank seminar participants at
the Workshop on Telecommunications Economics 2015 (Barcelona) and ITS 2015 (Madrid). This research has
received financial support from the Spanish Ministry of Economics and Competitiveness (ECO2015-69193R,
MINECO/FEDER, UE) and the Catalan Government (SGR2009-1066).
*
Joan Calzada, Departament de Política Econòmica, Universitat de Barcelona, Avinguda Diagonal 690, 08520
Barcelona. Email: calzada@ub.edu.
+
Corresponding author: Fernando Martínez-Santos, Competition and Markets Authority and Universitat de
Barcelona. Departament de Política Econòmica, Avinguda Diagonal 690, 08520 Barcelona. Email:
fmartinezsantos@hotmail.com.
1. Introduction

This paper analyzes how mobile operators set prices for their broadband plans at a time when
mobile services are experiencing extraordinary growth worldwide. Indeed, according to the
International Telecommunication Union (ITU), in 2015 the penetration of mobile lines was 97%
(more than 7 billion subscribers) and the penetration of mobile broadband was 47%. The parallel
development of mobile content and mobile applications has led to major changes in the
population’s communication habits. In addition to making phone calls, consumers use
smartphones to take part in video-conferences, navigate webpages, share files (including photos
and high definition videos), and play online games. As a result, a sizable part of the revenues
generated by operators today are originated by data traffic rather than by phone calls and SMS
messages.

The transformation of the mobile market has led operators to introduce complex tiered pricing
schemes with the objective of improving traffic management and of extracting the maximum
surplus from consumers. Under tiered pricing systems, operators offer menus of plans with
different monthly data allowances at fixed rates. The plans include overage charges should
consumers exceed data caps. They also offer minute allowances for making phone calls and they
might specify the speed of the service. Some operators also offer unlimited usage-plans for
heavy users of broadband services, although they are much less frequent. Finally, many operators
offer plans that bundle smartphone devices and the broadband service.

The use of this pricing structure has generated a major debate in the sector that has found an
audience with antitrust authorities (Lyons, 2013). While some consumer associations and large
content providers have warned that monthly consumption limits create artificial scarcity and
allow operators to reduce future network upgrades, supporters of broadband usage pricing claim
that the policy brings prices into line with the intensity of use and shifts more network costs onto
heavier users. Indeed, with a flat rate all users contribute equally to meet network costs, although
heavier consumers use more of the network capacity. By contrast, usage-based tariffs can reduce
the cost of lighter users and promote Internet adoption. Moreover, they alleviate network
congestion and induce an efficient use of broadband capacity. The objective of this paper is to
contribute to this debate by empirically analyzing the drivers of operators’ pricing strategies and
to understand the significant price differences that exist across countries (Fig. 1).

Our study draws on a rich dataset offered by the Federal Communications Commission (FCC)
that contains 2,909 plans released by mobile network operators (MNOs) in 37 countries around
the globe during the period 2011-2014. We construct a variable for the average monthly price of
each plan that includes activation costs, promotions and rebates. We then use multivariate
techniques to estimate a price equation that takes into account several characteristics of the plans,
including volume allowances (gigabytes), overage charges, download speeds, voice minute
allowances and the purchase of smartphones.

2 

 
Figure 1: Average price ($PPP) for smartphone plans with a volume allowance between 1 and 5
GB and unlimited voice minutes, year 2013.

Note: The monthly all-inclusive price reflects the average price per month, including rebates and other fees, but
excluding the cost of the device.
Source: FCC, 2015.

The heterogeneity in consumer preferences for the broadband service, telephone calls and
smartphones has led mobile operators to adopt multi-tier pricing schemes to segment consumers
(second degree price discrimination). Operators offer a menu of plans with different volume
allowances and set volume discounts to promote consumption. We show that a one-gigabyte
increase in the data cap would have a positive impact of around 9% on the average monthly price
paid by the customer, but that plans with large volume allowances charge lower prices per
gigabyte. Although most mobile plans limit data traffic to a few gigabytes, some operators offer
unlimited data plans at significantly higher prices to attract heavy users. Plans are also
differentiated in terms of the speed of the service. A 10 Mbps increase in download speed results,
on average, in around a 2% rise in prices. Interestingly, while for fixed broadband plans the main
segmentation strategy is that of download speed, mobile broadband plans are characterized by
volume allowances due to the constraints imposed by the technology.

Operators usually apply different types of penalties to consumers that exceed the contracted
volume allowance. All consumers pay the same flat rate for the service up to the contracted data
cap, but heavier users have to pay a penalty when they consume volume beyond this cap. The
penalty might constitute a reduction in the speed of the service or the interruption of the service

3 

 
until the next month. Often, however, consumers are switched to a new volume allowance or are
billed an overage charge for each additional gigabyte consumed. Our analysis has found that all
penalties have a similar impact on the average monthly price paid by consumers, although in the
case of monetary penalties heavy users have to pay a supplement when they exceed the data cap.

Most plans bundle the broadband service with telephone calls. We measure the effect of the
inclusion of voice minutes in the price of the plan; however, due to data limitations, we are
unable to observe if the price of telephone calls in such bundles is lower than that charged by
plans that only offer stand-alone voice services. It should be stressed that most operators today
employ a tier scheme for telephone calls, as opposed to the pay-per-use schemes in operation a
few years ago. The plans no longer distinguish between on-net and off-net calls, or between
fixed-to-mobile and mobile-to-mobile calls.

The paper also considers the possibility offered to consumers of acquiring a smartphone along
with a broadband service contract. Consumers can pay upfront for a smartphone at the beginning
of the contract, or they can pay an extra charge in their monthly bill during the life of the
contract. In either case consumers pay less for the smartphone than if they buy it directly from an
independent dealer. In spite of this, our empirical model shows that the discounts offered by
operators for smartphones are in part offset by charging higher prices for broadband services. We
also show that the average monthly price for the broadband service is significantly more
expensive if the plan includes iPhone and Samsung devices. By contrast, plans that bundle the
broadband service with smartphones from other brands do not show a significant price difference
with respect to SIM-only plans. This result suggests that operators segment consumers according
to their willingness to pay for a particular brand of smartphone (third degree price
discrimination).

The last part of the paper examines how competition intensity and regulation affect the
operators’ commercialization strategies. To do so, we consider a sub-sample of 20 EU countries
for which we have obtained additional information about their market characteristics from other
sources such as the European Commission Directorate General for Communications Networks
(DG-CONNECT). In recent years, European countries have granted a restricted number of 3G
and 4G licenses, which allow operators to offer broadband services. Moreover, national
regulatory bodies determine the conditions according to which mobile virtual network operators
(MVNOs) can access the spectrum of MNOs. Our analysis shows that market competition and
the presence of MVNOs are associated with lower broadband prices. We also analyze the effects
of the Mobile Termination Rates (MTRs) that mobile operators charge their rivals for
terminating telephone calls. In this case, we find no evidence that MTRs have affected retail
prices. We argue that this may be a consequence of the smaller weight that telephone calls have
today in the broadband plans due to changes in consumption habits, and also to the small size of
MTRs.

The rest of the paper is structured as follows. Section 2 reviews the economic literature that
analyzes the broadband market and the operators’ pricing strategies. Section 3 presents our
model. Section 4 describes the dataset used in the study. Section 5 shows the results and
discusses their implications. Section 6 examines the effects of competition and regulation on
prices. Finally, Section 7 concludes.

4 

 
2. Literature review

Our research contributes to the empirical literature analyzing broadband Internet prices in the
telecommunications market. Several papers have examined the effect of inter- and intra-platform
competition on the adoption of fixed broadband (Cambini and Jiang, 2009; Bouckaert et al.,
2010; Pereira and Ribeiro, 2010; Briglauer et al., 2013; Gruber and Koutroumpis, 2013;
Grzybowski and Dauvin, 2014), and others have analyzed the effects of regulating termination
charges and the unbundling of the local loop on investments (Grajek and Röller, 2012; Nardotto
et al., 2015; Bacache et al., 2013).

The literature analyzing the adoption of mobile broadband is scarce. Westlund and Bohlin (2008)
analyze mobile Internet adoption in Sweden and highlight that user-friendliness and transmission
speed are important determinants of the development of the service. Lee et al. (2011) employ a
logistic diffusion model to analyze the drivers of broadband expansion in a group of 26 OECD
countries in the period 2003-2008. They find that standardization policies and population density
are essential factors for the initial diffusion of the service, and that fixed and mobile broadband
services are complementary in OECD countries. Srinuan et al. (2012a) use a binomial logit
regression model and find that in Thailand the age, region of residence and availability of fixed
telephony are significant drivers of mobile internet access. Finally, Srinuan et al. (2012b)
consider a panel dataset of Finnish households in 2009, and use a multinomial logit model to
examine which household characteristics explain Internet adoption.

The analysis of broadband prices has focused mainly on the fixed broadband service. Wallsten
and Riso (2010) examine the prices of broadband plans in a group of 30 OECD countries and
find that between 2007 and 2009 downstream speed had a positive effect on prices; that plans
with bit caps were on average cheaper than unlimited plans with contracts; and, that plans with
contracts were typically less expensive than those without. Greenstein and McDevitt (2011)
analyze the economic value created by the diffusion of broadband Internet access provided via
xDSL and cable modem in the United States. While they do not have direct information on
prices, they are able to create a price index that adjusts the price to progressive improvements in
service quality between 2004 and 2009. Calzada and Martínez-Santos (2014) analyze the
determinants of broadband prices in a group of 15 EU countries between 2008 and 2011. They
show that the prices were determined primarily by access regulations and service characteristics,
including the technology used to provide the service and the bundling of the broadband service
with other services such as television. Finally, Nevo et al. (2016) employ high-frequency usage
data from a group of around 55,000 subscribers in the US to estimate demand for a residential
fixed broadband service. They use their model estimates to evaluate the welfare implications of
usage-based pricing. Very few papers have analyzed how mobile operators set the prices of
broadband plans. Srinuan et al. (2013) examine the prices of wireless communications in
Thailand and demonstrate the role played by demand characteristics in the development of new
plans, and Haucap et al. (2014) analyze the effect of tariff diversity on broadband uptake using a
data set of fixed and mobile broadband plans via USB modem devices.

5 

 
There is also a relevant stream of theoretical literature that has analyzed the pricing structures of
firms in different markets (Tirole, 1988; Wilson, 1993). A basic assumption of these papers is
that consumers are rational decision makers who choose the tariff that maximizes their surplus.
This hypothesis has been empirically verified in several recent papers for the
telecommunications market. Miravete (2003) shows that when subscribing to a particular plan
consumers are guided by their expectations of future telephone use. Moreover, consumers learn
from their mistakes and switch tariffs to minimize their expenses. In a related paper, Miravete
and Palacios-Huerta (2014) find that telephone subscribers do not make permanent mistakes, and
explain that inertia (or inattention) is likely caused by a rational decision since consumers
actively engage in tariff switching in order to reduce their costs. Additionally, recent theoretical
papers have analyzed how the pricing structures established by operators can affect consumers’
usage decisions and transform the utility offered by firms (Ascarza et al., 2010; Leider and
Sahin, 2014). The underlying assumption in these models is that consumers make mistakes when
making their decisions because they are uncertain as to how much they are likely to consume of
the service and about the utility they can obtain. In this context, it has been shown that pricing
structures influence the types of mistake consumers make (Lambrecht et al., 2007).

Recent papers have examined the interaction between mobile operators and other players that
intervene in the telecommunications market, including content providers and smartphone
manufacturers. Economides and Hermalin (2015) analyze why carriers opt to commercialize
volume-metered plans. It is usually claimed that volume caps are used to segment consumers and
to alleviate congestion externalities. But this paper shows that telecommunication operators can
also use the caps to increase competition between content providers. Consumption restrictions
lead content providers to lower their prices and this allow telecommunication operators to attract
more consumers. Another group of papers have analyzed the effect of exclusive contracts with
handset manufacturers. Zhu et al. (2015) examine the welfare effects of Apple’s exclusivity,
while Sinkinson (2014) analyzes the effects of exclusive smartphone contracts using a monthly
market-level dataset of US consumers for the period 2008-2010.

3. Empirical model

We examine the prices of mobile broadband using a dataset containing information for 2,909
plans collected by the FCC between 2011 and 2014 from 37 countries. Our aim is to analyze how
MNOs set their prices in order to increase their customer base and extract the maximum surplus
from them. Our model is based on a reduced-form equation in which we consider prices to be
determined by the interaction of supply and demand in the telecommunications market. The
equilibrium price function that we estimate reflects a bundle of attributes that generate some
consumer utility. We also consider that the prices can be affected by the characteristics of the
operators and the market conditions.

We estimate a model for the average monthly price of mobile broadband plans, Pricemoit, where
m is the plan offered by the operator, o is the operator, i is the country, and t is the year.
Specifically, we consider the pricing equation in (1), which includes several variables that
capture the attributes of the operators’ multi-tier schemes as well as other variables that reflect
the operators’ characteristics and the market structure. Country (δi) and year (ηt) fixed effects are

6 

 
included to control for unobserved heterogeneity across countries and years. Finally, emoit
represents the disturbance term.

2
Log( Price )  a0  a1 LimitedData  a2 Penalty  a3Volume a 4Volume  a5Speedmoit  a6Technologymoit
moit moit moit moit moit

 a7 LimitedVoice  a8 MinVoice  a Smartphone  a Historical  a NPlans   i  t  e

moit moit 9 moit 10 moit 11 moit moit

(1)

The price of a plan is the average monthly price paid by consumers during the period in which
contracts are active. The bulk of the price is the monthly tariff, but we also consider temporary
monthly promotions offered at the beginning of the contract, rebates (refunds) and non-recurring
costs, such as activation fees. Equation (2) shows that the average monthly price is constructed
as the sum of the promotional tariff paid during the months of the promotion, plus the regular
tariff paid during the remaining months in which consumers are subscribed to the plan, plus
activation costs paid at the beginning of the contract, and rebates. The existence of activation
costs and rebates implies that the average monthly price depends on the number of months
consumers are subscribed to the plan, which may differ from the duration specified in the
contract itself. Taking this into account, in the general specification of the model we assume that
consumers are subscribed to a plan for 24 months, which is the median duration of the contracts
in our sample (representing a 60% of all the plans). It should be clarified however that the
activations costs and rebates represent just a fraction of the costs borne by customers. For this
reason, the results of our analysis do not vary greatly when we consider permanence periods of
12, 36 or 48 months.1 Yet, in order to examine whether the tariff design depends on the duration
of the contracts we also present the results of separate regressions considering only 12- and 24-
month plans.

Promotion x Months Promotion  Tariff x Months Without Promotion Fees - Rebates

Price 
moit 24 months
(2)

We consider that operators commercialize both unlimited usage plans and three-part tariff plans.
In this latter case, the tariff includes an access fee, a usage allowance (number of GB that
consumers can use for free), and a penalty system should the consumer exceed the contracted
allowance.2 In order to capture these options, the pricing model includes the dummy variable
Limited Data, which distinguishes between usage-based and unlimited usage plans. This
variable takes a value of one for three-part tariffs (limited usage) and a value of zero otherwise.

                                                            

1
Results are available from the authors upon request. Also note that in the case of fixed broadband plans, the
average duration of the contracts in the EU is 26 months (European Commission, 2011).
2
According to Lyons (2013), three-tiered pricing plans were first introduced in the US by AT&T in December 2010.
These plans establish volume allowances and a per-gigabyte overage charge. Verizon Wireless adopted a similar
pricing scheme in 2011.

7 

 
The penalties imposed on the consumers that exceed the volume allowances can take the form of
pay-per-unit charges (per megabyte) or they might oblige consumers to switch to a new usage
allowance. Penalties may also involve a reduction in speed or even the suspension of the service
until the beginning of the following month. We have created the following four dummy variables
to capture the characteristics of the penalties: End Service whereby the consumer cannot access
the Internet once the allowance has been exceeded (an option used in only a few countries,
including Belgium and Korea); Speed Reduction whereby the download speed is greatly reduced
(e.g., 128 kbps), thus preventing consumers from using applications that require higher speeds,
such as watching videos; Pay-as-you-go whereby consumers are obliged to pay a price per each
additional unit of volume (megabyte/kilobyte); and, finally, New Allowance whereby consumers
are moved to a new allowance that gives them access to a greater number of gigabytes, but at a
higher price.

Note that both Pay-as-you-go and New Allowance are ‘overage charges’ and might result in an
unexpected increase in the bill paid by the consumer (‘bill shock’). Such a situation arises when
consumers have a poor understanding of their contract conditions or when they are uncertain
about their future consumption. Operators may also shroud these overage charges in order to
make consumers pay more (Gabaix and Laibson, 2006). Our data set only contains the
information included in the operators’ plans and, therefore, we cannot determine the impact the
penalties have on the final bill paid by consumers or the circumstance under which they switch to
a new plan (Miravete and Palacios-Huerta, 2014).

In the case of plans with three-part tariffs, the variable Volume is defined as the volume
allowance (in gigabytes) that restricts the data that can be downloaded by consumers each
month. Volume caps are introduced in the price equation in a non-linear way, since we expect
the price per unit of volume (gigabytes) to decrease with the allowance. The operators’ offer of
usage-based plans can be made for various reasons. Volume caps are a second degree price
discrimination mechanism, which allow operators to charge higher prices to consumers that use
the service more intensively, but they can also help operators optimize the use of the network
and so reduce congestion. As explained in Section 2, Economides and Hermalin (2014) have
shown that operators may also use volume caps to appropriate surplus from content providers by
employing the following mechanisms: if volume caps are binding (End Service, Speed
Reduction), consumers perceive the contents and applications of different providers as
substitutes. This, in turn, increases the competitive pressures on the content providers, who
respond by lowering their prices. In this case, mobile operators can capture the surplus gained by
consumers by raising the prices of their plans. If caps are permeable (Pay-as-you-go, New
Allowance), then they act as a disguised two-part tariff and the additional fee charged by
operators acts as an excise tax that results in content providers cutting their prices.

Broadband prices might reflect other aspects related to service quality. Download Speed is the
maximum speed at which the broadband service can operate. Speed tiers segment consumers by
taking into account their willingness to pay for quality and their interest for using data-
consuming applications. Note, however, that many MNOs do not state the download speed on
their websites. This might be because most of them use the same technology or because they are

8 

 
unable to guarantee the quality of the service.3 In the case of fixed broadband plans, by contrast,
operators use different provision technologies (xDSL, cable and fiber) and can price discriminate
consumers in terms of the speed offered (Calzada and Martínez-Santos, 2014).

The main factor accounting for download speed is transmission technology. For each generation
of mobile telephony, the ITU has approved technological standards (e.g., GSM, WCDMA,
UMTS, HSPA, LTE), which have to meet a number of technical requirements, for example, in
relation to download speed and the latency of the service. In the period we analyze, mobile
operators used several standards and we have grouped them according to 3G, 3.5/3.75G, and 4G
technologies and created a dummy variable for each.4 We use the Technology variables to
analyze if operators are able to charge higher prices for 4G plans than for the other technologies,
or if competition forces them to upgrade the quality of the service at no extra cost.

Many plans combine data allowances with voice minute and/or text message allowances. The
popularization of smartphones has greatly modified the way in which people use telephone
services. In recent years, a large part of voice traffic has been substituted by such applications as
WhatsApp or Line for messages and Skype for voice. Operators have reacted to this situation by
modifying the way they bill telephone calls. Some plans offer mobile broadband exclusively, but
most include voice minute and/or text message allowances. We capture this situation in our
model by including the dummy variable Limited Voice Minutes, which takes a value of one if the
plan includes voice minute allowances and zero if the plan includes unlimited phone calls. For
plans with voice minute allowances, the variable Minutes of Voice reflects the minutes of the
cap. According to the FCC (2015), in some countries, operators use phone calls to cross-
subsidize their data plans. Unfortunately, we are unable to analyze this strategy as we have no
information about plans that only offer telephone calls.

Our data set also allows us to determine whether a plan offers no more than a SIM card or
whether it also includes the purchase of a smartphone. Consumers that purchase a smartphone
from the mobile operator usually have to choose between paying for the smartphone upfront or
paying a monthly tariff that embeds the cost of the smartphone over the duration of the contract.
In order to determine how the purchase of the smartphone affects the price of the service, we
include four dummies for Smartphone in the price function. One of the dummies represents SIM
card only plans, while the other three indicate if the plan includes an iPhone, a Samsung, or
another smartphone brand (Nokia, HTC, Blackberry, Sony, etc.), which are less frequent in our
dataset and less popular among consumers worldwide.

The expected effect of including a smartphone in the plan is unclear. In fact, mobile operators
provide smartphones to millions of consumers and some operators are present in several
countries. This situation should allow them to negotiate price discounts that can be, if there is
sufficient competition, passed through to consumers. Yet, smartphones are a differentiated

                                                            

3
According to the FCC (2015), advertising in relation to download speeds varies widely across countries. Operators
in countries such as Hong Kong, Italy and Poland advertise the theoretical maximum available speeds (i.e., they
report 100 Mbps for 4G and 42.2 Mbps for 3G HSPA+). In contrast, the highest speed advertised for a 4G plan in
the United States is 5-12 Mbps and for a 3G plan it is 7.2 Mbps.
4
The dataset contains nine plans using 1G or 2G technologies and they are excluded from our analysis.

9 

 
product and some are clearly more sophisticated and expensive than others. Taking this into
account, operators can use smartphones to identify consumers with a greater willingness to pay
for the service and who they can charge a higher monthly tariff.

The price equation includes other variables that are related to the level of market competition.
The variable Nplans is the number of plans released by MNOs in each year. The effect of the
number of plans on the price is ambiguous. On the one hand, operators might release a large
number of plans to price discriminate consumers or to generate confusion or misunderstanding
(Hoernig, 2001). On the other hand, in competitive markets, operators may be forced to release
more plans and set lower prices to fight competitors. As Baumol (2005) shows, in markets with
no entry barriers if sellers can separate their consumers into distinct submarkets with different
demand elasticities and arbitrage is not possible, price discrimination is necessary if losses are to
be avoided. For instance, in the telecommunications market the entry of MVNOs might induce
MNOs to release specific plans for low income/lighter consumers.

Finally, historical firms may use different commercial strategies to those adopted by entrants. To
account for this possibility, we use the dummy variable Historical Operator, which takes a value
of one for incumbent mobile operators. Operators that entered the market at the end of the
nineties acquired a high presence and have been able to build a good reputation among
consumers. We seek to determine if this “first mover advantage” has a persistent effect on prices.

4. The data

We examine mobile broadband prices by drawing on information from the “International

Broadband Data Report” prepared by the FCC.5 The dataset contains 2,909 residential retail
mobile broadband plans for smartphones collected from 37 countries around the globe, including
all OECD countries. We focus on MNO plans for smartphones, although operators also
commercialize broadband services for laptops and tablets connected via a USB modem or a MiFi
(wireless router). The dataset does not include MVNO plans.

The FCC collects information about the prices and characteristics of the plans from the
operators’ websites, although operators might offer alternative plans via channels other than the
Internet. All retail broadband prices are converted to US dollars using the Purchasing Power
Parity (PPP) currency conversions published by the World Bank. Over the life of a contract,
customers pay recurring costs (the monthly tariff) and non-recurring fees, such as activation
costs paid at the beginning of the contract, promotions and rebates applied to the bill. The
broadband prices used in our analysis do not include the cost of the smartphone device. Table 1
shows the basic statistics for the main components of the prices and the plans. Around 85% of
the plans examined bundle several services, which usually include Internet, telephone calls and
text messages. Most plans are volume metered: only 10% of the plans offer unlimited volume
                                                            

5
Our dataset includes the third and fourth issues of the FCC report. See: http://www.fcc.gov/document/fourth-
international-broadband-data-report-2015. The original dataset contains information for 40 countries, but the FCC
signals in the methodology of its “Fourth International Broadband Data Report” that data for Greece, Brazil, and
Turkey are inconsistent from year to year. For this reason, we do not consider these countries.

10 

 
allowances and around 30% of bundled plans have unlimited minutes of telephone calls. The
dataset does not include multi-play plans which combine fixed and mobile services.

Table 2 summarizes the characteristics of the plans offered in each country during the period
2013-2014. In these years, only operators in 8 countries offered unlimited data plans, while in the
period 2011-2012 there were 17. In contrast, there has been an increase in the volume
allowances. While in the period 2011-2012 the average volume allowance was around 2.5 GB, in
the period 2013-2014 this increased to 4 GB. Finland is the country with the highest number of
unlimited plans (71% of the total) and Sweden is the country offering the plan with the highest
data allowance (80 GB). At the same time, the number of minutes of telephone calls in plans
with limited voice caps has more than doubled on average since 2011, reaching around one
thousand minutes per month in 2014. In spite of these changes, the average monthly price in our
sample has stayed constant over the period 2011-2014 at around $50 ($PPP).

Table 1: Summary statistics of the FCC dataset of mobile broadband plans (37 countries)
Number of Standard
Variable plans Average deviation Minimum Maximum
Price ($PPP)* 2909 48.6 37.1 1.1 271.2
Monthly tariff ($PPP) 2909 50.0 37.4 1.1 271.2
Monthly promotion ($PPP) 2909 4.8 17.8 0.0 215.0
Activation costs ($PPP) 2909 6.6 16.3 0.0 225.1
Rebate ($PPP) 2909 8.7 51.1 0.0 449.0
Highest download speed (Mbps) 2126 30.1 36.1 0.1 150.0
Volume allowance (GB)** 2579 3.5 6.4 0.0 80.0
Voice allowance (minutes)*** 1448 663 1434 0 10000
Contract duration (months) 2717 18.5 8.0 1 36
 
* Price is defined as the average monthly price paid by a customer in a 24 months plan.
** There are 209 plans with unlimited data.
*** There are 794 bundles with unlimited minutes and 259 plans that do not include voice minute allowances.

The penalties faced by consumers when they exceed the contracted data allowance vary greatly
across countries. Table 3 shows that in many countries, including Austria, Bulgaria, Denmark,
Germany, Hungary, Poland, Spain and Sweden, operators frequently use speed reductions (the
speed is usually reduced to 56/128 kbps). By contrast, in Australia, India, Lithuania, New
Zealand, Norway and Slovenia, consumers are more typically switched to a pay-as-you-go
system. In this case, operators usually charge per unit of volume (megabyte/kilobyte) and just
some of them charge per unit of time (hour or day). In Iceland, the UK, Mexico, Singapore,
Canada, the Netherlands and Japan consumers that exceed the contracted allowance are
automatically changed to a new one (they contract a larger number of GB). Finally, only in a few
countries, including Belgium and Korea, do operators actually curtail the service when
consumers exceed the allowance.

Table 4 shows the percentage of plans in each country that include a smartphone, where the
device might be an iPhone, a Samsung or another brand (Blackberry, Nokia, HTC, LG, Sony,
etc.). In the data set there are several countries in which operators do not offer SIM-only plans.
Notice, also, that most plans include an iPhone or a Samsung.

11 

 
The length of the contract is usually related to the type of smartphone included in the offer. Table
5 shows that contracts for SIM-only plans have a duration of 16.5 months on average, those for
iPhone and Samsung of 19 months, and those for Other Brands of 18 months. The median
duration of the contracts is even shorter for SIM-only plans compared to smartphone plans, i.e.,
12 vs. 24 months.

Table 2: Mobile broadband Plans 2013/2014. Average values of characteristics by country

Number Number of Price Monthly Maximum Ratio 4G Unlimited Volume Bundled Bundles Voice cap Contract
of plans mobile ($PPP)* tariff download plans data cap (GB) plans with with (minutes) duration
operators ($PPP) speed over 3G plans (%) minutes unlimited (months)
(Mbps) (%) of voice minutes (%)
(%)
Australia 20 2 44.3 44.3 15.4 50 0 2.5 100 40 427 18
Austria 18 3 42.2 41.2 26.6 100 6 3.2 100 56 1300 24
Belgium 30 4 42.9 43.8 38.0 100 0 2.4 100 30 198 9
Bulgaria 19 3 42.4 42.4 42.0 0 0 1.3 100 0 1601 21
Canada 74 3 34.0 35.3 131.8 100 0 5.1 100 100 - 13
Chile 20 3 129.3 129.3 9.2 50 0 4.4 100 0 666 14
Czech Republic 69 3 52.2 52.2 74.9 100 0 2.9 100 100 - 18
Denmark 37 3 21.8 21.7 66.9 92 0 4.8 100 58 204 15
Estonia 9 2 26.8 26.8 35.3 33 0 8.4 100 13 411 24
Finland 7 3 16.3 16.3 37.4 43 71 0.2 43 0 43 19
France 62 4 49.2 49.8 87.1 94 0 4.0 100 74 120 20
Germany 44 3 61.3 61.0 45.2 91 0 4.8 100 73 125 24
Hong Kong 34 5 49.7 49.7 31.2 53 22 3.1 100 10 2008 19
Hungary 14 2 62.4 62.4 76.2 64 0 1.1 86 36 190 22
Iceland 17 2 32.4 32.4 14.9 47 0 3.0 100 40 122 12
India 51 4 39.1 40.8 21.5 12 0 3.9 100 0 6966 12
Ireland 39 3 54.4 54.4 21.0 26 0 4.1 100 31 298 18
Israel 5 2 21.1 21.1 4.0 0 0 3.0 100 80 300 12
Italy 28 4 41.3 44.5 52.5 32 4 2.3 100 50 348 25
Japan 17 3 32.2 32.2 75.0 92 38 4.4 - - - 24
Korea (South) 16 3 47.5 47.5 - 100 0 2.2 100 0 110 12
Lithuania 23 3 9.1 8.9 18.0 0 0 1.3 100 8 730 8
Luxembourg 9 3 8.0 17.8 29.5 67 0 12.4 100 0 87 13
Mexico 29 2 69.9 69.9 18.4 100 0 1.7 100 0 567 17
New Zealand 19 1 53.5 53.5 7.2 26 0 1.4 100 32 337 20
Norway 13 1 35.2 35.2 19.4 100 0 2.2 100 100 - 12
Poland 39 3 36.3 36.3 - 13 0 1.3 100 42 400 24
Portugal 17 3 54.2 54.5 39.0 71 18 1.3 82 29 909 17
Singapore 20 3 87.6 87.5 86.6 100 0 5.4 100 20 378 24
Slovakia 6 3 48.4 48.4 33.8 33 0 1.6 100 67 125 22
Slovenia 37 4 10.3 20.1 42.0 14 0 1.9 100 0 598 21
Spain 29 5 40.0 43.7 9.0 59 0 1.4 89 33 172 24
Sweden 39 3 42.1 42.0 42.6 54 0 8.7 29 0 626 11
Switzerland 11 3 22.7 27.4 100.0 100 0 4.1 38 0 23 24
The Netherlands 32 4 54.6 64.8 30.4 81 0 1.9 97 28 189 22
United Kingdom 22 5 52.2 52.8 - 36 18 3.5 100 68 1014 21
United States 161 7 84.1 85.8 17.4 99 4 8.2 100 100 - 13
* Price is defined as the monthly price paid by a customer in a contract of 24 months with the operator

12 

 
 Table 3: Internet usage penalties by country
Number No Speed Jump to Jump to End of
of plans penalization reduction pay as you new service (%)
(% unlimited (%) go (%) allowance
plans) (%)
Australia 82 0 0 91 9 0
Austria 40 3 85 0 10 3
Belgium 49 2 24 49 0 24
Bulgaria 62 0 100 0 0 0
Canada 93 0 0 47 53 0
Chile 37 3 59 30 8 0
Czech Republic 26 0 65 0 35 0
Denmark 54 0 89 4 7 0
Estonia 21 29 71 0 0 0
Finland 21 52 48 0 0 0
France 136 0 76 3 21 0
Germany 68 10 88 1 0 0
Hong Kong 80 39 15 34 13 0
Hungary 57 2 93 0 5 0
Iceland 29 0 0 14 86 0
India 76 0 24 68 8 0
Ireland 103 15 6 50 29 0
Israel 1 0 0 0 0 100
Italy 57 16 35 11 39 0
Japan 56 29 14 11 46 0
Korea (South) 141 17 0 60 0 23
Lithuania 59 5 0 86 8 0
Luxembourg 39 5 10 67 18 0
Mexico 64 0 6 20 70 3
New Zealand 62 0 0 97 3 0
Norway 33 0 30 70 0 0
Poland 55 5 84 7 4 0
Portugal 33 18 6 52 24 0
Singapore 38 0 24 16 61 0
Slovakia 24 29 63 8 0 0
Slovenia 65 0 14 71 15 0
Spain 84 2 98 0 0 0
Sweden 65 9 86 0 5 0
Switzerland 54 37 41 20 2 0
The Netherlands 85 0 24 27 49 0
United Kingdom 84 15 5 0 80 0
United States 273 9 29 17 42 4
Total 2,406 9 36 30 23 2

13 

 
 Table 4: Summary of SIM-only and plans with a smartphone by country
Number of SIM only plans Plan includes Plan includes Plan includes Average
plans (%) an iPhone (%) a Samsung Other brands contract
(%) (%) duration
Australia 80 26 68 0 6 ( 19th )
Austria 40 28 60 0 13 24
Belgium 44 39 30 18 14 12
Bulgaria 42 12 21 67 0 18
Canada 93 8 52 33 8 18
Chile 40 3 85 13 0 17
Czech Republic 93 0 23 70 8 19
Denmark 58 0 86 0 14 17
Estonia 24 17 0 75 8 24
Finland 21 0 76 0 24 21
France 186 9 31 16 45 19
Germany 76 0 47 32 21 23
Hong Kong 77 22 32 21 25 19
Hungary 60 2 32 32 35 24
Iceland 34 0 65 35 0 11
India 75 9 11 11 69 10
Ireland 139 4 27 19 50 14
Israel 16 0 38 25 38 13
Italy 71 10 39 34 17 22
Japan 32 0 78 22 0 24
Korea (South) 97 45 14 32 8 23
Lithuania 52 2 52 25 21 23
Luxembourg 30 17 30 10 43 19
Mexico 60 0 67 12 22 19
New Zealand 62 5 58 11 26 18
Norway 33 0 73 0 27 12
Poland 71 0 13 44 44 21
Portugal 40 0 75 0 25 16
Singapore 32 13 28 47 13 24
Slovakia 24 17 25 21 38 19
Slovenia 97 13 10 64 12 22
Spain 89 11 46 11 31 22
Sweden 89 3 79 7 11 18
Switzerland 62 19 63 5 13 15
The Netherlands 111 14 24 50 12 20
United Kingdom 105 5 35 21 39 23
United States 275 0 40 46 14 14
Total 2,630 9 41 27 23 19

Table 5: Summary of contract duration (months) for SIM only plans and by smartphone brand
Number of Average Median Minimum Maximun
plans contract contract contract contract
(months) (months) (months) (months)
SIM only 238 16.5 12 1 36
iPhone 1,029 19.1 24 1 36
Samsung 705 19.4 24 1 36
Other brands 590 18.0 24 1 36
Total 2,562 18.7 24 1 36

14 

 
5. Estimation and Results

This section presents the estimates of the pricing model in (1) when considering the whole
sample of countries. Table 6 presents the OLS results for different specifications of this model:
specifications 1-5 consider all the sample and specifications 6 and 7 only examine 12- and 24-
month plans, respectively. Most of the results obtained are in line with the hypotheses that we
have formulated in the previous section and they are robust to different specifications of the
model. The coefficient of the dummy variable Limited Data (presence of volume allowances) is
always negative and significant, which implies that usage-based plans are substantially cheaper
than unlimited plans. As explained, volume caps may be used as a second price discrimination
mechanism to extract consumer surplus and to avoid congestion.

In specifications 5 to 7 we have disaggregated the variable Limited Data in four dummies that
reflect the penalties imposed in usage-based plans. In specifications 5 and 7, the four dummies
have negative and significant coefficients, re-affirming that usage-based plans are cheaper than
unlimited plans. By contrast, in specification 6 (12-month plans) the penalties Jump to Pay-as-
you-go and Jump to New Allowance are not significant. Recall that the users of these plans incur
additional fees when they exceed the volume allowance. Finally, notice that in all specifications
the plans that imply the termination of the service when the cap is exceeded are the cheapest.

The coefficients of the Volume and Volume2 variables are significant in all specifications and
present the expected sign. The results for Volume imply that an additional gigabyte in the cap of
usage-based plans has a positive impact of more than 9% on the monthly price paid by the
customer, and the negative coefficient of Volume2 indicates that operators apply volume
discounts. On the other hand, notice that volume allowance coefficients are larger in the 12-
month plans than those in the 24-month plans. Operators therefore are willing to reduce the
monthly price if customers enter into longer contracts, which are usually associated with the
purchase of a smartphone.

As for Technology, only 4G is significant in specifications 1 and 3, but the variable loses its
significance when we include Download Speed in specifications 4-7. Our intuition for this is that
although some operators might have set a premium for the 4G service after its launch, the
pressure of competition soon forced them to offer the service to all consumers at the previous
price. For instance, in Spain, Vodafone initially charged a higher price for 4G, but it quickly
eliminated the premium price when other firms started offering the same product. In the UK,
Three decided to offer 4G plans at the same price as 3G plans and this put competitive pressure
on its rivals. In contrast, the coefficient for Speed is positive and significant in specifications 4
and 5, showing that prices increase with the quality of the service. The results imply that a 10
Mbps increase in speed raises the price of the plan by around 2%.6 Notice that the inclusion of
Speed in the regressions notably reduces the number of observations, since quite often operators
do not mention the speed of the plans in their websites. For this reason, we do not include this
variable in specifications 6 and 7. All in all, these results suggest that operators are better able to

                                                            

6
For the dummy variables we follow the interpretation of Halvorsen and Palmquist (1980) whereby, in semi-logarithmic
regression models, coefficients are interpreted as 100*[exponential (coefficient)-1] with respect to the reference.

15 

 
charge a premium price by advertising high speeds than by advertising the use of a new
technology such as 4G.

Specifications 3 to 7 include two variables that reflect the effects of bundling broadband and
voice services. The Limited Voice Minutes variable is negative and significant in all
specifications, showing that plans that offer a limited number of telephone calls are cheaper than
those that offer unlimited calls. On the other hand, the coefficient of the variable Minutes of
Voice, expressed as hundreds of minutes, is positive but only significant in specification 7 (24-
month plans). Hence, the number of voice minutes in the plan only is associated to the bundle
price in long contracts.
Table 6: Estimation Results: Mobile Broadband and Voice on Smartphone: All plans.
Dependent variable Specification 1 Specification 2 Specification 3 Specification 4 Specification 5 Specification 6 Specification 7
Log Price (price) OLS OLS OLS OLS OLS OLS OLS
Independent variables Coefficient Coefficient Coefficient Coefficient Coefficient Coefficient Coefficient
Download Speed 0.002 0.002* 0.002**
(0.001) (0.001) (0.001)
Technology (reference: 3G)
3.5G/3.75G -0.076 0.123 -0.001 -0.135 -0.284 -0.131
(0.215) (0.272) (0.236) (0.194) (0.365) (0.282)
4G 0.242*** 0.213* 0.041 0.079 0.100 -0.005
(0.088) (0.107) (0.087) (0.101) (0.241) (0.081)
Volume 0.104*** 0.091*** 0.093*** 0.090*** 0.092*** 0.176*** 0.089***
(0.013) (0.014) (0.014) (0.014) (0.012) (0.044) (0.01)
Volume² -0.002*** -0.001*** -0.001*** -0.001*** -0.001*** -0.005*** -0.001***
(0.0004) (0.0003) (0.0004) (0.0003) (0.0002) (0.0002) (0.0002)
Limited Data -0.431*** -0.515*** -0.343** -0.453***
(0.135) (0.095) (0.14) (0.14)
Penalty (reference: Unlimited data)
Speed reduction -0.482*** -0.673* -0.380*
(0.142) (0.326) (0.203)
Jump to pay as you go -0.545*** -0.531 -0.452**
(0.179) (0.335) (0.176)
Jump to new allowance -0.423** 0.143 -0.483**
(0.159) (0.27) (0.182)
End of service -0.732*** -0.833*** -0.637***
(0.158) (0.212) (0.182)
Limited Voice Minutes -0.435*** -0.467*** -0.463*** -0.445** -0.501***
(0.109) (0.099) (0.105) (0.203) (0.096)
Minutes of Voice 0.010 0.009 0.009 0.001 0.024***
(0.007) (0.007) (0.007) (0.006) (0.006)
Smartphone (reference: SIM only)
iPhone 0.323** 0.369** 0.169 0.359**
(0.128) (0.158) (0.222) (0.143)
Samsung 0.224 0.307* 0.611 0.252
(0.136) (0.168) (0.366) (0.166)
Other brands 0.062 0.109 0.321 0.081
(0.148) (0.186) (0.19) (0.205)
Historic Operator 0.094 -0.255 0.107
(0.095) (0.277) (0.088)
Nplans -0.001 0.001 0.0010
(0.002) (0.02) (0.003)
Time Dummy (reference: year 2011)
year 2012 -0.053 0.062 0.082 -0.058 0.054 0.060 -0.340*
(0.112) (0.086) (0.146) (0.111) (0.098) (0.162) (0.195)
year 2013 -0.106 0.032 0.007 -0.121 -0.14 -0.212 -0.395*
(0.105) (0.099) (0.144) (0.125) (0.096) (0.147) (0.203)
year 2014 -0.376* -0.062 -0.446* -0.407*** -0.318** -0.147 -0.481**
(0.211) (0.134) (0.235) (0.142) (0.122) (0.197) (0.179)
Constant 3.826*** 3.966*** 3.958*** 4.031*** 4.021*** 3.898*** 4.483***
(0.129) (0.092) (0.205) (0.149) (0.212) (0.522) (0.188)

R2 0.44 0.39 0.51 0.48 0.52 0.58 0.56

Number of observations (N) 2696 2027 2164 1607 1391 288 1154
All specifications include country dummies which are not reported for brevity. Standard errors are robust to heteroskedasticity and are clustered by
country. Standard errors are in parentheses. The estimated coefficients are in bold. Significance at * 10%, ** 5%, *** 1% level.

We also analyze how the inclusion of a smartphone in the plan affects the price of the broadband
service, although we do not have information regarding smartphone prices to determine the

16 

 
overall charge made to consumers. In specifications 4 to 7, the Smartphone variable takes as its
reference the SIM-only plans and shows that plans including an iPhone might be over 30% more
expensive. The dummy for Samsung is only weakly significant in specification 5, when we
consider all the plans and the penalties. Our intuition regarding this result is that operators set
higher prices for plans that include an iPhone because this choice denotes a greater willingness to
pay on the part of the consumer (third degree price discrimination), or because the consumers
that choose this brand make a larger use of the bandwidth.7

A further question of interest is to determine how operators use smartphone price discounts to
attract consumers. Our data set contains few observations with information about this
commercial practice (N=639), but to shed some light on this matter we have repeated the
previous estimations when including the variable Discount in the price equation. Results show
that discounts in smartphones prices have a positive and significant effect on the broadband
price, suggesting that operators subsidize these discounts with the price of the mobile service to
attract consumers. The results for this analysis are presented in Annex 2 in the Appendix. The
first two specifications in the table use all the plans and the last two focus solely on 24-month
plans.

The Historic Operator variable is not significant in specifications 5 to 7. This implies that
historical operators do not have a first-mover advantage with respect to the other MNOs and,
therefore, there is no measurable rent to be gained from incumbency. Interestingly, this result
contrasts with the situation in the fixed broadband market, where incumbent operators have been
able to set higher prices than their competitors (Calzada and Martínez-Santos, 2014). Various
factors might account for this situation. First, in many countries 3G and 4G licenses have been
tendered simultaneously to several operators and so incumbents have initiated their
commercialization of broadband services at the same time as their competitors. Second, the
provision of 3G and 4G services has necessitated the installation of brand new infrastructure,
thus reducing the cost advantages of existing operators. And third, in some countries, incumbents
do not necessarily provide superior service quality than that provided by entrants and, therefore,
they are unable to leverage rents from incumbency. For example, there is evidence from Spain
that historical operators provide less consumer satisfaction than entrants, which might explain
the evolution of their respective market shares in recent years (Gijon et al., 2013 and Garin-
Muñoz et al., 2015).

Finally, the estimations in Table 6 also show that the Nplans variable does not have a significant
effect on prices. Therefore, we cannot conclude that the release of a large number of plans is a
strategy for screening consumers and setting higher prices.

                                                            

7
Sinkinson (2014) analyzes the exclusive contract that AT&T signed with iPhone in the US between 2007 and
2011. Lyons (2013) reports that, after this agreement, the average iPhone user consumed ten times more bandwidth
than a typical smartphone user. This could have motivated the introduction of three-part tariffs by AT&T.

17 

 
6. Effects of competition and regulation on prices

This section introduces a new group of variables in the pricing model with the objective of
analyzing how operators adjust their tariffs to the regulation and the intensity of competition.
The FCC data set does not include information about the characteristics of national markets and
for this reason we estimate the model by considering a sub-sample of 20 European countries for
which we have obtained additional information from other sources. Table 7 describes the new
variables introduced in this section for year 2014.

The new model includes the Herfindahl-Hirschman Index (HHI), a measure of market
concentration, which is defined as the sum of the squares of the market shares of the operators in
each country. We have obtained information about the operators’ market shares (i.e., number of
subscribers) from the websites of the European regulators. We expect markets with a high
concentration to present higher prices. In spite of this, notice that the estimation of the price
equation in (1) might be affected by the potential endogeneity of the HHI variable, since the
operators’ market shares are affected by prices. Moreover, there are countervailing influences of
the HHI on prices, since large scale production can result in cost savings that reduce prices. The
presence of unobserved efficiencies should be mitigated by the inclusion of country fixed effects.
On the other hand, to account for the potential endogeneity of HHI, we estimate the model using
2SLS-IV and as instruments for HHI we use variables that only affect prices indirectly via their
impact on market concentration. Our candidates for these instruments are the Number of MNOs
and Density of Population. Our hypothesis is that the number of MNOs affects the intensity of
competition, but that it should not be related to market conditions since the number of licenses is
determined by regulators taking into account technological restrictions. We also use Density of
Population on the assumption that more densely populated regions enjoy better 3G and 4G
coverage which should favor competition, and that this variable does not directly affect the
prices set nationally.

We have verified that the instruments selected allow us to overcome the endogeneity problem.
Specifically, they pass Hansen’s J test for overidentifying restrictions. Moreover, we have
considered the instrument suitability test (first-stage F-statistics of the HHI variable over the
instruments selected) to measure the strength of our instruments. We have also considered the
use of other instruments, including the number of operators with LTE technology and the
difference in the mobile termination charges of the least and most regulated operators in each
country (Genakos et al., 2015), but we have concluded that the instruments that best fulfill the
orthogonality condition and that best explain the HHI variable are those described above.

As an alternative measure of competition intensity we use the MVNOs  variable in some

specifications of the model. We treat this variable as exogenous, on the grounds that in the
European Union MVNOs are regulated by the National Regulatory Authorities (NRAs) and their
profitability depends on the agreements reached with MNOs for the use of the spectrum. The
number of MVNOs is expected to negatively impact broadband prices, since these operators
usually adopt aggressive commercial policies to attract low income/light volume consumers.
Despite this, MVNOs employ different commercial strategies, which can have different effects
on the market. For example, while some have entered niche markets, others are low-cost
subsidiaries of MNOs. Yet, in many countries MVNOs have yet to reach an agreement with

18 

 
MNOs for the provision of 4G and this can affect their market impact. Information for MVNOs
has been obtained from the European Commission Directorate General for Communications
Networks, Content & Technology (DG-CONNECT).

Finally, the price equation also includes the MTR variable, which represents the regulated mobile
termination rates ($PPP) set by the NRAs in each EU country. The termination rates are the
prices that mobile operators charge for terminating the telephone calls of their rivals in their own
network.8 These rates do not directly affect the cost of the broadband service but they do affect
the cost of plans that include minute allowances. Termination rates increase the costs of off-net
calls and should have a greater impact on operators that have a larger proportion of outgoing
calls. In spite of this, the impact of these fees might have decreased in recent years. In 2009, the
European authorities recommended that NRAs implement a “glide-path” so as to gradually
reduce termination fees and eliminate rate asymmetries between operators.9 This policy has
favored the convergence in on-net and off-net call prices and might, at the same time, have
favored the change from usage-based prices to non-linear prices. Information on MTR has been
obtained from DG-CONNECT.

Table 7: Competition and Regulation Indicators EU-20, year 2014

HHI
Operator MNOs MVNOs MTR ($PPP)
Austria 34.5 3 7 0.80
Belgium 29.6 3 2 1.18
Czech Republic 32.7 4 3 1.01
Denmark 25.1 5 2 0.90
Estonia 26.5 3 1 1.29
Finland 34.0 4 5 2.80
France 28.1 4 50 0.80
Germany 26.6 4 3 1.85
Hungary 36.4 3 3 2.37
Ireland 31.5 3 5 2.60
Italy 28.2 4 17 0.98
Lithuania 34.0 3 10 1.04
Luxembourg 42.7 3 3 8.55
Poland 24.3 7 15 1.03
Portugal 36.8 3 3 1.27
Slovenia 33.9 4 3 3.24
Spain 24.0 4 23 1.09
Sweden 24.6 5 39 1.02
The Netherlands 19.7 3 71 1.86
United Kingdom 27.5 4 21 1.01

                                                            

8
Armstrong (2002), Vogelsang (2003), and Calzada and Trillas (2005) review the literature on interconnection.
9
Commission Recommendation 2009/396/EC of 7 May 2009 on the Regulatory Treatment of Fixed and Mobile
Termination Charges in the EU. For an analysis of the effects of MTRs on mobile operators’ prices see Genakos and
Valletti (2015).

19 

 
The results of the estimation made with these new variables are shown in Table 8. For the sake
of simplicity, the new regressions do not distinguish between 12- and 24-month plans and do not
include the results for Penalties. The results for the Speed, Volume, Limited Data, Limited Voice
Minutes and Smartphone variables are similar to those presented in Table 6, and suggest that the
pricing structure used by European operators is similar to that described previously. One
difference is that the dummies for iPhone and Samsung are now positive and significant in all
specifications.

If we focus on the variables reflecting competition intensity, we observe that the HHI is always
positive and significant in specifications 1 to 4. The coefficient of this variable when using
2SLS-IV in specification 3 shows that a reduction in the HHI of about 1 point generates a price
reduction of 5.5%. For example, in the period analyzed, there was a 1 point reduction in the HHI
in the UK, which should imply a price reduction of 5.5%, ceteris paribus. This result points to
the effect of market competition on broadband prices, complementing the recent results of
Genakos et al. (2015) when studying the impact of market structure on the prices of voice
services in the EU in the period 2002-2014.

The MVNO variable is negative and significant in specifications 5 and 6 but not in specification
4, possibly because of the high correlation with the HHI. The findings for this variable indicate
that the entry of an additional MVNO into the market decreases the prices of the plans by up to
2%. Thus, although MVNOs need to reach agreements with MNOs in order to provide the
services, their presence increases competition and pushes prices down.

Finally, the MTR variable is not significant in any specification, which suggests that in the period
considered the regulation of termination charges does not explain the differences in broadband
prices. Various factors can help us understand this result. First, notice that most European
regulators drastically reduced termination fees after the 2009 EU Recommendation, which in
turn has significantly lowered operators’ off-net call costs. Second, due to the increase in data
traffic, the overall weight of termination fees in operators’ costs is smaller. And third, in line
with the explanation offered by Genakos and Valletti (2015), in recent years there has been a
significant but declining waterbed effect of MTR on the prices of mobile voice services. This
change would appear to be related to the increase in mobile voice traffic from fixed to mobile
phones.

20 

 
Table 8: Estimation Results: Mobile Broadband and Voice on Smartphone: Plans EU-20.
Dependent variable Specification 1 Specification 2 Specification 3 Specification 4 Specification 5 Specification 6
Log Price (price) OLS 2SLS-IV 2SLS-IV 2SLS-IV OLS OLS

Independent variables Coefficient Coefficient Coefficient Coefficient Coefficient Coefficient

Download Speed 0.003*** 0.003*** 0.003*** 0.004*** 0.003***
(0.001) (0.001) (0.001) (0.001) (0.001)
Technology (reference: 3G)
3.5G/3.75G -0.121 -0.147 -0.214 -0.117 -0.068 -0.144
(0.117) (0.265) (0.215) (0.272) (0.279) (0.23)
4G 0.381** -0.024 -0.066 -0.013 -0.027 -0.064
(0.17) (0.118) (0.117) (0.13) (0.127) (0.128)
Volume 0.123*** 0.085*** 0.089*** 0.085*** 0.084*** 0.089***
(0.017) (0.014) (0.014) (0.014) (0.014) (0.014)
Volume² -0.002*** -0.002*** -0.002*** -0.002*** -0.002*** -0.002***
(0.0004) (0.0003) (0.0003) (0.0003) (0.0003) (0.0003)
Limited Data -0.477*** -0.379** -0.314** -0.383*** -0.370** -0.308*
(0.121) (0.149) (0.151) (0.151) (0.155) (0.151)
Limited Voice Minutes -0.656*** -0.633*** -0.652*** -0.658*** -0.632***
(0.079) (0.08) (0.079) (0.079) (0.081)
Minutes of Voice 0.028*** 0.026*** 0.028*** 0.028*** 0.026***
(0.008) (0.008) (0.008) (0.008) (0.008)
Contract Duration -0.006 -0.009
(0.007) (0.006)
Smartphone (reference: SIM only)
iPhone 0.347** 0.396***
(0.139) (0.133)
Samsung 0.265** 0.321***
(0.117) (0.111)
Other brands 0.148 0.203
(-0.199) (-0.188)
Historic Operator 0.074 0.067
(0.098) (0.095)
Nplans 0.001 0.001
(0.007) (0.008)
HHI Operators 0.083*** 0.059*** 0.055*** 0.041**
(0.029) (0.018) (0.021) (0.02)
MVNO 0.003 -0.022** -0.026**
(0.026) (0.009) (0.011)
MVNO² -0.0002
(0.0004)
MTR 0.04 0.025 0.014 0.02 0.021 0.009
(0.037) (0.021) (0.024) (0.022) (0.025) (0.024)
Time Dummy (reference: year 2011)

year 2012 0.137 -0.28 -0.573*** -0.276 -0.218 -0.406***

(0.151) (0.261) (0.1) (0.263) (0.23) (0.136)
year 2013 -0.055 -0.357 -0.665*** -0.357 -0.351 -0.547***
(0.182) (0.267) (0.166) (0.263) (0.247) (0.179)
year 2014 0.535 -0.643** -0.930*** -0.601** -0.597** -0.758***
(0.354) (0.303) (0.188) (0.29) (0.275) (0.215)
Constant 0.779 2.155*** 2.191*** 2.755*** 4.480*** 4.274***
(1.062) (0.779) (0.768) (0.781) (0.366) (0.281)

R2 0.47 0.44 0.46 0.44 0.44 0.46

Number of observations (N) 1401 841 826 841 841 826
p-value Hansen J-test (Ho: instruments exogenous) 0.2559 0.2559 0.2559
p-value F-test (Ho: weak instruments) 0.0000 0.0000 0.0000
All specifications include country dummies which are not reported for brevity. Standard errors are robust to heteroskedasticity and
are clustered by country. Standard errors are in parentheses. The estimated coefficients are in bold. Significance at * 10%, ** 5%,
*** 1% level.

7. Conclusions

This paper has used a rich dataset of smartphone broadband plans from 37 countries to study the
pricing structure of mobile operators in the period 2011-2014. The main contribution has been to
show how usage-based plans use data and voice minute allowances to segment customers
according to their needs (second degree price discrimination). The plans also include penalties
that consumers who exceed the contracted volume allowances must face. We have identified the

21 

 
impact that volume allowance caps and penalties have on the monthly price of the broadband
service.

In contrast to the situation in the fixed telephony market, the download speed plays a small role
in the mobile operators’ tariff structure. It might be the case that the technological limitations of
wireless communications make mobile operators less able to differentiate their plans in terms of
download speed. The technology used in providing the service also has little impact on prices.
During the first stages of the transition from 3G to 4G, operators commercialized 4G plans as a
premium service. However, when we consider the whole period 2011-2014 we obtain little
evidence that 4G affects prices via channels other than that of the download speed.

Most plans include voice minute allowances, which are usually quite high. The pricing structure
of the voice service is similar to that of the broadband service, i.e., consumers choose voice
minute allowances and pay an extra fee if they exceed the cap. Many plans offer unlimited voice,
but at a significantly higher price. Interestingly, broadband plans no longer distinguish between
on-net and off-net calls, or between mobile-to-mobile and mobile-to-fixed calls.

The paper’s second most significant contribution has been to explain how operators modify their
prices when they bundle the broadband service with a smartphone. Operators offer smartphones
at a discounted rate but they partly subsidize this cost via higher prices for the broadband service.
They also distribute the cost of the device over the duration of the contract, thus tying consumers
for longer periods. We have also shown that broadband service prices vary depending on the
smartphone brand bundled in the plan (third degree price discrimination). While plans that
include iPhone and Samsung smartphones are more expensive than SIM-only plans, those that
bundle other brands do not present a significant price difference with respect to SIM-only plans.

The last part of the paper has examined the pricing policies of mobile operators in 20 EU
countries for which we have additional information capturing the market structure and the
regulation. We have found that market concentration and the number of MVNOs have a
significant effect on broadband prices. By contrast, the regulation of MTRs does not appear to
drive broadband prices. This may well be the result of the application of the “glide path”
mechanism in the EU and the decreasing weight of off-net calls in the operators’ costs.

A recent trend in the sector, though one not considered here, is the bundling of fixed and mobile
voice and data services, along with the possibility of obtaining pay-per-view TV.10 Such plans
have become very popular as they help households control their expenditure and they may
represent major cost savings. In some countries, the popularization of these plans has forced the
restructuring of the market toward platform-converged market operators that provide all core
communications services. In the years to come it will be imperative to study the effects of these
changes on operators’ pricing strategies.

                                                            

10
Grzybowski and Liang (2014) estimate demand for quadruple play mobile tariffs. See also Vogelsang (2010).

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8. Appendix

Annex 1: Average discounts ($PPP) on smartphone when bundled with tariff by country.

Plans iPhone Samsung Other brands

Australia 0 - - -
Austria 0 - - -
Belgium 17 335.9 327.2 -
Brazil 0 - - -
Bulgaria 0 - - -
Canada 32 374.5 253.5 -
Chile 3 726.8 - -
Czech Republic 10 198.8 177.0 -
Denmark 4 154.0 - -
Estonia 9 - 149.4 -
Finland 0 - - -
France 51 343.0 156.9 -
Germany 36 547.2 459.7 -
Greece - - - -
Hong Kong 12 589.9 394.2 -
Hungary 20 604.5 681.7 -
Iceland 23 92.3 - -
India 9 64.0 - 231.5
Ireland 68 440.6 589.1 371.9
Israel 1 - 179.5 -
Italy 6 591.3 - -
Japan 7 - 479.2 -
Korea 13 107.5 - -
Lithuania 16 1247.4 389.3 212.6
Luxembourg 2 - 527.6 275.7
Mexico 5 1019.3 891.5 -
New Zealand 22 219.0 136.0 -
Norway 22 388.0 - -
Poland 5 534.1 754.2 -
Portugal 9 16.4 - -
Singapore 4 - 572.0 -
Slovakia 7 531.6 201.7 -
Slovenia 19 189.9 - -
Spain 14 225.0 - -
Sweden 12 563.4 - -
Switzerland 41 166.9 305.3 77.5
The Netherlands 36 452.1 290.4 -
Turkey - - - -
United Kingdom 25 439.5 413.2 385.2
United States 136 451.8 407.8 -
Total 696 358.2 391.1 327.0
 

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Annex 2: Estimation Results: Pass-through of discount on smartphone to the price of the plan.
Dependent variable Specification 1 Specification 2 Specification 3 Specification 4
Log Price (price) OLS OLS OLS OLS
Independent variables Coefficient Coefficient Coefficient Coefficient
Discount 0.124 0.174* 0.299*** 0.284***
(0.107) (0.087) (0.099) (0.077)
Download Speed 0.001 0.005***
(0.002) (0.002)
Technology (reference: 3G)
3.5G/3.75G n/a n/a n/a n/a

4G 0.132 0.018 0.043 -0.295

(0.126) (0.2) (0.157) (0.235)
Volume 0.114*** 0.116*** 0.129*** 0.129***
(0.013) (0.012) (0.009) (0.007)
Volume² -0.002*** -0.002*** -0.003*** -0.003***
(0.0002) (0.0003) (0.0002) (0.0003)
Limited Data -0.15 -0.734*** -0.415* -0.878***
(0.251) (0.122) (0.223) (0.111)
Limited Voice Minutes -0.415*** -0.529*** -0.333** -0.495***
(0.094) (0.088) (0.12) (0.126)
Minutes of Voice 0.018** 0.035*** 0.006 0.036**
(0.008) (0.011) (0.007) (0.013)
Smartphone (reference: iPhone)
Samsung -0.07 0.105
(0.068) (0.077)
Other brands -0.167 -0.169***
(0.115) (0.058)
Historic Operator 0.085 0.128*
(0.078) (0.063)
Constant 1.416** 1.511*** 1.877*** 1.028*
(0.544) (0.539) (0.608) (0.574)

R2 0.62 0.71 0.82 0.77

Number of observations (N) 639 518 440 359
All specifications include country dummies which are not reported for brevity. Standard errors are robust to
heteroskedasticity and are clustered by country. Standard errors are in parentheses. The estimated coefficients are in bold.
Significance at * 10%, ** 5%, *** 1% level.

24 

 
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