Discussion Papers

Ralf G. Schäfer, Andrej Schöbel

Incumbents und ihre Preisstrategien im Telefondienst – ein internationaler Vergleich

Nr. 275 / Juni 2006

Summary

In the course of liberalisation and development of competition in national and global telecommunications markets the pricing policy of Incumbents has altered substantially. The model of a single, metering rated standard tariff for fixed network telephony is a thing of the past since quite a long time. In fact, the product portfolio of a carrier in this service segment today additionally covers a number of optional offers, which are aligned to different target groups. This study takes up these developments and aims at an in-depth analysis of the present market-relevant pricing models and pricing strategies both from a strategic perspective and from a regulatory point of view. The study focuses on pricing for (mass-market) voice telephony services of Incumbents, considering also the bundling of these services with services of other segments such as mobile telephony and Internet.

With regard to voice telephony mainly three kinds of optional offers of Incumbents can be differentiated: optional tariffs in the core business fixed network telephony, bundled offers of voice telephony services and services such as mobile telephony, Internet or TV/video services ("Triple Play") as well as offers for voice telephony by means of VoIP. Optional tariffs for fixed network voice telephony are predominantly two-stage tariffs. Compared with standard tariffs the usage-based tariff component offers a price reduction of the connection charges. Besides, there is also a smaller number two-stage tariffs with (partly) flatrate tariff components. Regarding the VoIP tariffs Incumbents show a noticeable trend which is characterised by flatrates and by a neutralisation of time and distance metering.

For Incumbents pricing strategies represent substantial instruments to protect their positioning in the national fixed network markets which are nearly saturated and affected by a strong competition. On the one hand, pricing strategies of Incumbents are part of their defending strategies in the core market fixed line telephony. On the other hand, they represent elements of their expansion strategies into new markets.

Due to the special market position of Incumbents national regulatory agencies still have to deal with the assessment of tariff offers. This task mainly focuses on three challenges: Cut-throat competition by low prices, carry-over of market power as well as discrimination on the wholesale level. Margin squeeze analysis represents an important instrument for the regulatory assessment of tariff offers.

The portfolio of optional tariffs of the German Incumbent DTAG ist rather small compared to other countries. Bundling offers still play a subordinate role in the current product portfolio. Nevertheless, the pricing strategy of DTAG does not differ fundamentally from the situation in other countries. In a short to medium - term perspective trends like bundling, flatrates and expansion of value creation by new services will dominate the pricing strategy of DTAG and hence the regulatory challenges in Germany. [Full text available in German only]

Diskussion Paper is available for download.

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