Fixed-to-Mobile Substitution in the European Union

This paper analyzes substitution between access to fixed-line and mobile telephony in the European Union. We estimate a structural model of household's demand for: (i) fixed-line only; (ii) mobile only; (iii) and both fixed-line and mobile access. We find that decreasing prices for mobile services increase the share of 'mobile only' households and decrease shares of 'fixed only' and 'fixed + mobile' households which suggests substitution between fixed-line and mobile connections. Moreover, growing Internet and DSL usage increase the share of 'fixed + mobile' households, which suggests that households keep their fixed line connection to access Internet. However, spread of 3G and cable modem broadband access decreases the share of 'fixed + mobile' households and increases the share of 'mobile only' households. Hence, in the future, fixed-line connection used for Internet access may be substituted by mobile broadband, as was in the case of voice telephony. On the other hand, bundling increases the share of 'fixed + mobile' households and decreases the shares of 'mobile only' and 'fixed only' households, which suggests that firms which provide both fixed-line and mobile services may slow down the substitution by bundling products.