Friday, July 7, 2017

Never a Sporting Chance: Broadband and Content Bundling in the Merger of Two Dominant Firms

Bronwyn E. Howell, Victoria University of Wellington - School of Management and Petrus H Potgieter, University of South Africa suggest Never a Sporting Chance: Broadband and Content Bundling in the Merger of Two Dominant Firms.

ABSTRACT: Bundling of broadband access and other services prevails in telecommunications markets. In converging markets, bundling broadband with video content is feared to foreclose broadband market competition. However, the motivations for bundling are many and complex, as are the forms it can take in different demand- and supply-side circumstances and its effects on both profits and welfare. Yet discussion of bundling in telecommunications markets has focused almost exclusively on the potential for strategic foreclosure by a dominant firm.

Analysing the recently-declined New Zealand merger between Sky Television and Vodafone, we find that bundling fixed broadband with fixed voice connections or with mobile services likely harms dynamic efficiency more than bundling it with one content deliverer or application. Preventing content and broadband bundling can potentially interfere with infrastructure investment and decommissioning decisions during the transition to an all-IP environment. Furthermore, deep discounting of bundles may be evidence of informed consumers acting rationally or effectively competitive firms responding to market incentives, as well as of an intention to foreclosure.

We recommend that more attention be given in future analyses to demand-side factors influencing the efficiency of bundled offers, and the form of bundling employed in addition to its presence or absence.

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