Fixed-Mobile Substitution in MENA Countries: The Future of Fixed-Line Markets
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Riham Ahmed Ezzat
Abstract
The aim of this paper is to study the occurrence of Fixed-Mobile Substitution (FMS) in the Middle East North African (MENA) region. While there have been many studies on developed countries, empirical evidence for developing countries is somehow limited. In the last few years, mobile cellular subscriptions achieved a tremendous growth across the MENA region making it the second fastest growing region in the world in terms of mobile subscriptions in 2012, and the fastest growing region in terms of mobile traffic in 2014. Fixed subscriptions have also grown but at a slower rate than mobile subscriptions. Using unbalanced data on 17 MENA countries over the period 1990–2009, we explore the relationship between fixed and mobile telephone services by using dynamic panel data models. We find empirical evidence for asymmetric one-way substitution between fixed-lines and mobile phones and we estimate own- and cross-price elasticities for fixed and mobile telephone services in MENA region. The results are then used to derive policy implications in terms of market redefinition, taxation policies, extension of universal services and broadband markets.
Acknowledgments
The authors are grateful to Carine Staropoli and Carlo Cambini for constructive comments and suggestions which undoubtedly improved the paper. They thank Philippe Gagnepain and the research team at Centre d’Économie de la Sorbonne for their valuable comments and suggestions. They also thank the editor and two anonymous reviewers for their insightful comments throughout the review process.
8 Appendices
8.1 Appendix 1. Fixed and Mobile Penetration in % Per Country (1990–2010)
Source. By the author from ITU (2010) database.
Notes. ARE “United Arab Emirates,” BHR “Bahrain,” DJI “Djibouti,” DZA “Algeria,” EGY “Egypt,” IRN “Iran,” JOR “Jordan,” KWT “Kuwait,” LBN “Lebanon,” LBY “Libya,” MAR “Morocco,” OMN “Oman,” QAT “Qatar,” SAU “Saudi Arabia,” SDN “Sudan,” SYR “Syria,” TUN “Tunisia,” TUR “Turkey” and YEM “Yemen.”
8.2 Appendix 2
To estimate telecom demand elasticities. We followed the Partial Adjustment model as follows (Liu 2004; Atalla and Hunt 2016; Russo and Green 2008).
In the partial adjustment model (PAM), the long-run level of demand q* is:
where
A partial adjustment mechanism describes how actual quantity qt adjusts gradually towards q* with speed of adjustment λ where 0 < λ < 1:
The relationship between
The coefficient of adjustment λ shows the speed of adjustment, the larger the value of λ is, the faster the adjustment is.
Substituting (6) into (8) produces an equation that is nonlinear in the five structural parameters (
where
The short run elasticity is measured from equation (5) by:
The current period:
One period after:
Two periods after:
In the long run, the elasticity will be the sum of all the short-run price elasticities as follows:
In our paper, we use panel data model,
where i denotes Country and t denotes Time. The short run elasticity equals α2 and the long run elasticity equals
As the PAM specification includes the contemporaneous price pt on the right-hand side, this suggests a need to use instrumental variables (IV) estimation to avoid the possibility of simultaneity bias.
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