The demand for mobile services in Colombia and the impact of asymmetric mobile regulation

Abstract

Purpose

The purpose of this paper is to assess the impact on mobile demand of an asymmetric regulation policy introduced in the year 2009 in Colombia. It aims to do this by estimating demand models for mobile services during the 2005 to 2011 period.

Design/methodology/approach

The economic analysis uses two‐stage least squares and ordinary least squares (OLS) econometric techniques. The paper models minutes used in Colombia as a function of prices, income, a time trend and a regulation dummy variable. The study controls for endogeneity issues in the price variable by using two instruments: Colombia's exchange rate COP – USD and the Producer Price Index.

Findings

The paper finds a price elasticity of demand and an income elasticity of approximately ‐0.66 and 0.30, respectively, within the range of previous findings in the literature. The study estimates that the introduction of the asymmetric regulation on the incumbent mobile's on‐net and off‐net prices reduced demand for mobile services and caused a loss in consumer surplus of approximately USD 108 million.

Originality/value

The paper presents the first empirical analysis of a regulatory policy affecting prices at the retail level on consumer's welfare in the mobile sector in Colombia. It advises policy‐makers in the telecommunication sector to use caution when regulating mobile markets' prices because the costs of this regulation can be significant.

Citation

Ros, A.J. and Umaña, D. (2013), "The demand for mobile services in Colombia and the impact of asymmetric mobile regulation", info, Vol. 15 No. 3, pp. 54-65. https://doi.org/10.1108/14636691311327124