Transition from Copper to Fiber Broadband: The Role of Connection Speed and Switching Costs

31 Pages Posted: 21 Feb 2019

Date Written: 2018

Abstract

We estimated a mixed logit model using data on the broadband technologies chosen by 94,388 subscribers of a single European broadband operator on a monthly basis between January and December 2014. We found that consumers have similar valuation of DSL connection speeds in the range between 1 and 8 Mbps. Moreover, in January 2014, the valuation of FttH connections with a speed of 100 Mbps was not much higher than of DSL connections with a speed of 1 to 8 Mbps, but it has increased quickly over time. The small initial difference in the valuation of DSL and FttH connections may be because consumers' basic Internet requirements such as browsing, emailing, reading news, shopping, and even watching videos online could be satisfied with a connection speed below 8 Mbps. We also found that consumers face significant switching costs when changing broadband tariff plans, which are substantially higher when switching from DSL to FttH technology. According to counterfactual simulations based on our model, switching costs between technologies are the main factor which slows down consumer transition from DSL to FttH.

Keywords: FttH, DSL, connection speed, switching costs

JEL Classification: L430, L500, L960

Suggested Citation

Grzybowski, Lukasz and Hasbi, Maude and Liang, Julienne, Transition from Copper to Fiber Broadband: The Role of Connection Speed and Switching Costs (2018). CESifo Working Paper No. 7431, Available at SSRN: https://ssrn.com/abstract=3338785 or http://dx.doi.org/10.2139/ssrn.3338785

Lukasz Grzybowski (Contact Author)

Télécom Paris ( email )

19 Place Marguerite Perey
Palaiseau, 91120
France

Maude Hasbi

Télécom Paris ( email )

19 Place Marguerite Perey
Palaiseau, 91120
France

Julienne Liang

France Telecom ( email )

France

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