We work for operators and regulators to test whether a particular service offering causes a price squeeze in the market. Projects are usually based on cost models of an operator buying a wholesale input and trying to compete at the retail level.
NRAs need to balance two opposing goals when regulating wholesale tariffs, and ensure that:
- margins for alternative operators are not squeezed by an excessively reduced margin between the incumbent’s retail and wholesale tariffs
- low tariffs for a particular wholesale service do not squeeze another wholesale alternative – for example, local loop unbundling might be squeezed by low wholesale tariffs for bitstream, resulting in under-investment by OLOs.
Reaching a satisfactory compromise between these two goals requires an understanding of service economics and their likely evolution in the future. Depending on the nature of the service and the status of the market, a static or a dynamic price squeeze test may be a more appropriate choice:
- static models are in general appropriate for mature markets
- dynamic models are appropriate for markets under significant change.
There are two main approaches used in applying a price squeeze test:
- the ‘equally efficient operator’ test
- the ‘reasonably efficient entrant’ test.
Both tests are complementary in the sense that they allow for an assessment of whether the SMP operators and the new entrants can profitably operate retail services based on the wholesale products of the SMP operator.
Relevant experience
Example projects include:
- For an Asian regulator, we produced a study price squeeze between retail and wholesale DSL and cable access products in order to determine whether anti-competitive pricing was occurring. The regulator used the outcome to inform their thinking on future regulation to be imposed in the broadband markets.
- For a North African operator, we conducted a price squeeze analysis to show that effective prices per minute were above average costs. Our study was subsequently used to bring arguments during a dispute with the regulator
- For an operator in southern Europe, we developed a market test methodology for regulation of incumbents’ retail prices. The test compared incumbents' retail prices with the costs and revenues of representative new entrants.
