Authors: Alessandro Monti, Ralf Schäfer, Stefano Lucidi, Ulrich Stumpf
Summary
In an increasing environment of stagnating market growth customer retention measures are becoming indispensable marketing instruments for telecommunication companies.
From a regulatory point of view the use of customer retention measures, particularly in the case of SMP, can lead to competition problems.
This study examines whether, in the case of SMP, concrete customer loyalty measures (minimum contract periods, the granting of temporary price discounts and bundling of services) pose a risk to competition and require triggering regulatory action.
With regard to minimum contract periods the automatic renewal of contracts rather than the initial minimum contract period itself represent a competitive problem. Customers often benefit from rebates during the initial minimum contractual period, whereas the automatic extension of the contract is usually not connected with new discounts for customers. Without incentives for customers, the automatic extension of contracts only increases the barriers to switch.
In combination with minimum contract periods providers often offer temporary discounts to their customers. In case SMP operators offer temporary discounts to defend their market position, competition problems such as barriers to entry and margin squeeze (MS) situations may arise. Therefore, temporary price reductions need to be considered in the context of MS tests.
Finally the bundling of services as a customer retention measure may in individual cases lead to competition problems if used by a SMP operator to leverage market power or cover-up MS situations. From a regulatory perspective, the technical and economic replicability of bundled products should therefore always be guaranteed.
Discussion Paper is available for download.
