Does the growth of mobile markets cause the demise of fixed networks? – Evidence from the European Union

• We model the demand for fixed and mobile subscription in the EU27 from 2003 to 2009.
• We estimate own-price and cross-price-elasticities of mobile and fixed line prices.
• Mobile demand seems to be more elastic than fixed line demand.
• Our results indicate modest one-way substitution from fixed to mobile services on the access level.

The increasing usage of mobile communication and the declining demand for fixed line telephony in Europe make the analysis of substitutional effects between fixed and mobile networks a key aspect for future telecommunication regulation. Using a unique dataset which contains information on all 27 European Union members from 2003 to 2009, we analyze substitutability between fixed and mobile telecommunication services in Europe by applying dynamic panel data techniques. We find strong empirical evidence for substitution from fixed to cellular networks throughout Europe. In addition, the paper reveals resulting policy implications.