Estimating scale economies of the wireless telecommunications industry using EVA data

This paper proposes a new estimation method of total cost and average cost curves and applies it to the telecommunications industry. The method is more flexible and entails less hassle for data collection than traditional methods. The results show that the long-run average cost (LRAC) curve is downward sloping, revealing the presence of economies of scale in production. The two largest Korean mobile network operators are realizing full economies of scale, while the smallest operator is not. Finally, the paper recommends three policy alternatives that the Ministry of Information and Communication of Korea can draw on to increase efficiency in the Korean mobile telecommunications market.     

Competitive behavior in the European mobile telecommunications industry: Pioneers vs. followers

This paper studies the relationship between competitive strategy and improvement in the competitive position of pioneers and followers in the mobile telecommunications industry. The analysis uses a panel of data comprising all the actions of European firms operating in the digital mobile telecommunications industry with GSM 900 and/or DCS 1800 networks. The results show that competitors gain market share when they follow competitive strategies that are different from those of other firms. The paper also finds that price reduction actions represent the best approach for followers, while differentiation actions are the most effective strategy for pioneers.     

Estimating demand for cellular phone services in Japan

Since the 1990s, the telecommunications industry has changed dramatically with the wide diffusion of mobile telecommunications. In spite of this, the nature of the cellular phone market has not yet been explored sufficiently. This paper analyzes the demand for cellular phone services using data on the Japanese cellular phone market in the late 1990s. It finds that the market is highly product-differentiated and conventional network externalities are no longer decisive factors in choosing a mobile phone carrier. The evidence also shows that the demand for cellular phone services is quite price-elastic, with estimated elasticity from 1.30 to 2.43 in absolute value.     

Regulation and innovation in the telecommunications industry

This paper aims to introduce issues that relate regulation and innovation in the telecommunications industry. We try to address the following question: which types of regulatory schemes are likely to promote innovation in a fast-growing telecommunications industry? Section 2 analyses ex ante control by sector-specific regulation and ex post control by competition policies. Section 3 deals with the importance of compatibility hence regulation of standards in the telecommunications industry. Section 4 discusses the major issues pertaining to the relation between innovation and pricing on the one hand, and innovation and unbundling on the other.     

Economic growth,telecommunications development and productivity growth of the telecommunications sector: Evidence around the world

This paper studies the relationships between economic growth, telecommunications development and productivity growth of the telecommunications sector in different countries and regions of the world. In particular, this study assesses the impact of mobile telecommunications on economic growth and telecommunications productivity. The results indicate that there is a bidirectional relationship between real gross domestic product (GDP) and telecommunications development (as measured by teledensity) for European and high-income countries. However, when the impact of mobile telecommunications development on economic growth is measured separately, the bi-directional relationship is no longer restricted to European and high-income countries. This study also finds that countries in the upper-middle income group have achieved a higher average total factor productivity (TFP) growth than other countries. Countries with competition and privatization in telecommunications have achieved a higher TFP growth than those without competition and privatization. The diffusion of mobile telecommunications services is found to be a significant factor that has improved the TFP growth of the telecommunications sector in Central and Eastern Europe (CEE).     

Consumer protection in the telecommunication sector: A comparative institutional analysis of five African countries

The telecommunications sector has proliferated in recent years, especially in developing countries. However, little attention has been paid to consumer protection issues. As more people get connected to telecommunication networks and competition becomes increasingly fierce, it becomes essential to revamp institutions that ensure consumer protection in the telecommunication markets. This paper analyses the current status of institutions that protect consumers in the telecommunications sector in five African countries from the perspective of three pillars of sound institutional design. The findings indicate that while all cases analysed herein have some form of institution that upholds consumer protection, in most cases, such protection is limited to mobile communications. Furthermore, in most cases, there are only general sanction provisions that are either too weak to bind service providers or that leave overly discretionary powers to regulatory agencies, which can lead to corrupt practices, hence weakening consumer protection. This paper describes current affairs with regard to consumer protection in the telecom industry, identifies its weaknesses, and proposes areas of improvement to attain a healthier telecommunications sector.     

Paradoxical impact of asymmetric regulation in Taiwan's telecommunications industry: Restriction and rent seeking

The mobile penetration rate in Taiwan has climbed from 6.86 to 112.15. Mobile phone accounts per 100 capita in the first 6 years of market competition, during this time the state-owned incumbent Chunghua Telecom has been dethroned by a new entrant, Taiwan Cellular Corp. This paper addresses the cause of Taiwan's unprecedented mobile growth, and provides policy solutions for countries that strive to improve their telecommunications sectors in a short time scale. The authors highlight the fundamental role of asymmetric regulation, rather than pure liberalization, in the creation of the deregulated telecommunications industry in Taiwan. The asymmetric regulation in Taiwan is manifested in a twofold framework: the dominant carrier vs. competitors, and the fixed-line carrier vs. mobile companies. Econometric analysis concludes that dualistic asymmetric regulation leads to higher growth for mobile competitors and raises the total mobile penetration rate. However, the authors warn against the paradoxical consequences of dualistic asymmetric regulation. The regulatory benefits which mobile entrants received evolved into rents when they successfully lobbied to end the follow-me call service, the pricing scheme of which contradicts the asymmetric revenue-sharing constraint. The paper calls for a sunset clause for dualistic asymmetric regulation in order to take full advantage of its strengths, while at the same time preventing rent seeking by the firms, which benefit.     

Concentration of the mobile telecommunications markets and countries’ competitiveness

This study examines how the level of concentration of a country’s mobile telecommunications market affects its competitiveness. We created a unique database with information on 59 countries, which we used to perform several estimations including an instrumental variable approach to explain the degree of concentration in mobile phone markets. Our first and direct estimation shows that the higher the concentration in this industry, the lower the countries’ competitiveness. In order to understand this positive correlation, we provide two additional estimations. First, using an instrumental variable, we find that the concentration in mobile telecommunications market explains the use of information and communications technology (ICT). Moreover, we also find that the use of ICT is positively correlated with countries’ competitiveness. Thus, our results confirm that the mobile phone industry has positive spillover effects on countries’ competitiveness and demonstrate the benefits of policies designed to reduce concentration and market power in the industry.     

Institutional environment and complementary assets: Business strategy in China’s 3G development

This paper develops a framework to assess the influences of institutions and markets on the business strategy of firms in transition economies. We argue that regulatory systems and markets in transition economies are interdependent. Their changing conditions will interact and influence the types of partnerships in new market entry. Using a case study approach based on historical data and interviews, we show how China’s telecommunications industry evolved between 1987 and 2007, and led to the development of a 3G (third generation mobile telecommunications) standard and networks. Our analysis based on the framework explains how regulative elements and market conditions shape the strategic choices of partnerships between domestic and foreign firms when entering China’s 3G market.     

China’s telecommunications evolution,institutions, and policy issues on the eve of 5G: A two-decade retrospect and prospect

Over the past two decades, China’s telecommunications industry has witnessed drastic market reform, steadfast institutionalization, and volatile technological changes, which have driven exponential industry expansion. This paper offers an updated longitudinal and comprehensive review on this reform process on the eve of 5G (the fifth generation mobile communications networks). First, the paper segments the two-decade reform crusade into discernible phases, each of which is embedded with different policy drives. These reform phases are then pattern-matched against the subtleties of the overall institutional, technological, and market backdrop. A series of policy issues are identified through a systematic examination of industry phenomena over the reform course. Finally, the status of research is assessed regarding China’s telecom industry and reform, based on which, knowledge gaps are identified and future research agenda suggested. Conclusions are made regarding future reform and research imperatives. The paper advances the understanding of China’s telecom reform, development, and the underlying policy issues. It updates and expands previous works on similar topics. Overall, this study provides important theoretical, managerial, and policy implications.     

Bertrand equilibrium with differentiated products considering fixed costs: Korean price regulation in the mobile telephone industry

In some industries such as telecommunications and electricity, the fixed costs are so high that competition is not sustainable without considering the fixed cost in pricing. The sustainability of competition is as important as enhancing competition when an industry is in the transitional period from being a monopoly owned or managed by the government to a competitive market structure driven by the market. A price competition model with asymmetric firms and product differentiation is considered in which firms compete with a normal profit constraint. The constraint is related to the sustainability of competition and can be realized through price regulation. With this constraint, firms gain only normal profit in equilibrium despite the asymmetry, and consumer surplus is maximized. The equilibrium is meaningful in defining the industry performance intended through the regulation. Moreover, the price regulation of the Korean mobile telephone market is considered to discuss any implications of this equilibrium.     

Investigation of factors affecting the diffusion of mobile telephone services: An empirical analysis for Vietnam

This paper analyzes the diffusion of mobile telecommunications services in Vietnam and examines how telecommunications regulation and potential substitute/complement services affect the growth of the number of mobile telephone subscribers. Using a logistic diffusion model, it is found that fixed telephone services are a complement while data services have a negative relation to mobile telephone services in Vietnam. As for regulation, the policy of introducing competition has been found to be the most effective in influencing the adoption of mobile services. Another important result is that the estimated potential market is roughly 76% of the total population. The findings suggest that suitable regulation that guarantees competition in the mobile telecommunications market in a developing country such as Vietnam is one of the most important factors for a positive diffusion process.     

Access regulation and infrastructure investment in the mobile telecommunications industry

While mobile virtual network operators (MVNOs) increase competition in the mobile telecommunications industry, granting market access to MVNOs may have unwanted consequences. In particular, infrastructure investment by incumbent mobile network operators (MNOs) may be smaller. This paper examines the effects of MVNO entry and access regulation on the investment behavior of MNOs. It uses firm-level data for 58 MNOs in 21 OECD countries during 2000–2008. The results suggest that mandated provision of access is related to lower investment intensity of MNOs, while voluntary access provision has no effect. Although reduced investment incentives do not necessarily correspond to under-investment, this underscores the need for those countries where MVNOs are provided access to address the issue of investment incentives.     

Churn analysis for an Iranian mobile operator

To survive in the challenging environment of a global market, organizations must recognize and analyze customer attitudes. To be competitive, organizations must recognize and forecast customer preferences and behaviors to maximize customer retention before their rivals do so. This research identifies factors that affect customer churn, the single most valuable of an organization's assets. One year's data from call log files relating to 3150 customers were selected randomly from an Iranian mobile operator call-center database. Binomial Logistic Regression was the method of analysis used in this research. The results of this research indicate that a customer's dissatisfaction, their amount of service usage and certain demographic characteristics have the most influence on their decision to remain or churn. The results also imply that customer status (active or inactive status) mediates the relationship between churn and the cause of churn. The Iranian government's current plan to privatize the telecommunications industry without deregulation leads to a non-square competition environment. Deregulation in favor of delegating more authorities of customer care is necessary in order to develop a square private competition environment in the Iranian mobile telecommunications industry.     

The influence of regulations on the efficiency of telecommunications operators: A meta-frontier analysis

The telecommunications industry has a great ripple effect on the overall national economy. However, there is no consensus about what is the optimal regulation policy for the telecommunications industry. Regulations on the telecommunications industry are different by region (i.e. United States, European Union and Asia). A number of studies have been conducted on comparative efficiency analysis for different policies that apply stochastic frontier analysis or data envelope analysis. However, these comparative studies are inappropriate because the production functions for each region are not identical. Thus, this paper addresses meta-frontier methodology, which can reflect differences in production functions. The results indicate that the United States has the highest meta-frontier efficiency in contrast to previous research findings.     

Managing and modeling the price reduction effect in mobile telecommunications traffic

As needs for telecommunications services diversify, an increasingly wide range of services is becoming available in the market. Service price reduction is one strategy used by service providers to retain existing subscribers. A price reduction for one service, however, can affect the individual-level usage for other services. Price reductions can also be imposed on a service provider by regulation. For these reasons, understanding how price reductions affect service usage is of growing importance to the telecommunications industry for purposes of pricing and tariff development. In this paper, an individual-level usage model for telecommunications services is developed and the effects on usage of a price reduction are analyzed. The model is applied to age-stratified aggregate traffic data for a Korean mobile telecommunication service provider. Finally, a 0-1 integer programming model is proposed for choosing which market segment should be targeted with a price reduction to minimize revenue loss. These models can be applied to market segmentation and price reduction strategy.     

Diffusion and competitive relationship of mobile telephone service in Guatemala: An empirical analysis

The purpose of this paper is to analyze the characteristics of diffusion process of mobile telephone service and the competitive relationships between mobile and fixed-line services in Guatemalan telecommunications market. We investigated the best-suited model to explain the diffusion process of mobile telephone in Guatemala by estimating diffusion curves using empirical data. Moreover, we explored affecting factors which characterize the diffusion pattern of mobile telephony in Guatemala through statistical analysis. Finally, in order to understand the effects of competition in the diffusion process of Guatemalan mobile phone service, we attempted to clarify the competitive relationship between mobile and fixed-line services using the Lotka-Volterra model. As a result, the logistic model was found to be the best model for describing the diffusion pattern. Moreover, investment in telecommunications, the subscribers of fixed-line services, and the number of operators in mobile market were found as significant determinants of mobile diffusion process. Results from the Lotka-Volterra model showed that the relationship between mobile and fixed-line services has changed from pure competition to amensalism.     

Inconvenience cost of mobile communication failure: The case of South Korea

Mobile communication failure can occur when mobile traffic exceeds the manageable level. This depends on frequency bandwidth. Mobile communication failure causes inconveniences in a user's daily life that lead to social and economic damage. To address this issue, mobile telecommunications companies deploy additional bandwidths and develop new technologies, but these are costly strategies. This study applies a spike model based on a contingent valuation method (CVM) to measure the inconvenience cost resulting from mobile communication failure. The mean monthly willingness-to-pay (WTP) to avoid communication failure per user is estimated to be KRW 898.14 (USD 0.80) over a period of five years in our study. The inconvenience cost borne by the population is estimated to be KRW 2.97 trillion (USD 2.61 billion). Users experiencing greater frequency of communication failure are found to be willing to pay more to avoid the inconvenience. When excluding respondents citing zero-WTP, the mean WTP per user was calculated to be KRW 3426.41 (USD 3.01). Data traffic usage and frequency at which communication failure is experienced are variables that exhibit statistically significant effects on WTP to avoid mobile communication failure. Overall, estimation results show that a price discrimination based on data traffic usage or quality can be considered by mobile telecommunications companies and regulators to address the issue of data traffic inducing mobile communication failure.     

Customer churn analysis: Churn determinants and mediation effects of partial defection in the Korean mobile telecommunications service industry

Retaining customers is one of the most critical challenges in the maturing mobile telecommunications service industry. Using customer transaction and billing data, this study investigates determinants of customer churn in the Korean mobile telecommunications service market. Results indicate that call quality-related factors influence customer churn; however, customers participating in membership card programs are also more likely to churn, which raises questions about program effectiveness. Furthermore, heavy users also tend to churn. In order to analyze partial and total defection, this study defines changes in a customer's status from active use (using the service on a regular basis) to non-use (deciding not to use it temporarily without having churned yet) or suspended (being suspended by the service provider) as partial defection and from active use to churn as total defection. Thus, mediating effects of a customer's partial defection on the relationship between the churn determinants and total defection are analyzed and their implications are discussed. Results indicate that some churn determinants influence customer churn, either directly or indirectly through a customer's status change, or both; therefore, a customer's status change explains the relationship between churn determinants and the probability of churn.     

Convergence and unbundling of corporate R&D in telecommunications: is software taking the helm?

This paper presents a view of the changing structure of corporate R&D in telecommunications – one that is close to Adam Smith’s insightful and enduring idea of division of labor – that perhaps we are witnessing the beginnings of vertical disintegration and unbundling of important segments of the industry’s R&D activity. The paper maintains that the emergence of an independent software industry – aided by the convergence of computer, telecommunications and imaging technologies – and the rapid growth of technology-based alliances are at the heart of this trend. So extensive is the vertical disintegration of R&D that, in 1997, the top 10 independent software vendors in the US spent more on R&D than the combined spending by AT&T and Lucent whose sales were well over three times as large. It appears that the source of future innovation in the telecommunications industry lies not in its services segment but rather in telecommunications and Internet equipment firms and independent software firms. Increasingly, the fortunes of large service providers like AT&T will depend less on innovation and more on their ability to configure and market complete one-stop-shopping solutions to customers by combining internal resources with outsourced technologies, products and services.