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TEAM LinG The Economics of Mobile Telecommunications Themobiletelecommunicationsindustryisoneofthemostrapidlygrowingsectors aroundtheworld.Thisbookoffersacomprehensiveeconomicanalysisofthemain determinantsofgrowthintheindustry.HaraldGruberdemonstratestheimpor- tanceofcompetitiveentryandthesettingoftechnologicalstandards,bothofwhich play a central role in the fast diffusion of technology. Detailed country studies provideempiricalevidenceforthedevelopmentofthemainthemes:thediffusionof mobiletelecommunicationsservices,thepricingpoliciesinnetworkindustries,the roleofentrybarrierssuchasradiospectrumandspectrumallocationprocedures. This research-based survey will appeal to a wide range of applied industrial economistswithinuniversities,governmentandtheindustryitself. HARALDGRUBERisDeputyEconomicAdvisorattheEuropeanInvestment Bank,Luxembourg,whereheisresponsibleforprojectappraisalandsectorstudies intheinformationandtelecommunicationssectors.Hehaspublishedextensivelyin refereedeconomicsandindustrialorganisationjournalsandisauthorofLearning and Strategic Product Innovation: Theory and Evidence for the Semiconductor Industry(1994). TEAM LinG TEAM LinG The Economics of Mobile Telecommunications HARALD GRUBER TEAM LinG    Cambridge, New York, Melbourne, Madrid, Cape Town, Singapore, São Paulo Cambridge University Press TheEdinburghBuilding,Cambridge,UK Published in the United States of America by Cambridge University Press, New York www.cambridge.org Information on this title: www.cambridg e.org /9780521843270 ©HaraldGruber2005 Thisbookisincopyright.Subjecttostatutoryexceptionandtotheprovisionof relevantcollectivelicensingagreements,noreproductionofanypartmaytakeplace without the written permission of Cambridge University Press. Firstpublishedinprintformat 2005 - ---- eBook (NetLibrary) - --- eBook (NetLibrary) - ---- hardback - --- hardback CambridgeUniversityPresshasnoresponsibilityforthepersistenceoraccuracyof sforexternalorthird-partyinternetwebsitesreferredtointhisbook,anddoesnot guaranteethatanycontentonsuchwebsitesis,orwillremain,accurateorappropriate. TEAM LinG For Licia TEAM LinG TEAM LinG Contents Listoffigures x Listoftables xiii Preface xv Listofabbreviationsandacronyms xvi 1 Introduction 1 1.1 Anewandfast-growingindustry 1 1.2 Businessstrategiesforfirms 5 1.3 Radiospectrumavailabilityasakeydeterminantfor marketstructure 6 2 Stylisedfeaturesofthemobiletelecommunicationsindustry 9 2.1 Introduction 9 2.2 Sometechnologyhistory 10 2.3 Characteristicsofalternativecellularsystems 22 2.4 Subscribertrends 33 2.5 Evolutionofmobiletelecommunicationsrevenues 37 2.6 Trendsincost 46 2.7 Regulation 51 2.8 Conclusion 63 3 Theevolutionofnationalmarketsforcellularmobile telecommunicationsservices 65 3.1 Introduction 65 3.2 Theanalyticalframework 66 3.3 Empiricalevidenceforthepolicymatrix 69 3.4 Countrystudies 71 3.5 Conclusion 143 4 Thedeterminantsofthediffusionofcellularmobile telecommunicationsservices 144 4.1 Introduction 144 vii TEAM LinG viii Contents 4.2 Preliminaryconsiderationsondiffusionandmarket structure 144 4.3 Theeconometricmodel 151 4.4 Empiricalresults 158 4.5 Conclusion 169 5 Marketconductandpricingissuesinmobilemarkets 171 5.1 Introduction 171 5.2 Theoreticalconsiderationsonmarketconduct 172 5.3 Productdifferentiationstrategiesinmobile telecommunications 177 5.4 Empiricalresearchonmarketbehaviour 182 5.5 Theoreticalfoundationsforpricinginmobile telecommunications 184 5.6 Welfareanalysisofchargingregimes 191 5.7 Mobiletelecommunicationspricing,bytypeofservice 194 5.8 Pricetrendsinmobiletelecommunications 203 5.9 Conclusion 221 6 Issuesinradiospectrummanagement 223 6.1 Introduction 223 6.2 Internationalspectrumallocation 223 6.3 Nationalspectrumassignment 225 6.4 Spectrumassignmentinpractice 232 6.5 3GauctionsinEurope 243 6.6 DiscussionoftheexperienceofEuropean3Gauctions 258 6.7 AdministrativeproceduresforEuropean3Gspectrum licences 260 6.8 Conclusion 265 7 Theevolutionofmarketstructureinmobiletelecommunications markets 266 7.1 Introduction 266 7.2 Thetheoreticalframework 268 7.3 Theprofitabilityofthemobiletelecommunicationssector inEurope 274 7.4 Thedesignofmarketstructurefor3GmarketsinEurope 278 7.5 Theaftermathof3Glicensing 282 7.6 Conclusion 285 Appendix 288 A1 Radiospectrumasascarceresource 288 TEAM LinG Contents ix A2 Theworkingprinciplesofcellulartelecommunications systems 292 Bibliography 299 Index 312 TEAM LinG