- Email: [email protected]
Wireless technologies
Information Economics and Policy 22 (2010) 1–3
Contents lists available at ScienceDirect
Information Economics and Policy journal homepage: www.elsevier.com/locate/iep
Preface
Wireless technologies In 1983, few Americans could have imagined how profoundly society would be transformed following Ameritech’s launch of the first US cellular telephone service in Chicago. Expectations were modest for the early ‘mobile’ phone—often referred to as a ‘brick phone’—weighing over two pounds, with a purchase price of $4000 and costing nearly a dollar a minute to operate. The service seemed destined, at best, to satisfy a small niche demand of sophisticated business users and the very wealthy. Yet, by 2009, both the cost and the size of wireless phones had shrunk dramatically. Today, the typical mobile handset weighs only a few ounces, has a price tag that might range from ‘free’ to a few hundred dollars, and incurs usage charges that have fallen to roughly 5 cents a minute. From their origins as a voice-only handset, modern mobiles have evolved into an all-purpose voice, data and video appliance. The market response has been dramatic. Today there are over 276 million active customers in the US and over 4 billion worldwide.1 While these statistics are spectacular, they mask the fundamental ways in which wireless telephony has altered our personal and professional lives. When highway traffic grinds to a crawl, we can now call our child to say ‘‘I’ll be a few minutes late picking you up from soccer practice.” A 911 call from the side of the road will now summon emergency personnel to the scene or use GPS to pinpoint the location of a fallen tree blocking the roadway. Workers can now productively fill the ‘‘dead time” between business meetings by exchanging emails away from a landline telephone and a personal computer. Despite the transformative nature of mobile technology, formal economic analysis of this industry has lagged far behind technical progress—a symptom typical of economic research. We estimated that, in the past 25 years, over 10 times as many articles have been published in the economics literature on the electric industry compared to the mobile telephone industry.2 This relative inattention is, in some ways, understandable given the challenges to 1 For US wireless penetration, see Cellular Telephone and Internet Association, ‘‘Semi-Annual Wireless Industry Survey,” 2009, http://files.ctia.org/pdf/CTIA_Survey_Midyear_2009_Graphics.pdf. Global penetration rates are reported by the International Telecommunications Union in ‘‘ITU World Telecommunication/ICT Indicators Database,” 2009. 2 Based on a keyword search of EconLit, September 12, 2009.
0167-6245/$ - see front matter Ó 2009 Elsevier B.V.. All rights reserved. doi:10.1016/j.infoecopol.2009.11.004
both theoretical and empirical analysis presented by the industry. The mobile industry is not only young—less than 30 years old—but systematic data collection was begun relatively recently.3 In the ensuing years, the industry has undergone constant change in technological capabilities, service offerings and structure—all of which present additional challenges to formal economic analysis. In this special issue, we address the lack of attention to the role of wireless technologies and the mobile telephone industry. The articles in this special issue were presented at a conference held in Washington, DC. in April 2009.4 They explore a range of economic dimensions of the industry that chart the emergence of mobile telephony as it parts ways with fixed-line telephone sector—the focus of most economic research up to this time. The lead article by Vogelsang (‘‘The Relationship between Mobile and Fixed–Line Communications: A Survey”) surveys the literature that analyzes the forces of supply and demand that result in mobile substituting for fixed-line access and usage. Among other findings, he concludes that mobile and fixed services were complements during the early emergence of mobile services while they have increasingly become substitutes as the adoption of mobile telephony diffused through the population. Ward and Woroch (‘‘The Effect of Prices on Fixed and Mobile Telephone Penetration: Using Price Subsidies as Natural Experiments”) find modest substitution between fixed and mobile subscriptions using an innovative identification strategy that treats a fixed-line price subsidy 3 For instance, the Annual Report and Analysis of Competitive Market Conditions with Respect to Commercial Mobile Services which documented the progress of the wireless mobile industry in the US was first published by the Federal Communications Commission in 1995. 4 The event entitled ‘‘Wireless Technologies: Enabling Innovation and Economic Growth” was hosted by the Georgetown Center for Business and Public Policy in Georgetown University’s McDonough School of Business in collaboration with the Center for Research in Telecommunication Policy at the University of California at Berkeley. We are grateful for comments provided by session moderators and paper discussants including Nate Goldstein, Thomas Hazlett, Evan Kwerel, Jeff Macher, Howard Shelanski and Walter Strack. We are deeply indebted to Andrea Salvatore who deftly organized the logistics of the conference, and managed all administrative aspects of the paper submission and revision processes. Finally, a special thanks to David Waterman and all the members of the IEP Editorial Board for their support of this special issue without which our efforts would not have borne fruit.
2
Preface / Information Economics and Policy 22 (2010) 1–3
program as a natural experiment. Using the estimated demand parameters, they identify the unrealized potential of wireless in achieving universal service goals among lowincome households. Shifting the perspective from the demand-side to the supply-side, Lehr and Chapin (‘‘On the Convergence of Wired and Wireless Access Network Architectures”) assess the capacity, topology, reliability and mobility characteristics of emerging technologies for providing wireless and hybrid wired-wireless broadband services. Their analysis leads to the conclusion that the convergence so commonly predicted for telecommunications services is unlikely. Other articles in this issue examine the economic consequences of innovation in the industry. The article by Koski and Kretschmer (‘‘New Product Development and Firm Value in Mobile Handset Production”) draws upon data from the 16 largest handset manufacturers in the world over an eleven-year period to empirically evaluate the impact of handset innovation on firm valuation. The study distinguishes imitative changes in handset design from truly innovative product introductions, finding that firms have historically been rewarded with higher valuations as the result of truly innovative handset introductions. Bohlin, Gruber and Koutroumpis (‘‘Diffusion of New Technology Generations in Mobile Communications”) use a global database to perform a cross-national estimation of mobile diffusion as the mobile sector passes from one generation of wireless technology to the next. In some cases they find that an earlier generation constrains the pace with which the next generation diffuses, and at other times that the uptake of the two are seemingly independent. The variety of patterns observed among the three generations of mobile technology should raise some questions regarding the future for 4G deployment. Two articles in the collection examine allocation of radio spectrum—an essential input to wireless services that critically affects the pace of growth of the industry. The article by Mayo and Wallsten (‘‘Enabling Efficient Wireless Communications: The Role of Secondary Spectrum Markets”) examines the development of secondary spectrum markets in the United States. In particular, they draw upon an FCC database of every secondary spectrum transaction in the US to gain an improved understanding of this previously under explored market. The results identify the emergence of an increasingly vibrant secondary spectrum market that holds the promise to alleviate some, though not all, spectrum resource constraints. Bykowsky, Olson and Sharkey (‘‘Efficiency Gains from Using a Market Approach to Spectrum Management”) investigate the merits of alternative methods of spectrum allocation by comparing the outcomes of alternative congestion ‘‘etiquettes.” Taking a ‘‘proof of concept” approach, they explore whether a market mechanism might aid in FCC decision making regarding the allocation of spectrum between licensed and unlicensed uses. They also propose an auction design mechanism that may overcome the general market failure resulting from the unwillingness of those desiring unlicensed spectrum to reveal the true value they place on a particular licensing regime. In addition to radio spectrum, access conditions are another critical input to the provision of wireless telephony
service. The article by Cunningham, Alexander, and Candeub (‘‘Network Growth: Theory and Evidence from the Mobile Telephone Industry”) explores both the theoretical and empirical relationships between the pricing of call termination and the growth of wireless networks. While higher termination access rates may, in theory, increase or decrease retail wireless prices, they utilize an international database regarding mobile telephony and find empirical support for a ‘‘waterbed” effect: higher termination rates are associated with higher wireless subscriptions per capita. A final topic explored in this issue centers on regulatory policy directed toward the wireless industry. In particular, Rosston and Topper (‘‘An Antitrust Analysis of the Case for Wireless Network Neutrality”) conduct an economic analysis of proposed ‘‘network neutrality” rules as they would be applied to the wireless telecommunications industry. They argue that antitrust analysis provides a useful lens to evaluate the merits of proposed net neutrality rules. In particular, they argue that net neutrality rules are akin to the imposition of a per se prohibition on specific practices as exists within the antitrust domain. Based on a detailed review of the wireless industry, they argue that the challenged practices may embody consumer welfare-enhancing features and that, consequently, a rule of reason approach is more apt as an economic policy. Taken together, the papers collected in this special issue bridge the economic literature describing an infant technology (with a focus on how mobile services spread through the population, how spectrum and standards have enabled that diffusion, and the proper role of government in provisioning the necessary infrastructure) to research suited to a more mature telecommunications service that has reached ubiquity among consumers.5 Some topics remain salient even as the industry leaps from one technical standard to the next. Spectrum allocation is an unavoidable task that must be performed for each generation of wireless technology. Demands on radio spectrum imposed by increasingly sophisticated applications will stimulate the design of technological and economic means for economizing on spectrum use. Universal service concerns will also not disappear, since each new generation will re-define what it means to be connected. We already see the beginnings of a debate over the existence of a ‘‘mobile divide” that separates citizens having wireless broadband service from those that do not, and how to eliminate that separation.
5 It is interesting to compare the research that developed alongside the emergence of another transformative technology, television. An EconLit search for published research in the first 30 years after the launch of television turned up surprisingly few articles. The focus during that time frame was on the determinants of TV set ownership, the regulation of programming and advertising, and the relative merits of alternative business models. In comparison, research over the subsequent 30 years was dominated by the topics related to new technologies including the development of UHF bands, the emergence of cable television, and more recently internet television, along with the competitive threats that those technologies pose for traditional broadcasting.
Preface / Information Economics and Policy 22 (2010) 1–3
It is our hope that you find this special issue rewarding, and that you come to share our excitement as witnesses to the ongoing evolution of mobile technology and are motivated to investigate some of the many economic puzzles that they pose. Appendix A. Supplementary data Supplementary data associated with this article can be found, in the online version, at doi:10.1016/j.infoecopol. 2009.11.004.
3
John W. Mayo The McDonough School of Business, Georgetown University, United States Tel.: +1 202 687 6972 E-mail address: [email protected] Glenn Woroch University of California, Berkeley, United States Available online 3 December 2009
Contents lists available at ScienceDirect
Information Economics and Policy journal homepage: www.elsevier.com/locate/iep
Preface
Wireless technologies In 1983, few Americans could have imagined how profoundly society would be transformed following Ameritech’s launch of the first US cellular telephone service in Chicago. Expectations were modest for the early ‘mobile’ phone—often referred to as a ‘brick phone’—weighing over two pounds, with a purchase price of $4000 and costing nearly a dollar a minute to operate. The service seemed destined, at best, to satisfy a small niche demand of sophisticated business users and the very wealthy. Yet, by 2009, both the cost and the size of wireless phones had shrunk dramatically. Today, the typical mobile handset weighs only a few ounces, has a price tag that might range from ‘free’ to a few hundred dollars, and incurs usage charges that have fallen to roughly 5 cents a minute. From their origins as a voice-only handset, modern mobiles have evolved into an all-purpose voice, data and video appliance. The market response has been dramatic. Today there are over 276 million active customers in the US and over 4 billion worldwide.1 While these statistics are spectacular, they mask the fundamental ways in which wireless telephony has altered our personal and professional lives. When highway traffic grinds to a crawl, we can now call our child to say ‘‘I’ll be a few minutes late picking you up from soccer practice.” A 911 call from the side of the road will now summon emergency personnel to the scene or use GPS to pinpoint the location of a fallen tree blocking the roadway. Workers can now productively fill the ‘‘dead time” between business meetings by exchanging emails away from a landline telephone and a personal computer. Despite the transformative nature of mobile technology, formal economic analysis of this industry has lagged far behind technical progress—a symptom typical of economic research. We estimated that, in the past 25 years, over 10 times as many articles have been published in the economics literature on the electric industry compared to the mobile telephone industry.2 This relative inattention is, in some ways, understandable given the challenges to 1 For US wireless penetration, see Cellular Telephone and Internet Association, ‘‘Semi-Annual Wireless Industry Survey,” 2009, http://files.ctia.org/pdf/CTIA_Survey_Midyear_2009_Graphics.pdf. Global penetration rates are reported by the International Telecommunications Union in ‘‘ITU World Telecommunication/ICT Indicators Database,” 2009. 2 Based on a keyword search of EconLit, September 12, 2009.
0167-6245/$ - see front matter Ó 2009 Elsevier B.V.. All rights reserved. doi:10.1016/j.infoecopol.2009.11.004
both theoretical and empirical analysis presented by the industry. The mobile industry is not only young—less than 30 years old—but systematic data collection was begun relatively recently.3 In the ensuing years, the industry has undergone constant change in technological capabilities, service offerings and structure—all of which present additional challenges to formal economic analysis. In this special issue, we address the lack of attention to the role of wireless technologies and the mobile telephone industry. The articles in this special issue were presented at a conference held in Washington, DC. in April 2009.4 They explore a range of economic dimensions of the industry that chart the emergence of mobile telephony as it parts ways with fixed-line telephone sector—the focus of most economic research up to this time. The lead article by Vogelsang (‘‘The Relationship between Mobile and Fixed–Line Communications: A Survey”) surveys the literature that analyzes the forces of supply and demand that result in mobile substituting for fixed-line access and usage. Among other findings, he concludes that mobile and fixed services were complements during the early emergence of mobile services while they have increasingly become substitutes as the adoption of mobile telephony diffused through the population. Ward and Woroch (‘‘The Effect of Prices on Fixed and Mobile Telephone Penetration: Using Price Subsidies as Natural Experiments”) find modest substitution between fixed and mobile subscriptions using an innovative identification strategy that treats a fixed-line price subsidy 3 For instance, the Annual Report and Analysis of Competitive Market Conditions with Respect to Commercial Mobile Services which documented the progress of the wireless mobile industry in the US was first published by the Federal Communications Commission in 1995. 4 The event entitled ‘‘Wireless Technologies: Enabling Innovation and Economic Growth” was hosted by the Georgetown Center for Business and Public Policy in Georgetown University’s McDonough School of Business in collaboration with the Center for Research in Telecommunication Policy at the University of California at Berkeley. We are grateful for comments provided by session moderators and paper discussants including Nate Goldstein, Thomas Hazlett, Evan Kwerel, Jeff Macher, Howard Shelanski and Walter Strack. We are deeply indebted to Andrea Salvatore who deftly organized the logistics of the conference, and managed all administrative aspects of the paper submission and revision processes. Finally, a special thanks to David Waterman and all the members of the IEP Editorial Board for their support of this special issue without which our efforts would not have borne fruit.
2
Preface / Information Economics and Policy 22 (2010) 1–3
program as a natural experiment. Using the estimated demand parameters, they identify the unrealized potential of wireless in achieving universal service goals among lowincome households. Shifting the perspective from the demand-side to the supply-side, Lehr and Chapin (‘‘On the Convergence of Wired and Wireless Access Network Architectures”) assess the capacity, topology, reliability and mobility characteristics of emerging technologies for providing wireless and hybrid wired-wireless broadband services. Their analysis leads to the conclusion that the convergence so commonly predicted for telecommunications services is unlikely. Other articles in this issue examine the economic consequences of innovation in the industry. The article by Koski and Kretschmer (‘‘New Product Development and Firm Value in Mobile Handset Production”) draws upon data from the 16 largest handset manufacturers in the world over an eleven-year period to empirically evaluate the impact of handset innovation on firm valuation. The study distinguishes imitative changes in handset design from truly innovative product introductions, finding that firms have historically been rewarded with higher valuations as the result of truly innovative handset introductions. Bohlin, Gruber and Koutroumpis (‘‘Diffusion of New Technology Generations in Mobile Communications”) use a global database to perform a cross-national estimation of mobile diffusion as the mobile sector passes from one generation of wireless technology to the next. In some cases they find that an earlier generation constrains the pace with which the next generation diffuses, and at other times that the uptake of the two are seemingly independent. The variety of patterns observed among the three generations of mobile technology should raise some questions regarding the future for 4G deployment. Two articles in the collection examine allocation of radio spectrum—an essential input to wireless services that critically affects the pace of growth of the industry. The article by Mayo and Wallsten (‘‘Enabling Efficient Wireless Communications: The Role of Secondary Spectrum Markets”) examines the development of secondary spectrum markets in the United States. In particular, they draw upon an FCC database of every secondary spectrum transaction in the US to gain an improved understanding of this previously under explored market. The results identify the emergence of an increasingly vibrant secondary spectrum market that holds the promise to alleviate some, though not all, spectrum resource constraints. Bykowsky, Olson and Sharkey (‘‘Efficiency Gains from Using a Market Approach to Spectrum Management”) investigate the merits of alternative methods of spectrum allocation by comparing the outcomes of alternative congestion ‘‘etiquettes.” Taking a ‘‘proof of concept” approach, they explore whether a market mechanism might aid in FCC decision making regarding the allocation of spectrum between licensed and unlicensed uses. They also propose an auction design mechanism that may overcome the general market failure resulting from the unwillingness of those desiring unlicensed spectrum to reveal the true value they place on a particular licensing regime. In addition to radio spectrum, access conditions are another critical input to the provision of wireless telephony
service. The article by Cunningham, Alexander, and Candeub (‘‘Network Growth: Theory and Evidence from the Mobile Telephone Industry”) explores both the theoretical and empirical relationships between the pricing of call termination and the growth of wireless networks. While higher termination access rates may, in theory, increase or decrease retail wireless prices, they utilize an international database regarding mobile telephony and find empirical support for a ‘‘waterbed” effect: higher termination rates are associated with higher wireless subscriptions per capita. A final topic explored in this issue centers on regulatory policy directed toward the wireless industry. In particular, Rosston and Topper (‘‘An Antitrust Analysis of the Case for Wireless Network Neutrality”) conduct an economic analysis of proposed ‘‘network neutrality” rules as they would be applied to the wireless telecommunications industry. They argue that antitrust analysis provides a useful lens to evaluate the merits of proposed net neutrality rules. In particular, they argue that net neutrality rules are akin to the imposition of a per se prohibition on specific practices as exists within the antitrust domain. Based on a detailed review of the wireless industry, they argue that the challenged practices may embody consumer welfare-enhancing features and that, consequently, a rule of reason approach is more apt as an economic policy. Taken together, the papers collected in this special issue bridge the economic literature describing an infant technology (with a focus on how mobile services spread through the population, how spectrum and standards have enabled that diffusion, and the proper role of government in provisioning the necessary infrastructure) to research suited to a more mature telecommunications service that has reached ubiquity among consumers.5 Some topics remain salient even as the industry leaps from one technical standard to the next. Spectrum allocation is an unavoidable task that must be performed for each generation of wireless technology. Demands on radio spectrum imposed by increasingly sophisticated applications will stimulate the design of technological and economic means for economizing on spectrum use. Universal service concerns will also not disappear, since each new generation will re-define what it means to be connected. We already see the beginnings of a debate over the existence of a ‘‘mobile divide” that separates citizens having wireless broadband service from those that do not, and how to eliminate that separation.
5 It is interesting to compare the research that developed alongside the emergence of another transformative technology, television. An EconLit search for published research in the first 30 years after the launch of television turned up surprisingly few articles. The focus during that time frame was on the determinants of TV set ownership, the regulation of programming and advertising, and the relative merits of alternative business models. In comparison, research over the subsequent 30 years was dominated by the topics related to new technologies including the development of UHF bands, the emergence of cable television, and more recently internet television, along with the competitive threats that those technologies pose for traditional broadcasting.
Preface / Information Economics and Policy 22 (2010) 1–3
It is our hope that you find this special issue rewarding, and that you come to share our excitement as witnesses to the ongoing evolution of mobile technology and are motivated to investigate some of the many economic puzzles that they pose. Appendix A. Supplementary data Supplementary data associated with this article can be found, in the online version, at doi:10.1016/j.infoecopol. 2009.11.004.
3
John W. Mayo The McDonough School of Business, Georgetown University, United States Tel.: +1 202 687 6972 E-mail address: [email protected] Glenn Woroch University of California, Berkeley, United States Available online 3 December 2009