Transaction vs. switching costs - Comparison of three core mechanisms for mobile markets

Arturo Basaure*, Henna Suomi, Heikki Hämmäinen

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

13 Scopus citations

Abstract

The fast growth in demand of mobile Internet urges mobile network operators (MNOs) to rapidly increase the wireless network capacity. For this purpose, governments are allocating large parts of the valuable low frequency spectrum to MNOs. This expansion also adds pressure to better optimize the intra-MNO and inter-MNO spectrum usage. Regulators are concerned about problems such as network blackouts, coverage disparities and congestion. Latest technology developments provide new mechanisms to address these problems through two alternative evolution paths, operator-driven and user-driven. The operator-driven path permits operators to trade network capacity and spectrum through, for instance, national roaming and dynamic spectrum access mechanisms, respectively. On the other hand, the user-driven path enables users (and traffic) to rapidly switch between networks through an end-user multihoming mechanism which intensifies retail competition. MNOs are reluctant to adopt these mechanisms if they involve risks. However, regulators can facilitate the deployment of these mechanisms by guiding the level of inter-MNO transaction costs and end-user switching costs. This paper analyzes the market dynamics of these three core mechanisms by employing agent-based modeling. Initial results indicate that each mechanism improves allocative efficiency on a dynamic basis and that such mechanisms become necessary if the current static market model based on vertically integrated MNOs is not able to meet the requirements of service quality, capacity and coverage. One promising use case of the proposed mechanisms is the indoor femto-cellular deployment which suffers from coverage disparity due to static single-MNO base stations. Moreover, either end-user multihoming or national roaming may provide MNOs a feasible business case for building indoor infrastructure by solving coverage disparity problems, by means of competition or cooperation, respectively. Dynamic spectrum access may work as an extension of the previous mechanisms for solving congestion; however, it requires higher technical and business coordination.

Original languageEnglish
Pages (from-to)545-566
Number of pages22
JournalTelecommunications Policy
Volume40
Issue number6
DOIs
StatePublished - 1 Jun 2016
Externally publishedYes

Bibliographical note

Funding Information:
This work has been partially funded by the EMERGENT project of Aalto University as part of the Tekes 5thGear program. Authors additionally want to thank Ricardo Paredes, Juuso Töyli, Jan Markendahl, Bengt Mölleryd and anonymous reviewers for their valuable comments.

Publisher Copyright:
© 2016 Elsevier Ltd. All rights reserved.

Keywords

  • Competition
  • Cooperation
  • Dynamic spectrum access
  • End-user multihoming
  • End-user switching costs
  • Inter-MNO transaction costs
  • National roaming
  • Wholesale and retail trading

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