Should mobile subscription be subsidised in mature markets?

Rob Albon and Richard York

Telecommunications Policy, 2008, vol. 32, issue 5, 294-306

Abstract: Handset subsidies are prominent in many mobile markets, and are often justified on the basis of network externalities arising from new subscribers joining with a benefit to existing subscribers in addition to their private valuation. An associated argument is that a tax on termination to fund these subsidies is justifiable. However, the external benefits from new subscriptions are likely to be minimal in the prevailing circumstances of saturation where there is not even the prima facie basis for mounting a case for subsidies. Benefits to other than new subscribers could be captured by personalised subsidies to new subscription and reciprocities in calling arrangements. Further, high termination charges will lead to fewer calls to mobiles, reducing the value of, and willingness-to-pay for, mobile subscription. Empirical evidence that handset subsidies are increasingly concentrated on discouraging churn and on encouraging migration to 3G mobile networks--rather than attraction of first-time subscribers--suggests that mobile subscription subsidies are not targeted at internalising various forms of externality, and instead are being used as a competitive tool.

Keywords: Pre-paid; subscription; Post-paid; subscription; Average; revenue; per; user; (ARPU); Penetration; Natural; saturation; Subscriber; identity; module; (SIM); Network; externalities; Call-receipt; externality; Reciprocal; externality; Marginal; social; benefit; Pigouvian; subsidy; Handset; subsidy; Churn; 2G; 3G; Mobile; termination; Mobile; termination; rate; (MTR); Mobile; network; operator; (MNO); Tslric; Fixed-to-mobile; (FTM); Market; failure; Potential; pareto; criterion; Regulatory; intervention; Network; externality; surcharge (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (3)

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