Impact of 3G and beyond technology development and pricing on mobile data service provisioning, usage and diffusion

JEL classification: L96 O33 Keywords: 3G mobile services Business models Flat rate pricing Techno-economics Telecommunication a b s t r a c t This study investigates the third generation mobile telecommunication systems (3G) diffusion challenges in the situation where large-scale mobile data service usage has not yet broken through. The paper first analyzes incumbent mobile operator business prospects in a large Western-European country. The results suggest that rollout of the most advanced available 3G technologies pay back through increased data service usage and revenues in the situation of declining voice revenues. In the main body of the study we discuss different pricing models and demonstrate that the flat rate pricing of data services, supplemented with certain conditions, supports the large-scale take-up of mobile data services. It boosts the usage of mobile data services and provides a competitive and sustainable business model for the operators and other market actors at the same time. Our modeling indicates furthermore, that flat rate model, combined with open access, gives better incentives to rollout high-speed mobile technologies to the rural areas, than the traffic-based charging. About 10 years mobile data services have been waited to soar and become a huge, life changing industry, but technology maturity, capacity, service availability and usability problems have moved the prospects further and further, time after another. This paper investigates the current technical and market parameters relating to wideband and broadband mobile data service diffusion in the European context. According to the general theory of technological innovation, diffusion will follow an S-shaped adoption curve. The adoption starts slowly, and then rises quickly as more and more users adopt the innovation, and finally levels off (Rogers, 1995). Diffusion model of Bass is very commonly used (Bass, 1969). There different country specific characteristics, like GDP, educational level and e.g., competitive or regulatory conditions, introduce different values for the diffusion parameters (Dekim-pe et al., 2000; Gruber and Verboven, 2001). Especially concerning communication related innovations, the network externalities have been considered important (Gurbaxani, 1990). General diffusion modeling has mostly concentrated on the user behavior, macroeconomic and policy aspects, but business actors and modeling their decision-making in the mi-cro-economical level has not been focused in the analyses (e.g., Frank, 2004). Some studies, however, combine various aspects , discussing different stakeholders that contribute to the diffusion process (Saugstrup and Henten, 2006). In this study, we suggest that a crucial hindrance for the mobile data service usage …