The International Handbook of Telecommunications Economics, Volume II
Edited by Gary Madden
Harald Gruber and Tommaso M. Valletti INTRODUCTION For the last 20 years mobile telephony and Internet technology have dramatically changed the telecommunications sector. Mobile communications started as a premium service oﬀering voice transmission with mobility. As the service became more common, mobile telephony challenged the notion of natural monopoly within the sector and unravelled a wave of regulatory change that has deeply changed the market structure of the telecommunications industry (Regli, 1997; Laﬀont and Tirole, 2000). In many countries there are now more mobile telephones than ﬁxed lines. These changes were preceded by profound technological advances, particularly in microelectronics, which provided a platform for the development of cellular mobile services. However, the key to industry development was the better use of radio spectrum, a scarce resource with alternative uses. Industry evolution can be seen as a race to relax this constraint through increased spectrum eﬃciency – that is, by employing smaller amounts of spectrum per unit information transmitted – and by political lobbying for more frequency. Relaxation of the spectrum constraint has allowed entry, however, entry remains restricted by regulation. The resultant market structure is oligopolistic. On the basis of crosscountry evidence it is possible to assess the empirical validity of a range of oligopoly models. This research is relevant for industrial policy since it provides useful information for the future design of market structure and sector regulation. Oligopoly rents are pervasive, as the high proﬁtability of the established ﬁrms in the sector show, and even expected pro...
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