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Emerging Telecommunications Networks

The International Handbook of Telecommunications Economics, Volume II

Edited by Gary Madden

This major reference work provides a thorough and up-to-date survey and analysis of recent developments in the economics of telecommunications. The Handbook serves both as a source of reference and technical supplement for the field of telecommunications economics.
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Chapter 8: Mobile telecommunications and regulatory frameworks

Harald Gruber and Tommaso M. Valletti


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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