Wireless Communications

1
Wireless Communications

• Economics of Telecommunications

2
What does the market look like?

• Cellular service
• PCS
• Other wireless

3
History of the Cellular Telephone Industry

• FCC adopts duopoly model for spectrum allocation
• Wireline vs. non-wireline carriers
• Justified by presence of scale economies

4
Early issues

• Roaming problems
• Industry consolidation
• Formation of CTIA

5
Market growth

• Subscribers and total revenues rising
• In U.S. (2003), 88 billion in revenues, 160.6
  subscribers and 54 penetration
• Revenue and investment per subscriber falling
• Causing carriers to look for other opportunities
  for growth
• Attributable in part to technological
  improvements in CPE

6
Experience in other countries

• U.S. regulatory delays put it behind (See
  Tortoise and hare article)
• Nordic experience striking
• Implication for developing countries

7
Why were conditions ideal in Nordic countries?

• New forms of technology accepted
• Dispersed population
• Uniformly high levels of income
• Liberal licensing regime

8
Contrast U.S. and European experience

• Regulatory treatment 1987 Europe adopted GSM,
  now used in 65 of world
• U.S. fragmented
• Followed telephone convention - caller pays
• Perceived in early adopter countries as
  utilitarian, not luxury, service

9
Future of wireless - 3G

• Three generations of wireless devices
• 1G is analog voice
• 2G is current standard, some ability to carry
  data
• 3G all digital

10
3G Issues

• Financial - high cost of spectrum
• U.S. has short run advantage
• Technical
• power consumption
• needs more software
• hybrid 2G/3G needed (GPRS introduced)
• Spectrum problems in U.S.

11
Financial problems

• High cost of licenses (up to 125 billion total)
• Question arises - should government alter the
  terms of the auction?
• Will it benefit consumers?
• Network sharing
• Fair to companies that dropped out?
• Effect on future auctions?

12
Spectrum problems in U.S.

• Spectrum not available
• Must move broadcasters or defense
• Problems are delaying auction
• Political struggle between established industry
  (broadcasters) and new technology(wireless)