Empirical Studies on the U.S. Mobile Telecommunications Industry

Mian Dai

doi:https://doi.org/10.21985/N2NF2N

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Empirical Studies on the U.S. Mobile Telecommunications Industry

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This dissertation contains three essays that look at competition, entry and capacity spectrum investment of wireless telecommunication firms in the U.S. The first two essays (Chapters 1-2) examine wireless firm's entry decision while the final essay studies their investment behavior. The first essay examines how wireless firm compete against each other assuming that symmetric wireless firms produce homogenous goods. Specifically, I estimate an ordered probit model and compute the minimum population needed to support an addition firm. Though I have a national data set, I also look at a subsample of 498 isolated towns to minimize the possible biases caused by cross market correlation. I find evidence indicating a strong competition between regional and national firms. In isolated towns, the presence of national firm reduces the probability that two regional firms enter by 14% while it does not significant affect the probability one or three regional firms enters. The presence of regional firm only reduce the probability more than two national firm enter. In the full sample, the presences of a national firm always reduce the probability regional firm enter, while the presence of regional firm only reduce the probability all five national firm enters together. The second essay also deals with wireless firm's entry decision. It emphasizes the heterogeneity among national wireless firms and deals with strategic interactions. Through analyzing the wireless carriers' entry decisions at the city level, I uncover important details about industry competition that were overlooked by existing county-level analyses. The entry decision for each nationwide wireless carrier, together with the number of regional carriers, is formalized as the equilibrium outcome of a simultaneous-move game with complete information. The model identifies strategic interactions that arise from a competitor's market presence without imposing the specific restriction of positive or negative impact from such presence. I find that Cingular's entry decisions are a strategic complement to those of all nationwide carriers except Verizon. The market presence of Sprint raises the entry propensity of regional carriers, while Verizon's reduces their entry propensity. These findings suggest that it is important to account for strategic complementarities in firms' entry decisions. Failure to do so can overstate the degree of competition. In the third essay, I look at the capacity investment decision of wireless telecommunication firms. In particular, I investigate the investment pattern of wireless firms in the Advanced Wireless Service auction by exploring a unique data set. I document several empirical regularities on incumbent and entrant's firm's behavior. First, I find that presence of an entrant bidder drives up the winning bid much greater than the presence of an incumbent. This suggests that the extent of winner's curse might be greater for entrant. Secondly, the investment winning bids are monotonic in the number of entrant bidder and in the number of incumbent bidder. Thus little evidence of entry preemption could be found. Finally, I construct measures of competition based on the number of the firm and their geographical penetration rate and look at how a firm's willingness to invest varies as the market becomes more competitive. I find that the incumbent invest more when they face intense competitions from competitors with both full coverage and limited coverage. The entrants invest more only when they face moderate competition from the firm with limited coverage. These findings suggest that incumbent and entrant firm compete in different market segments.

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