Discussion Papers

Matthias-W. Stoetzer

Customer Behaviour in Mobile Communications: A Cross-Country Analysis
Nr. 120 / Dezember 1993

Summary

Cellular mobile telephony turns out to be one of the most dynamic sectors of the telecommunications industry. Forecasts claim that at the end of the nineties cellular mobile services in Europe will have a subscribership of about sixty million, compared to almost eleven million in 1992. Looking at the countries in Europe in 1993 the penetration rate of cellular mobile services widely diverges from 0.3 % (Portugal) to over 8 % (Sweden). The paper tries to figure out some of the possible reasons for this difference in cellular service penetration rates.

The demand for cellular mobile services up to now above all consists of business demand. Economic theory points to some of the relevant factors influencing customer behaviour. Price theory suggests that the price of the cellular telephony service, the prices of services that are substitutes and income should explain the observed differences of the adoption of cellular telephony. The price of the service as the most important influencing factor consists of two elements: the fixed charge (installation charge and monthly rental) and the usage charge (phone tariff per minute depending on distance, time and so on). Theoretical reasoning shows that the decision to subscribe to a cellular service could depend on the fixed charge. Other relevant factors determining customer behaviour include the knowledge of consumers as to mobile telephony and the technology of the cellular mobile system.

In order to test these hypotheses and explanations the paper applies multivariate regression analysis. This cross-section analysis is based on a sample of 23 OECD countries and a data set refering to 1992. It leads to some first but fairly robust results.

Fixed charges and income play an important role, while total charges are not relevant for the decision to subscribe to a cellular service. This outcome is in line with demand studies of telecommunications services indicating that subscription and actual use are two different decisions. Low fixed charges entail a growth of the number of subscribers independent of total charges. Also the general economic development of a country as indicated by the per capita income favours the spread of cellular services. As to their relative relevance the analysis points out the dominant influence of fixed charges in comparison to income. With regard to the exact value of the price and income elasticity the limited number of observations and the simplicity of the regression model entails a cautious interpretation. Probably the elasticity of demand as to prices is elastic but not very much.

Finally, it seems that the age and the standard of the cellular service are not responsible for the success or failure of a cellular service measured by the penetration rate.

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