Network effects in mobile telephony
This paper explores the role of network effects in the consumer’s choice of mobile phone operators in the UK. It contributes to the existing literature by taking a new approach to testing for direct network effects and by using individual level data, which allows to analyse the impact that the immediate social network has on consumer choice in network markets. For our empirical analysis we use two sources of data: market-level data from the British telecommunications regulator OFCOM and microlevel data on consumers’ usage of mobile telephones from the survey, Home OnLine.
We find that the proportion of off-net calls falls as mobile operators charge a premium for off-net calls, but even in the absence of any price differential between on-net and off-net, there is still a form of pure network effect, where a disproportionate number of calls are on-net. There is also some evidence that individual choice of operator is influenced by the total number of subscribers for each operator, but a much stronger effect is the operator choice of other household members.