Essays on telecommunications demand and regulatory policies

• Main Author: Mothobi, Onkokame
• Other Authors: Grzybowski, Lukasz
• Format: Doctoral Thesis
• Language: English
• Published: University of Cape Town 2018
• Subjects: Information Economics; Telecommunications; mobile phone services
• Online Access: http://hdl.handle.net/11427/27066

This thesis employs models of homogenous and differentiated products to empirically investigate the demand for mobile phone services in Sub-Saharan African countries. The thesis consists of a short introductory chapter, three self-contained empirical chapters, and a summary chapter. In Chapter 2, we use survey data conducted in 2011 in eleven countries in Sub-Saharan African to analyze how the availability of physical infrastructure influences the adoption of mobile phones and usage of mobile services. The availability of physical service infrastructure is approximated by data on night-time light intensity in the areas in which survey respondents reside. After controlling for a number of individual and household characteristics including disposable income, we find that adoption of mobile phones is higher in areas with better physical infrastructure. However, in the group of mobile phone adopters, the use of mobile phones for mobile financial transactions is negatively influenced by the level of infrastructure. Mobile phone users who live in areas with poor infrastructure are more likely to rely on mobile phones to make financial transactions than individuals living in areas with better infrastructure. On the other hand, the use of mobile phones to access services such as email, skype, social media networks and Internet browsing is not dependent on the availability of physical infrastructure. Our results support the notion that mobile phones improve the livelihoods of individuals residing in remote areas by providing them with access to financial services which are otherwise not available physically. Chapter 3 examines the effect of mobile number portability (MNP) on own- and cross-price elasticities. Using quarterly data for 28 mobile operators in seven Sub-Saharan Africa countries between 2010Q4 to 2014Q4 to estimate a differentiated products demand model, we find that MNP increased own-price elasticities of demand in countries that have implemented the facility. This increase in price elasticities may be a result of a reduction in switching costs between operators. On average, the introduction of MNP increases own-price elasticities by 0.47 in absolute value. We compare the level of price elasticities before and after the implementation of MNP in Ghana and Kenya, which implemented this policy in the time period of our study. Our results suggest that in Ghana, MNP increased own-price elasticities by an average of 0.35 in absolute terms from an average value across firms and over time of -0.74. In Kenya, the introduction of MNP increased own-price elasticities by an average of 0.21 in absolute terms from a lower average value across firms and over time of -0.39. However, we find that in Kenya and Ghana the average own-price elasticities remained small even after the implementation of MNP relative to other countries without MNP in place. Thus, our results suggest that MNP is not the ultimate solution for increasing competitiveness within the mobile industry. While in Chapter 3 we use a product differentiated model of demand, in Chapter 4 we make assumptions that allow us to use a homogenous model of demand to examine the effect of regulatory policies on mobile retail prices. Using aggregated quarterly data for eight African countries for the period 2010:Q4 to 2014:Q4, we estimate structural demand and supply equations. We find that mobile termination rates (MTR) have a significant positive impact on mobile retail prices. A decline in average MTR of 10% decreases average mobile retail prices by 2.5%. On the other hand, MNP has an insignificant effect on price and subscriptions in selected African countries. This may be due to inadequate implementation of MNP, which subsequently lead to low demand for porting numbers. The average market conduct in the mobile telecommunications industry for selected African countries can be approximated by Cournot Nash equilibrium. In Chapter 4 we find price elasticities that are closer to 1 in absolute terms. The price elasticity, however, is estimated at an average of -0.27 for Sub-Saharan Africa countries in Chapter 4. We attribute this inconsistency to the different assumptions made in each chapter.