An economic analysis of the US wireless telephone industry: responses to new technologies

Abstract

The wireless telephone industry has seen dramatic changes. In the United States, for example, cellular demand continues to increase with high annual growth rates. In order to help meet this demand and to promote competition in the duopolistic wireless telephone industry, the Federal Communications Commission (FCC) supplemented the existing cellular industry capacity by auctioning spectrum for personal communications service (PCS). This paper analyzed the changing wireless telephone industry in terms of the emergence of new PCS providers. More specifically, this paper focused on the potential economic impacts of PCS providers on the traditional market structure of the wireless telephone industry by using industrial organization (IO) model and the concept of strategic groups. Because there are key strategic dimensions for grouping, the notions of strategic groups and mobility barriers seem to work well in the wireless telephone industry. Also, it is found that market concentration and conglomeration are more prominent than vertical integration in this fast growing, segmented and competitive industry.