Delegation with Technology Migration: An Empirical Analysis of Mobile Virtual Network Operators

Abstract

This study examines the impact of mobile virtual network operators (MVNOs) on the performance of mobile network operators (MNOs) in the presence of overlapping generations of wireless mobile technologies (2G and 3G). MVNOs distribute MNOs’ mobile services to customers without owning any spectrum or network infrastructures. Some MVNOs are wholly owned by MNOs with a revenue-sharing mechanism (branded MVNOs), while others operate through wholesale agreements with MNOs (third-party MVNOs). By focusing on the impact of MVNOs on MNOs’ performance, we investigate governance issues, e.g., delegation vs. ownership, in value chains with overlapping generations of technologies. Using proprietary data, we design a quasi-experiment to analyze branded and third-party MVNOs. First, we use a sliding window adjusted difference-in-differences model as an exploratory analysis. Next, in the main analysis, we employ dynamic propensity score matching, which allows us to explore the variation of the impact over time. We find that branded and third-party MVNO launches both increase an MNO's 2G market share, whereas its 3G market share increases only with a branded MVNO launch. In addition, the positive effects diminish over time for branded MVNOs, but strengthen for third-party MVNOs. These results suggest that, when launching MVNOs, managers should decide on value chain governance based on technology migration and market maturity. If the focus is to quickly seize the market share with new mobile technologies, branded MVNOs are preferred. On the other hand, if the focus is to expand in a niche, mature market, delegating to third-party MVNOs may be more effective.