Abstract
The supply chains of the mobile phone industry span national and firm boundaries. To analyze how value is distributed among the participants, a framework based on theories of firm strategy is applied, and a novel methodology is used to measure value capture in three phone models introduced from 2004 to 2008. The research shows that carriers capture the greatest value (in terms of gross profit) from each handset, followed closely by handset makers, with suppliers a distant third. However, the situation is reversed in terms of operating profit. Carriers shoulder the burden of network installation, maintenance, and upgrading, which absorbs much of the value from their subscription fees. Handset maker nationality, which may also influence supplier choice, is a key determinant of the geographic distribution of value capture. The results are also used to estimate the relationship of handset subsidies to carrier profits, which has been an issue of concern for antitrust authorities in several countries. The analysis shows how the framework can be used to calculate how much service charges might be inflated to cover the subsidies.
Highlights
Over the past decade, firms working around the world on the convergence of computing, communications and consumer electronics have created products with a high capability to price ratio that is driving large-scale adoption, in the developed economies
In terms of national outcomes, the analysis shows that handset maker nationality matters most because these firms still retain a significant share of the profits from each unit sold
This article has presented the first quantitative analysis of value capture by firms along the supply chain for high-end phones. Extension of this methodology to more pieces of the telecommunications value network is an area for future research
Summary
Firms working around the world on the convergence of computing, communications and consumer electronics have created products with a high capability to price ratio that is driving large-scale adoption, in the developed economies. One thing lacking in most discussions about these issues is solid data on who is capturing value in the current industry structure Such data is needed to undertake an informed analysis of firms’ incentives to innovate, the market power of different firms in the supply chain, and the distribution of value among the nations involved. This article analyzes the supply chains of three high-end mobile phone models, including two smartphones, that each benefitted from carrier subsidies These phones are representative of the high-end phones that are offered by carriers in exclusive, heavily subsidized arrangements with handset makers. The analysis applies a framework based on financial measures of value capture, including various measures of profitability.3 This analysis answers the following questions: (1) How are the financial benefits of innovation distributed among firms in a global value chain for advanced mobile technologies? The final section discusses the results and considers their policy implications
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