The role of technological and product capabilities in a new high tech business: The case of cellular services

Abstract

This paper aims at analyzing whether firm-specific resources play a major role in the presence of both a market discontinuity and a market selection; the recently developed conceptual framework of the corporate coherence is applied to a firm's choice to enter the mobile communications business. A survey of 16 European markets and 32 mobile communications operators show that the domestic operators of public landline telecommunications networks (telecoms) are unquestionably the leaders and foreign telecoms are the first followers. As to the status of telecoms, one could raise three main different, yet not mutually exclusive, hypotheses: market power, static efficiency and corporate coherence. In order to assess the explaining power of the latter, the market shares of the main classes of investors are examined and an econometric model of the entry choice is estimated. While the market power hypothesis is not rejected by the empirical results, it is also made a case for the following conclusions: (i) the domestic and foreign telecoms' entry into the mobile communication services rely upon firm-specific capabilities; (ii) the coherence of the diversification path is centered on product competences (i.e. design and pricing of services) and complementary assets as the internal financial resources. In conclusion, the corporate coherence view shows its explaining power in a potentially controversial case.