Consumer Demand for Mobile Phone Service in the US: An Examination beyond the Mobile Phone

30 January 2012
By Dr. Christian Dippon

If casual observation is an accurate indicator, consumers make their mobile purchasing decisions based solely on the type of mobile phone that mobile service providers are offering as part of a bundle of services. This raises the question of whether other service bundle components matter to consumers. In light of increased competition and saturation in the US mobile sector, gaining a deeper understanding of consumer choice is critical not only for the development of effective market strategies but also for policymaking and antitrust investigations. Surprisingly, although there is a large literature addressing various aspects of mobile demand, no prior study has examined this topic from a mobile service bundle perspective. This study, by NERA Vice President Dr. Christian Dippon, uses a stated-preference survey to fill this gap in the literature. It offers direct insights into the demand determinants for mobile service bundles and how subscribers trade off the various bundle components. The design for the conjoint analyses incorporates efficient survey design, which promises most accurate parameter estimates. It is the first application of efficient survey design theory to telecommunication services. It is also one of the first practical applications of this innovative concept.

The fitted model reveals several interesting competitive and public policy findings. In terms of competition, the fitted model explores several competitive strategies, simulating market share gains and losses from changes in attribute levels and calculating demand elasticities for specific bundle components. This analysis reveals that only certain pricing strategies are effective. It also demonstrates that a combinatorial strategy might be most effective. Specifically, decreasing mobile phone prices, increasing term lengths, and increasing the monthly recurring charge increases subscriber revenue in addition to gaining market share. In terms of public policy, the study finds that regulators must examine market behavior and alleged market failures in terms of service bundles. Considering individual bundle attributes on a standalone basis, which is currently the common practice, yields incorrect results. Finally, the fitted model highlights the importance of making additional radio spectrum available to mobile service providers.