Codiffusion of Wireless Voice and Data Services: An Empirical Analysis of the Japanese Mobile Telecommunications Market

Abstract

Wireless telecommunications have become over time a ubiquitous tool that not only sustains our increasing need for flexibility and efficiency, but also provides new ways to access and experience both utilitarian and hedonic information goods and services. This paper explores the parallel market evolution of the two main categories of wireless services - voice and data - in leading technology markets, inspecting the differences and complex interactions between the associated adoption processes. We propose a model that addresses specific individual characteristics of these two services and the stand-alone/add-on relationship between them. In particular, we acknowledge the distinction between the nonoverlapping classes of basic consumers, who only subscribe to voice plans, and sophisticated consumers, who adopt both services. We also account for the fact that, unlike voice services, data services rapidly evolved over time due to factors such as interface improvement, gradual technological advances in data transmission speed and security, and the increase in volume and diversity of the content and services ported to mobile Internet. Moreover, we consider the time gap between the market introduction of these services and allow for different corresponding consumer learning curves. We test our model on the Japanese wireless market. The empirical analysis reveals several interesting results. In addition to an expected one-way effect of voice on data adoption at the market potential level, we do find two-way codiffusion effects at the speed of adoption level. We also observe that basic consumers impact the adoption of wireless voice services in a stronger way compared to sophisticated consumers. This, in turn, leads to a decreasing average marginal network effect of voice subscribers on the adoption of wireless voice services. Furthermore, we find that the willingness of voice consumers to consider adopting data services is positively related to both time and penetration of 3G-capable handsets among voice subscribers.

Keywords: Wireless Telecommunication Markets, Mobile Internet, Stand-Alone and Add-On Services, Network And Imitation Effects, Codiffusion of Contingent IT Products and Services

JEL Classification: L86, L96, O30, O53