Technology Wireless

In 1895, Guglielmo Marconi opened the way for modern wireless communications by transmitting the three-dot Morse code for the letter ‘S’ over a distance of three kilometers using electromagnetic waves. From this beginning, wireless communications has developed into a key element of modern society. From satellite transmission, radio and television broadcasting to the now ubiquitous mobile telephone, wireless communications has revolutionized the way societies function.

This chapter surveys the economics literature on wireless communications. Wireless communications and the economic goods and services that utilise it have some special characteristics that have motivated specialised studies. First, wireless communications relies on a scarce resource – namely, radio spectrum – the property rights for which were traditionally vested with the state. In order to foster the development of wireless communications (including telephony and broadcasting) those assets were privatised. Second, use of spectrum for wireless communications required the development of key complementary technologies; especially those that allowed higher frequencies to be utilised more efficiently. Finally, because of its special nature, the efficient use of spectrum required the coordinated development of standards. Those standards in turn played a critical role in the diffusion of technologies that relied on spectrum use.

In large part our chapter focuses on wireless telephony rather than broadcasting and other uses of spectrum (e.g., telemetry and biomedical services). Specifically, the economics literature on that industry has focused on factors driving the diffusion of

 wireless telecommunication technologies and on the nature of network pricing regulation and competition in the industry. By focusing on the economic literature, this chapter complements other surveys in this Handbook. Hausman (2002) focuses on technological and policy developments in mobile telephony rather than economic research per se. Cramton (2002) provides a survey of the theory and practice of spectrum auctions used for privatisation. Armstrong (2002a) and Noam (2002) consider general issues regarding network interconnection and access pricing while Woroch (2002) investigates the potential for wireless technologies as a substitute for local fixed line telephony. Finally, Liebowitz and Margolis (2002) provide a general survey of the economics literature on network effects. In contrast, we focus here solely on the economic literature on the mobile telephony industry.

The outline for this chapter is as follows. The next section provides background information regarding the adoption of wireless communication technologies. Section 3 then considers the economic issues associated with mobile telephony including spectrum allocation and standards. Section 4 surveys recent economic studies of the diffusion of mobile telephony. Finally, section 5 reviews issues of regulation and competition; in particular, the need for and principles behind access pricing for mobile phone networks.

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