Substituability between Mobile and Fixed Telephones: Evidence and Implications for India

Substitutability between mobile and fixed phones is an important consequence of India's telecom sector's deregulation since 1991. This paper tests for substitutability between mobile and fixed phones, based on a binary logit model and using the household sample survey data from the Karnataka State in South India. Estimated cross price elasticity offers empirical evidence for substitutability rather than complementarity between fixed and mobile phone services. This evidence is symmetric in mobile and fixed phone models. The empirical results have implications for on-going policy discussion on subsidization by the Access Deficit Charge and for changing the bases for Universal Service Obligation.Revised in May 2008