Paying Less with Local Network Effects? An Empirical Analysis of the Swedish Mobile Communications Market.

This paper aims to investigate the roles of local network effects induced by on-net/off-net price discrimination, and social network groups of mobile customers or calling clubs. A nationwide web-based survey of the Swedish mobile communications market in 2011 was distributed, and data were analysed by employing the factor analysis, cluster analysis and econometric model. The findings indicate that Swedish mobile consumers take three factors into account when subscribing to a specific mobile carrier: bundling, local network effects, and quality and tariff of service. According to cluster analysis, the characteristics of mobile consumers can be used to classify them into four groups: (1) Bundling-driven, (2) Network-effects-oriented, (3) No specific pattern and (4) Quality- and tariff-oriented, even though the respondents are heterogeneous. The characteristics of the members of the network-effects-oriented group are driven, in particular, by price awareness, experience of changing mobile operator, voice spending and age. Fewer members of this group than of the others pay monthly bills, however, though this is not statistically significant. The mobile consumers of small operators pay significantly more than those of large operators, even though all of the operators offered a discount on on-net calls. Based on these findings, the local network effects may create barriers to consumers switching, in particular consumers of large mobile operators, and also to small mobile operators competing with large ones. The regulator may then need to consider ways to make the mobile subscriber a well-informed consumer, and mobile operators would need to compete on both price and quality of service. This would result in greater competition in the mobile communications market