Nakil Sung

Substitution between Mobile and Fixed Telephones in Korea

The stock of mobile telephones has surpassed fixed phones in Korea. Presently, the density is more than 60 of every 100 inhabitants. Thus, the potential for mobile telephones to become a substitute for, and directly compete with fixed telephones, has become evident. The aim of this paper is to examine the impact of rapid growth in mobile telephones on the access demand for traditional fixed telephones. The study shows that a 1% increase in the number of mobile telephones results in a reduction of 0.10–0.18% in new fixed connections and a 0.14–0.22% increase in fixed disconnections. The empirical analysis is carried out with Korean regional panel data for the period 1991–1998. The study is relevant to several important public policy issues.

Information technology, efficiency and productivity: evidence from Korean local governments

This study evaluates the performance of Korean local government by measuring their technical efficiency (TE) and total factor productivity (TFP) growth and, more importantly, examining the impact of information technology (IT) on this performance. The study is different from received analysis in that a unique measure of the state of IT–the Informatization Index–is used to investigate the impact of IT on both TE and TFP growth. Empirical analyses are conducted on data from 222 Korean local governments for the period 1999 to 2001. In particular, data envelopment analysis techniques are applied to calculate TE scores and TFP growth rates for sampled local governments. The empirical findings confirm the positive impact IT has in improving technical efficiency and accelerating productivity growth. The estimated coefficients are correctly signed (with other regional characteristics controlled for) when TE scores and TFP growth rates are regressed on the Index. In addition, the findings indicate that economies of density are present in the production of local public services.

Is a Pots Dispensable? Substitution Effects between Mobile and Fixed Telephones in Korea

As the stock of mobile telephones surpassed fixed telephones, thereafter reaching a density of more than 50 per 100 inhabitants in Korea, the potential for mobile phones to become a substitute for, and directly compete with fixed phones, has become evident. The aim of this paper is to examine the impact of rapid growth in mobile telephones on the access demand for traditional fixed telephones. The study shows that a 1% increase in the number of mobile telephones results in a reduction of 0.1-0.2% in new fixed connections and a 0.1-0.2% increase in fixed disconnections. The empirical analysis is carried out with Korean regional panel data for the period 1991-1998. The study is relevant to several important public policy issues.

Economies of Scale and Natural Monopoly in the U.S. Local Telephone Industry

This paper shows that firm-specific economies of scaleor net overall economiesare correlated with subadditivity. Both economies of scale and subadditivity are a decreasing function of firm size. Most firms are observed to be in the relatively flat portion of the long-run average cost curve, with pronounced economies of scale observable only at the low end of the scale. Economies of scope, as reflected in cost complementarities, do not appear to be a source of subadditivity. The results are estimated using translog total cost functions, and the fact that these cost functions include arguments for the quality of capital and of labor represents an innovation in methodology.

Estimating the Effects on Costs of Telecommunications Mergers

The study focuses on forecasts of cost savings from merger based on an analysis of economies of scale for eight U.S. telephone companies providing mainly local service. Based on data for the period 1951-91, we conclude that cost savings from mergers and economies of scale are unlikely for large regional telephone companies in the United States. This conclusion is sustained after various adjustments are made to eliminate the distorting effect arising from the presence of excess capacity. Further analysis suggests that economies of scale associated with the use of capital are offset by other diseconomies. In particular, the evidence is not inconsistent with the conclusion that monitoring costs for labor offset scale economies in the use of capital.

Declining first-mover advantage in mobile telecommunications markets

First-mover advantage may be more remarkable in the inherently oligopolistic mobile telecommunications market. This study evaluates the impact of market experience and competition on market share and profitability in mobile markets. Specifically, the study estimates regression equations for market share and earnings before interest, tax, depreciation, and amortization (EBITDA) service margin as a proxy for profitability, relying on a panel of mobile network operator (MNO) data from 27 Organisation for Economic Co-operation and Development member states for the period 1998–2009. The empirical results demonstrate that market experience (relative time in the market) exerted a clearly positive effect on the market share and the EBITDA service margin for MNOs. On the other hand, this first-mover advantage declines over time with accumulated competition experience, especially in the latter half of the 2000s.

Fixed-Mobile Call Substitution: Evidence from Korean Long-Distance Markets

As mobile telephone services experienced revolutionary growth in most countries throughout the world, they began to compete with fixed telephone services, first for use and then for access. This paper attempts to provide empirical evidence on fixed-mobile substitution by applying an econometric model of fixed telephone toll demand to Korean regional panel data. The time span encompassed by the study, 1993-1997, corresponds to the early development stage of mobile services in Korea. The study clearly shows that mobile calls were substitutes for toll calls even in these early years. My demand model is distinct from existing ones in that it does not consider only network and call externalities but also incorporates an implicit price for face-to-face interactions. Also, the study is relevant to some important public policy issues.

Measuring embodied technical change in the US local telephone industry

This study attempts to measure the rate of embodied technical change by using a short-run variable cost function that contains arguments for labour and capital quality. In this short-run variable cost model, the expansion of the amount of physical capital increases variable costs due to more maintenance outlays, and then it leads to improvements in capital quality. When a measure of competition is included as a proxy for organizational efficiency, improvements in labour and capital quality explain more than two-thirds of productivity growth. The degree of returns to scale and the shadow cost of capital input in the embodiment cost model are presented as well. The study is based on pooled time-series and cross-section data of eight US local exchange carriers.

Optional telephone subscription scheme: a unique experiment in Korea

In 1998, Korea adopted an optional telephone subscription scheme (OTSS), under which new or existing subscribers could choose either the old or the new subscription plan. The main difference between these two plans is the ratio of the connection fee to the monthly charge. This paper attempts to investigate several policy questions related to the change of the telephone subscription scheme. First, the paper examines the relationship between the telephone subscription scheme and competition in telecommunications, especially local competition. Secondly, we conduct international comparisons of the connection fee and the monthly charge to examine economically efficient fixed rate structures. Finally, after describing how the price levels for the new plan are determined, a consumer choice model is set up in order to predict the number of subscribers who will buy the new plan. The experience of the OTSS in Korea provides various implications for telecommunications policy issues in many countries.

Market concentration and competition in OECD mobile telecommunications markets

This study analyses the progress of market concentration in OECD member states’ mobile telecommunications markets and evaluates the relationship between market concentration and performance. Using annual panel data from 24 OECD member states for the 1998–2011 period, the study estimates regression equations for market concentration, mobile prices and profits. The empirical results indicate that the more concentrated the mobile market, the higher the prices and profits, providing support for the market power hypothesis. If this hypothesis holds, then market concentration can be a useful indicator of market performance. On the other hand, the applicability of the hypothesis is unclear for the second half of the sample period. The results provide evidence that regulatory policies influence the structure and performance of mobile markets.