2015 Theses Doctoral

The Economics of Quality Investment in Mobile Telecommunications

Sun, Patrick Kainin

This dissertation studies the U.S. mobile telecommunications industry, with a particular emphasis on the incentive to maintain antenna facilities, or base stations, to produce better signal quality. It combines insights from economic analysis to draw inferences from unique datasets for the state of Connecticut.
Chapter 1 gives a broad overview of the industry and highlights the apparent importance of signal quality as a driver of demand. Publicly available information reveals that plan features, phone selection, and pricing seem to be less determinant of overall quality relative to the quality of the call network. Reduced form evidence from proprietary data on demand and base station location data from Connecticut confirm that signal quality is important and that base stations are important to signal quality.
Given the importance of base stations, Chapter 2 asks what are the competitive incentives to provide them and how would these incentive change in proposed mergers between two of the four largest firms in this industry. To answer this question, I use proprietary demand data and base station locations to estimate a structural model of supply and demand in this industry. I use a measure of land use regulation stringency from data on Connecticut zoning codes as instruments for the costliness of construction. Overall, I find base stations to have important competitive implications, as they represent a significant proportion of costs. Simulating mergers between AT & T and T-Mobile and Sprint and T-Mobile, I find the mergers induce increased differentiation between merging partners, a finding consistent with the previous literature. However, the natural efficiency of being able to use a single network instead of two can make the mergers welfare-improving. The results imply that merger reviews in industries with networks should investigate the scope of network integration as potentially important efficiency.
Chapter 3 expands on the instrumental variable in Chapter 2 and explores how exactly land use regulation impacts the incentives of firms to invest across different jurisdictions. I use a border discontinuity approach that looks at sites placed near town borders and compares the relative stringency of regulation between bordering towns. To measure the stringency of regulation, I use both researcher-coded measures from manual inspection of the regulations and measures derived from the computational linguistic technique of Latent Dirichlet Allocation topic modeling. I confirm that regulations that impose more burdens for applicants are associated with fewer sites and regulations that improve clarity are associated with more sites. A simple counterfactual shows that regulation has only a modest effect on the reallocation of facilities across towns, holding the number of facilities fixed.
Overall, these chapters clarify the role and costs of an important kind of quality provision in a major industry. They contribute significant insight for policy in both merger review and land use regulation. The second chapter is the first paper to treat signal quality as an endogenous characteristic in a study of the wireless telecommunications industry. The last chapter introduces to the economics literature topic modeling in the analysis of regulatory effects and statutory clarity as a regulatory concern.