24 September 2019

Price Structure and Network Externalities in the Telecommunications Industry : Evidence from Sub-Saharan Africa

Written by World Bank
Developed by The World Bank
24 September 2019
The paper examines what factor facilitates most network expansion using micro data from 45 fixed-line and mobile telephone operators in 18 African countries. In theory the telecommunications sector has two sector-specific characteristics: network externalities and discriminatory pricing. It finds that many telephone operators in the region use peak and off-peak prices and termination-based price discrimination, but are less likely to rely on strategic fee schedules such as tie-in arrangements. The estimated demand function based on a discreet consumer choice model indicates that termination-based discriminatory pricing can facilitate network expansion. The paper also shows that the implied price-cost margins are significantly high.