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Wireless Communications Final

Wireless Communications Final

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Published by: SpyDr ByTe on Mar 12, 2010
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06/08/2013

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Wireless Communications
*
 
by
Joshua S. Gans, Stephen P. King
and 
Julian Wright
 Handbook of Telecommunications Economics, Volume 2
(forthcoming)
*
We would like to thank Tomaso Duso, Natalie Lippey, Lars-Hendrik Röller, Aaron Schiff, and TommasoValletti for providing useful comments, and the Center for Research in Network Economics andCommunications for funding research assistance. We also would like to than Aaron Schiff, Richard Hayesand Ryan Lampe for outstanding research assistance.
**
University of Melbourne (Gans and King) and National University of Singapore (Wright). Allcorrespondence to j.gans@unimelb.edu.au.
 
 2
1
 
Introduction
In 1895, Guglielmo Marconi opened the way for modern wirelesscommunications by transmitting the three-dot Morse code for the letter ‘S’ over adistance of three kilometers using electromagnetic waves. From this beginning, wirelesscommunications has developed into a key element of modern society. From satellitetransmission, radio and television broadcasting to the now ubiquitous mobile telephone,wireless communications has revolutionized the way societies function.This chapter surveys the economics literature on wireless communications.Wireless communications and the economic goods and services that utilise it have somespecial characteristics that have motivated specialised studies. First, wirelesscommunications relies on a scarce resource – namely, radio spectrum – the propertyrights for which were traditionally vested with the state. In order to foster thedevelopment of wireless communications (including telephony and broadcasting) thoseassets were privatised. Second, use of spectrum for wireless communications required thedevelopment of key complementary technologies; especially those that allowed higherfrequencies to be utilised more efficiently. Finally, because of its special nature, theefficient use of spectrum required the coordinated development of standards. Thosestandards in turn played a critical role in the diffusion of technologies that relied onspectrum use.In large part our chapter focuses on wireless telephony rather than broadcastingand other uses of spectrum (e.g., telemetry and biomedical services). Specifically, theeconomics literature on that industry has focused on factors driving the diffusion of 
 
 3wireless telecommunication technologies and on the nature of network pricing regulationand competition in the industry. By focusing on the economic literature, this chaptercomplements other surveys in this Handbook. Hausman (2002) focuses on technologicaland policy developments in mobile telephony rather than economic research per se.Cramton (2002) provides a survey of the theory and practice of spectrum auctions usedfor privatisation. Armstrong (2002a) and Noam (2002) consider general issues regardingnetwork interconnection and access pricing while Woroch (2002) investigates thepotential for wireless technologies as a substitute for local fixed line telephony. Finally,Liebowitz and Margolis (2002) provide a general survey of the economics literature onnetwork effects. In contrast, we focus here solely on the economic literature on themobile telephony industry.The outline for this chapter is as follows. The next section provides backgroundinformation regarding the adoption of wireless communication technologies. Section 3then considers the economic issues associated with mobile telephony including spectrumallocation and standards. Section 4 surveys recent economic studies of the diffusion of mobile telephony. Finally, section 5 reviews issues of regulation and competition; inparticular, the need for and principles behind access pricing for mobile phone networks.
2
 
Background
Marconi’s pioneering work quickly led to variety of commercial and government(particularly military) developments and innovations. In the early 1900s, voice and thenmusic was transmitted and modern radio was born. By 1920, commercial radio had beenestablished with Detroit station WWJ and KDKA in Pittsburgh. Wireless telegraphy was

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