In most countries throughout the world, mobile telephones have grown to be an integral part of the public telecommunication network. At the beginning of 2001, there were more than 725 million mobile subscribers around the world, up from just 11 millio...
In most countries throughout the world, mobile telephones have grown to be an integral part of the public telecommunication network. At the beginning of 2001, there were more than 725 million mobile subscribers around the world, up from just 11 million in 1990. The average mobile penetration rate of OECD countries was 32.4 per 100 inhabitants (OECD, 2001). Mobile telephones already account for almost one-third of all telephone connections. It seems likely that in a few years the number of mobile telephone subscribers will surpass conventional fixed telephones or fixed line connections as the dominant form of telecommunications in the world. 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 toll demand for traditional fixed telephones. In particular, we study whether or not mobile telephones are a substitute for fixed telephones by estimating the demand equations. The analysis is based on aggregate monthly time-series data collected in Korea over the period 1996 - 2001. The study shows that mobile telephone services are becoming a substitute for fixed telephones. Substitution effects between fixed and mobile telephones become predominant. The empirical findings of this paper are relevant to several important public policy issues.