Pricing mobile data services of different quality levels

Due to advances in mobile technology and the introduction of fourth-generation mobile telecommunications such as Long Term Evolution (LTE) and the corresponding emergence of new services, mobile data services differentiated in terms of the level of quality are expected to work together in the market. We modeled users´ participation choices in mobile data services of different quality levels with a pricing model composed of generalized demand functions over user types and a two-part tariff. Applying survey data from the Korean mobile market, we estimated the level of user demand to evaluate the existing third generation (3G) and LTE tariffs and to forecast the market segmentation between them. The results show that the switch to LTE depends on a combination of its pricing and quality (or data rate) when a fixed fee for 3G service is offered. Moreover, the quality level of LTE is limited by the pricing. We expect our model and related empirical approaches to be useful to analyze and measure the effect of differentiated services for both operators and regulators in the telecommunications market.