Offering Supplementary Network Technologies: Adoption Behavior and Offloading Benefits

To alleviate the congestion caused by rapid growth in demand for mobile data, wireless service providers (WSPs) have begun encouraging users to offload some of their traffic onto supplementary network technologies, e.g., offloading from 3G or 4G to WiFi or femtocells. With the growing popularity of such offerings, a deeper understanding of the underlying economic principles and their impact on technology adoption is necessary. To this end, we develop a model for user adoption of a base technology (e.g., 3G) and a bundle of the base plus a supplementary technology (e.g., 3G + WiFi). Users individually make their adoption decisions based on several factors, including the technologies´ intrinsic qualities, negative congestion externalities from other subscribers, and the flat access rates that a WSP charges. We then show how these user-level decisions translate into aggregate adoption dynamics and prove that these converge to a unique equilibrium for a given set of exogenously determined system parameters. We fully characterize these equilibria and study adoption behaviors of interest to a WSP. We then derive analytical expressions for the revenue-maximizing prices and optimal coverage factor for the supplementary technology and examine some resulting nonintuitive user adoption behaviors. Finally, we develop a mobile app to collect empirical 3G/WiFi usage data and numerically investigate the profit-maximizing adoption levels when a WSP accounts for its cost of deploying the supplemental technology and savings from offloading traffic onto this technology.