Are mobile network carriers going to improve their signals?

First, what I am discussing is solely based on a market economy environment, which means there is no government intervention. The market is a naturally oligopoly market, because size does matter that companies have to be large enough to be cost effective. The question that if mobile network carriers are going to improve their signals can be answered by how these companies compete in the market. When considering competitions in the mobile network market, we need to consider two circumstances. One is a stable circumstance when companies choose consistent strategies to maintain their market power and profitability, the other is when the market enters a new era (for example, we are entering the 5G era) and the incumbents need to re-invest in their capitals.

The first circumstance is much more straightforward. Since almost all mobile network carriers have some degree of market power, they want to make profits and avoid a perfectly competitive market where no one is making any profit. They do not have any incentive to enter a brutal price competition which can lead the market to a perfectly competitive market, instead they differentiate the market and take different groups of customers in the market separately. Since different companies target customers with different preferences, the competition between them are very limited. It does not mean there is no competition, some degree of competition still exists at the boundaries where the customers’ preferences may fall into more than one category. However, when the degree of differentiation increases, the number of such customers will decrease, thus the level of competition drops.

The latter circumstance is more complicated. We do not expect many new entrants enter the mobile network market, since incumbents have more decisive advantages than new entrants. When the market enters the 5G era, the mobile carriers must re-invest their capitals. Before investing, they need to make several expectations and decisions. First, they need to decide which types of customers they are targeting. They are very likely to keep targeting their existing customers, since they have better knowledge and lower advertising costs are required to inform their existing customers about the new services. Furthermore, since it is easy to target existing customers, other carriers are expected to do the same, keeping targeting the same group of customers can avoid competition. Then, based on their target customers’ preferences, they need to choose the right capitals to invest, so they need to make expectations about the costs and functionalities of different available capitals. Moreover, their customers’ preferences also determine the timing of their entering the new era. When the customers are much more cost sensitive, it is better for the carrier to enter the new era later when the cost of investment is cheaper. Of course, the cost of investment is an expectation, as the cost can vary across time and experience shocks caused by some heterogeneous factors. The major risk comes from such uncertainty.

However, this does not mean mobile carriers do not compete at all when upgrading to the next generation of technology. As mentioned, there is some degree of competition happening at the boundaries of different types of categories. New technologies can provide more new functions for customers and new functions are never experienced, so customers’ preferences toward mobile network can be changed after they experience new services brought by the upgrade technology and they may reconsider their mobile carrier choices. Competition increases when customers are re-making their choices and mobile carriers need to re-estimate their existing customers’ preferences towards the upgraded mobile services. When they adjust their services according to their existing customers’ preferences, they may also think about if they can grab some of other carriers’ existing customers, as some customers may change their preferences and fall into different categories.

If new functions are not expected to change customers’ preferences dramatically, then the competition will remain limited, because the expected returns from increasing the level of competition does not compensate the expected. However, if customers’ preferences are expected to be changed by new functions significantly and need to be re-categorized, the level of competition in the market will increase significantly, because the carriers want to capture as greater market shares as possible. Then there is a question if mobile carriers expect their customers’ preferences will change dramatically due to the new technology. It is highly unlikely for the mobile carriers to believe their customers’ preferences will change dramatically, because the carriers are risk averse and increasing the level of existing competition brings higher risk for the businesses. Therefore, even carriers may have a chance to expand their market power when they are moving towards the next generation of technology, they tend to stay at their comfortable zones and maintain their original profitability and market share.

Overall, because mobile network carriers have some degree of market power and are making profits, they are risk averse and tend to avoid competitions, especially direct competitions like price competitions to maintain their market positions. A dramatic improvement in signals may signal an increase in competition, which is not desirable for all oligopolistic companies in the market, so no company will tend to improve its signal significantly, the mobile network signal will be improved gradually at a relatively slow pace over time.