ANALYSIS OF MARKET COMPETITION, SWITCHING COSTS AND ITS CONSEQUENCES IN TELECOMMUNICATIONS IN NEPAL

NAME: SAROJ POUDEL
DEGREE: MASTER OF INFORMATION SYSTEMS/MASTER OF INFORMATION TECHNOLOGY
COURSE: 7112ICT RESEARCH METHODS IN INFORMATION TECHNOLOGY

INTRODUCTION

The economics of switching costs and network effects have achieved a significant amount of popular, as well as professional attention in the last few decades. It is presently defined as the core factor for new Information Technology economy. Switching costs originates, if a consumer demands a product, or its related accessories(hardware or software), of his own purchases to be compatible with each other this creates economies of scope among his purchases from a single supplier. Whereas network effects arise when a user wants his system to be compatible so that s/he can interact or trade with other users, or switch to the same compatible system, which leads to the creation of economies of scope between different incompatible products. Thus these economies of scope impacts the consumer’s buying and switching behavior between various products. The state of lock-in arises when the switching cost is sufficiently high so that the consumer proceeds using the same product rather than switching to the different product. Lock in is the state where the cost of switching exceeds the benefits of switching.
Economics of switching costs is the summation of various types of switching costs including: compatibility costs (and their relationship to network effects), contractual costs, transaction costs, search costs, learning costs, uncertainty costs and shopping costs. One of the vital turning point in the history of switching costs is the Internet and the evolvement of e-commerce which changed the traditional way of trading media content which has magnificently lowered the searching costs, shopping costs and uncertainty costs.

PART 1
THE CONTEXT OF THE PAPER
Research community that the paper addresses
Paper 1- Pratompong Srinuan; Mohammad Tsani Annafari; Erik Bohlin
Paper 2-Lukasz Grzybowski ; Pedro Pereira
Paper 3- Patrick Xavier ; Dimitri Ypsilanti

Paper 1- An analysis of switching behavior in the Thai cellular market (2011)
Key researchers in this research community: Lucio Fuentelsaz; Andrew Stewart Wise; Kiran Duwadi
Area of Research: Switching costs and competition in Mobile Communication Networks
Name of the journal apart from the analysis paper: Switching Costs, Network Effects, and Competition in the European Mobile Telecommunications Industry(2012)
Publisher: Emerald Group Publishing, Limited
Place of publication: Bradford, United Kingdom
Importance of the paper:
The paper analyses the subscriber switching using Econometric tool known as Binomial Logit model Based on the Discrete Choice Theory. The main aim of the paper is to give recommendation after a detail analysis what will be the impact of implementation of MNP(Mobile Number Portability).It also lightens the strategy for the small operators to compete in the Thailand Mobile telecommunication market.
My personal Rating for Analysis Paper:- Rank | Interpretation | 2 | Intermediate Quality Ratings A ERA(Excellence in Research Australia) |

Basis:
This paper clearly identifies the problem as well as analyses the asymmetries between the incompatible technologies in the market structure and concludes that network effects are indirectly proportional to the competition in the market. It also clarifies the reason behind negative consequences of switching costs claiming unstrengthened network effect as the problem but fails to provide the appropriate solution. And it also does not shows the appropriate way for the small operators to compete in the market.
Ranking for Authors:
Pratompong Srinuan, Mohammad Tsani Annafari, and Erik Bohlin are all based at the Department of Technology Management
& Economics, Chalmers University of Technology, Gothenburg, Sweden. Their contribution to telecommunication sector is highly appreciated by professionals due to their investigations in switching strategies , pricing elastic and. Several of their research are based on technology pricing strategies on various countries including Sweden, Japan ,European countries and many more. I would like to rank them 9 out of 10.
Rating for the Publishing Institution:
Emerald Group Publishing Limited is a scholarly publisher of academic journals and books in the fields of management, business, education, library studies, health care, and engineering. It was founded in the United Kingdom in 1967 and has its headquarters in Bingley.It operates worldwide and provides its quality service in the publishing sector. I would rate it 9 out of 10.

Paper 2- Subscription Choices and Switching Costs in Mobile Telephony(2011)
Key researchers in this research community: Juan Pablo Maicas ; Yolanda Polo; Francisco Javier Sese
Area of Research: Consumer Behavior in Mobile Communication Networks in Spain
Name of the journal apart from the analysis paper: The role of (personal) network effects and switching costs in determining mobile users' choice(2009)
Publisher: Springer Science & Business Media
Place of publication: Boston, Netherlands
Importance of the paper:
In this study, the authors investigate the price elasticities of demand for subscription and consumer switching costs for mobile telephony using a panel data of Portuguese consumers to estimate a series of multinomial and mixed logit models . In addition, this paper investigates switching preferences using the structural model to perform policy exercises.
My personal Ratings for Analysis Paper:- Rank | Interpretation | 1 | Highest Quality Ratings A* ERA(Excellence in Research Australia) |

Basis:
In this study, the authors have investigated the role of personal network effects and switching costs in explaining customer choice in Portugal. The use of multinomial logit models increases the quality of the research. The explanation is clear and topic is well defined. All roles of network effects has been transparently described and its consequences are well explained.
Ranking for Authors:-
L. Grzybowski , Department of Economics and Social Sciences
12 Publications in Mobile Telecommunications in various European Countries including Germany, Portugal ,UK ,France
Pedro Pereira , Autoridade de Concorrência
Government of Portugal
Phd:UCSD,Economics,1997
More than 20 publications in Economics and Mobile telecommunications in Portugal including switching costs , Price Dynamics of Electronic Markets
Ratings 8 out of 10 for both the Authors for their contribution to the IT sector.
Rating for the Publishing Institution:-
Springer Science & Business Media is a global publishing company that publishes books, e-books and peer reviewed Journals in science, technical and medical publishing established in Berlin, Germany in 1842.I would rate this institution 10 out of 10 because of its quality management, variety of authors and coverage of huge range of disciplines. And also it is the largest book publisher and second-largest journal publisher worldwide.

Paper 3- Switching costs and consumer behavior : implications for telecommunications regulation(2008)
Key researchers in this research community: Sung Ho Ha; Jeongwon Yang
Area of Research: Consumer Behavior in the Internet Telephony and Data Mining
Publisher: Springer Science & Business Media
Place of publication: Bussum , Netherlands
Name of the journal apart from the analysis paper: Classification of switching intentions toward internet telephony services: a quantitative analysis(2013)
Importance of the paper:
This study develops some classification models for predicting consumers' intentions to switch from traditional telephone services to ITSs(Internet Telephony Services) by adopting data mining methods to analyze switching intentions and using discriminant analysis, logistic regression, classification tree, and neural network techniques to develop the classification models Rank | Interpretation | 2 | Intermediate Quality Ratings A ERA(Excellence in Research Australia) |

Basis:
This study develops some classification models for predicting switching intensions of consumer from traditional telephone service to Internet Telephony Services using different techniques. The development of classification model is clear and descriptive. The analysis using regression and neural networks explain most of the statistical figures in a organized fashion. But it doesn’t suggest the appropriate classification model for implementation from which best output can be expected and the comparison between the traditional telephone services and ITSs is done only in the chosen model. It would have been better it was done in few other models so that the result could be re-analyzed and checked whether it affects the final output or not.
Rankings for Authors:
Patrick Xavier (Faculty of Business, Swinburne University of Technology, Melbourne)
-More than 10 Research publications in telecommunication networks of various countries including Spain, Thailand and China
Dimitri Ypsilanti (Head, Telecommunications Policy Section, OECD, Paris)
-More than 20 Publication in Communications policy and Telecommunication and Information Services Policy in Asia , Europe and America
Ratings 9 out of 10 for their contribution in IT Sector.

Rating for the Publishing Institution:-
Since this is the same publishing agency as the first paper. So the ratings for the publishing agency are same as the first paper.

The Details of the Paper
Paper 1- Switching Costs, Network Effects, and Competition in the European Mobile Telecommunications Industry
Research Questions addressed:
Some of the clearly stated questions are:
-What is MNP? What are its pre and post implementation effects?
-What subscriber characteristics explains the switching behavior in Thailand Telecommunication Market?
-How influential and rigid is the switching behavior in relation with the mobile operators?
-How can the network service of small operators be improve in order to compete with larger mobile operators?
-What is more influential factors for the subscribers, cost or network coverage?
Justification of the research:
The researched is well justified and the research questions are clearly answered. This study was highly focused on whether or not to implement the MNP and the authors have recommended to implement it with justified analysis leading to the practical significance.
Connection to the current research: This research has strong connections with the current research since its approach of analyzing the switching behaviors of the subscribers is closely related to the my way of analyzing Nepalese subscribers. And telecommunication environment of Thailand and Nepal is common in many ways where logit model implementation could yield a influential result. And Nepal is also planning to implement MNP so some of the parts which are common are clearly discussed in this paper providing me some effective guidelines for the research.
Based Theory:
The research is clearly based on the Discrete Choice Theory. Discrete Choice Theory is the study of behavior in situations in which the individual must select from a finite set of choices. It assumes that an individual is likely to choose one alternative over others when the level of its utility is greater to him or her than the utility of other alternatives (Kim and Yoon, 2004).
Research Paradigms
The paper clearly states and follows a logit model on the basis of which the whole analysis is conducted. Logit paradigm postulate some relation between the logit of observed probabilities (not the probabilities themselves), and unknown parameters of the model. The major reason for using logits, as opposed to probabilities themselves, is that in many cases where a linear model using probabilities does not fit the data, a linear model using logit does. * Research methods adopted: * -Random Sampling was done through the distribution of questionnaires
-Implementation of Binary Logit Models, the most effective Econometric tool was used which is based on the Discrete Choice Theory
Research design and findings:
Research design is sufficiently and clearly addressed and well described. Since this paper specifically focuses on few but practical questions it is well justified by the author with relevant comparative analysis.
Relevancy of Research:
This research is useful for academic community to practically understand the Binary logit model and its implementation and Mobile Number Portability(MNP).It broadly focuses on Mobile Communication Networks but has no direct contribution to the Discrete Choice Theory or any other. It just supports and justifies the theory. In regards with the IT practice MNP is a traditional concept for the developed countries but for the developing countries like Nepal it will act as IT guidelines. *

Paper 2- Subscription Choices and Switching Costs in Mobile Telephony Research Questions addressed:
Some of the clearly stated questions are:
-What are the obstacles for the consumers to switch between different operators?
-How does price elasticity of demand influence the switching behavior of subscribers?
-Which policies should be exercised to illustrate the importance of switching costs?
Justification of the research:
Since the research is solely based on the switching costs and its impact on subscription choices it has a clear vision and well identified topic. So the addressing of its influential factors using mixed logit models and statistical model of estimation of price elasticity of demand is effective in the qualitative analysis and well justified and is moreover of the theoretical significance.
Connection with the Existing Research:
This paper focuses on the factors and obstacles of switching behavior which is one of the major area of the current research. The other point it the price elasticity of demand which will be relevant to the developing country like Nepal and the description in this paper will act as good reference. The mixed logit model will guide my research to a effective comparative environment.
Based Theory:
This paper is based on the Price elasticity of demand which measures the responsiveness of demand after a change in price which is practical implementation of Theories of Economic Growth. It is applied to find out how the elasticity of price affects the switching behavior of the subscribers and was very effective in yielding the quality result. It also used the probability theory to estimate the probable candidates for each conditions specified.
Research paradigms:
The paper used the multinominal logit and mixed logit paradigm to estimate the price elasticities of demand for subscription and consumer switching costs for mobile telephony. Structural model was used on the other hand to perform several policy exercises that illustrate the importance of switching costs for the market structure of mobile telephony, and evaluate their impact on the consumer welfare.

Research methods adopted:
The paper used the econometric method for statistical and comparative analysis of the mobile subscribers using various influential factors and it is well justified through the econometric implementation of the estimation strategy on the data which consist of a micro panel of 800 individuals, based on monthly scanned invoices with detailed information about all of the calls, messages, and other types of communications made by individuals.
Research design and findings:
The research question was addressed well with efficient estimation strategy and the findings were supported by sufficient evidences including the practical analysis of data of 800 individuals .But it mainly focused on the consumer’s point of view , it missed the impact of switching behaviors of consumers on the network operators and what its consequences could be.
Relevancy of Research:
This paper is relevant for academic communities who are interested in analyzing the consumers switching behavior and economic analysis of price while switching. Its use of multinomial logit models instead of binary logit models is highly appreciated since it provides the clearer picture of the competitive scenario.

Paper 3- Switching costs and consumer behavior : implications for telecommunications regulation
Research Questions addressed:
Some of the clearly stated questions are:
-How can the service of mobile operators and Internet Service Providers(ISP) through Risk-Free trial period?
-What are the effects of Bundling? (Positive and Negative)
-What are the appropriate contractual conditions and the role of regulators to the consumers?
- To which extent consumers are satisfied with their present providers?
Justification of the research:
The research content is organized and questions are clearly answered. In his conclusion he has stated some factors they have not covered as things which needs further research . The things he has covered is well justified and quality recommendation are provided enhancing the practical significance. Appropriate operations of regulators are also well assigned which adds the quality of the research.
Connection with the Existing Research:
This paper discusses about the Bundling process which can be very effective in the developing country like Nepal if it is made cost effective. The other important factor is consumer awareness. If consumers of Nepal could be made aware 20-25 percent of variety of costs including search cost could be reduced. And the assignment of operations of regulators which can be influential in Nepalese Telecommunication Environment.
Based Theory:
The research is not based on a particular theory but it is implicitly based on the Rational Choice Theory and Efficient Markets Hypothesis. Rational Choice Theory is the theory where consumer rationalizes the merits and demerits from switching from one subscription to the other. Efficient markets theory is applied by the existing mobile operators and ISPs to enhance their market share and the new ones to penetrate effectively in the market.
Discussion of the research paradigms:
The paper uses the statistical analysis of MNP over several countries providing a transparency of the discussion issue. And the evidence of actual switching behavior in telecommunications markets signifies its influence.
Adopted Research Methods:
-Surveys of consumer switching behavior in a number of countries are examined to ascertain reasons for actual consumer decision making regarding switching. It is well justified by the tables of surveys done in more than 25 countries.
Research design and findings:
The design of the research is well structured addressing the merits and demerits of switching defining all the related terms and even focusing on efforts to address barriers to switching. The findings are the relevant answers to the respective research questions providing the best knowledge and proving its relevancy. The evidences are explained well and the every possible evidence are listed.
Relevancy of the Research:
This paper provides a practical solution for smarter and smoother competition and suggest the way to accelerate the potential benefits of the sustainable competition. It also suggests to enjoy the benefits of switching as a empowered assertive consumers, able and willing to switch, by creating a pressure on suppliers to deliver these benefits. This statement challenges to those IT Professionals who always thought about the limitations of switching. This paper directs the consumers to switch.

PART 2
Topic of the Research:
Analysis Of Market Competition,Switching Costs and Its Consequences In Telecommunications In Nepal
Area of IT:
Telecommunication Networks (Communication and Networking)
Research Questions to be addressed:
-What are the key drivers in the decision to search or switch for subscribers in Nepal?
-What are the impact of switching between operators and ISPs?
- How ‘‘information asymmetry’’ and systematic bias in consumer decisions can be addressed?
-On what basis do consumers make rational switching decisions?
-How can consumer awareness be increased in Nepal?
-How can the network service of small operators be improve in order to compete with larger mobile operators in Nepal?
-What is more influential factors for the subscribers in Nepal, cost or network coverage? Significance of the problem
The telecommunication market of Nepal is dominated by two comparatively giants institutions, Nepal Tele Communication(NTC) and NCell Private Limited which serve the consumers nationwide. Other operators serve locally. NTC is government owned and Ncell is the private organization. Both of the operators have rivalry in the telecommunication market of Nepal that is why the tariff rate from one operator to other is significantly high. And there are various other incompatibility issues existing between those operators. Small operators find difficult to survive in this rivalry conditions. On the other hand NTC is studying about implementing Mobile Number Portability in Nepal. My research is of practical significance providing the best way to yield maximum benefits for all the associates and recommending the future implementation.
Aims and outcomes of the Research:
My research will solely be based on: How to ensure the sustainable competition in the telecommunication market of Nepal?
-What will be the impact if NTC implements MNC in the Nepalese market and to its competitor?
With a list of relevant analyzed facts, recommend whether or not should NTC implement MNP in the present asymmetric market situation.
-Should Ncell follow the implementation of MNP?
-How to encourage small operators to compete in the market?

Contribution to Theory and/or IT practice:
It will address the major problem of uneven and asymmetric competition in the Nepalese Telecommunication industry. But regarding the recommendation of implementation of MNC it has certain limitations:
NTC is a government organization and is financed by the state . But the fact is Politics in Nepal is very unstable and so is the financing factor. Election is expected to be in November. So it can affect the implementation policy of MNP which involves huge budget .Since the implementation of MNP in Nepal is highly influenced by the political stability it might be(chances may be low) postponed. In that case my research estimation and statistical analysis may not match the postponed date conditions.
Literature Reference:
Grzybowski, L., & Pereira, P. (2011). Subscription Choices and Switching Costs in Mobile Telephony. Review of Industrial Organization, 38(1), 23-42. doi:10.1007/s11151-011-9275-y
Srinuan, P., Annafari, M. T., & Bohlin, E. (2011). An analysis of switching behavior in the Thai cellular market. Info, 13(4), 61-74. doi:10.1108/14636691111146154
Xavier, P., & Ypsilanti, D. (2008). Switching costs and consumer behaviour: implications for telecommunications regulation. Info, 10(4), 13-29. doi:10.1108/14636690810887517