Demand for Telephone Services and the Welfare Effect of Smartphones

The advent of smartphones has caused a dramatic change in consumers' access to information and media. Using data on consumer telephone service choices, along with geographic data on cellular network infrastructure and software applications, we estimate the demand for telephone services. We allow for the possibility that consumers purchase both landline and wireless service. Among our results, we find weak evidence that landlines are complements to both traditional and smartphone wireless services, suggesting the growth of wireless should not be expected to completely eliminate the use of landlines. Using our demand estimates, we estimate the effect that smartphone availability has had on consumer welfare. We estimate that average monthly surplus (per-consumer) from smartphone introduction is approximately $21, which implies an aggregate monthly consumer surplus of approximately $3.96 billion for wireless consumers in the United States. These values represent lower bounds, with upper bound estimates approximately four times as large. This welfare increase is due to the expanded consumer choice set, as well as the effect that smartphone growth has had on improvements in cellular networks and a reduction in the price of wireless voice services