Estimation of switching costs and network effects in mobile telecommunications in Poland

In this paper we utilize discrete choice experiment method to identify and measure switching costs and network effects in mobile telephony in Poland. Based on hypothetical choices consumers make we construct a conditional random parameters multinomial logit model to analyze their preferences. In our choice design we explicitly account for status quo inertia, number portability, operator brand, network distribution of most frequently called parties and price of on-net and off-net calls. Stated preference approach allows us to calculate marginal rates of substitution and hence implicit prices of the non-price attributes used to describe choices and switching behavior. Results of our study indicate that although choices of mobile operators are largely driven by price of calls, switching costs and network effects have and strong impact on utility of subscribers. In particular users assign positive value to their mobile phone number and the size of family and friends group in the same network. The monetary value of phone number is significantly higher among individual entrepreneurs then residential subscribers. In our model switching behavior is not discouraged by brand loyalty which turned out to be insignificant. Instead subscribers follow status quo inertia which reflects uncertainty associated with new operator. Therefore we conclude that despite introduction of mobile number portability, switching costs continue to be an important issue in telecommunications markets. On recommendations level, we argue that regulatory and competition policies should continue to reduce uncertainty associated with changing operator by ensuring service and platform compatibility and reducing tariff complexity. In light of our results we recommend tariffs to be non-discriminatory so that operators are unable to utilize network effects in a way which discourages switching behavior.