Fixed-Mobile Telephone Subscription Substitution in the U.S.

We empirically estimate the substitutability of fixed and mobile services for telecommunications access using a large, U.S. household survey1 conducted over the period 1999-2001. We take advantage of telephone price subsidy programs for low-income households to identify large, exogenous changes in fixed service prices to find substantial demand substitutability between fixed and mobile subscription. Since income and demographic factors account for the subsidy’s effect on subscription to cable TV and Internet services and purchase of a personal computer, we infer that the residual effect of the subsidy on mobile subscription represents a price, and not an income, effect.