What Causes the Fall in Prices of Mobile Telecommunications Services?

Mobile industry is characterized by a sharp fall in megabyte price which highly benefi ts to consumers. This article aims to identify the main parameters that lead to such a fall and shows that the growth of traffic is by far the main cause. It proposes a parametric model that explains the growth of traffic from investment. Using a 20-countries wireless market dataset to calibrate the model, it shows that investment actually drives the exponential growth of traffic. As the growth of revenues are much lower, the price of megabyte decreases sharply. The role of competition is ambiguous. On the one hand it reduces margin and thus prices, on the other hand, as the relationship between investment and competition turns to be inverted-U shaped, it may reduce investment and therefore slow down the fall in unit price