Demand curves and operator strategies in the finnish mobile broadband market

Finland, among the first to adopt mobile broadband services, faces rapid growth of mobile data traffic. Therefore, Finnish mobile operators continually invest in their radio access networks to handle this growth, which represents an attractive revenue source. This study presents a demand curve estimate for mobile broadband data traffic, which takes into account the impact of technology evolution on network coverage and capacity. Based on the demand curve and the market equilibrium, this study proposes two strategies for mobile operators: i) reducing the marginal cost of traffic, and ii) changing the pricing structure. Assuming that mobile operators are price-takers (perfect competition), the findings of this study indicate that a continuing reduction of marginal cost is imposed by market forces. However, this policy of cost reduction will inevitably reach its limits. Thus, this study proposes a change in pricing structure from flat-rate tariff to usage-based charging.