The Broadband Wireless Networks Game
Telecommunications operators have long been an important backbone of the economic scene, and one might wonder what kind of models we can use to examine their behavior. In particular, it is rather fascinating to witness the roll out of a set of new network standards like 3G technologies or 4G today. We can look at an oligopoly or duopoly position, which is quite realistic, and imagine that each corporate entity is a player, who must choose infrastructure, investment and advertisement strategies. According to the paper, “A game theory modeling approach for 3G operators,” (Katsianis, et. al) which examines the past introduction of the UMTS market (a 3G standard), The payoffs here are determined by the other players decisions, and are calculated by the market share and the tariffs imposed. Each player is making decisions independently and simultaneously, as in reality.
Now, if we imagine that perhaps this is not the full story, we might be led to believe that the players don’t know everything about their payoffs. We could assume that end-user behavior is a factor, as is the case with broadband wireless service, now being delivered by newly introduced 4G standards such as WiMax or LTE.
This complicates the game quite a bit. When AT&T introduced the iPhone, it was often criticized for delivering poor data transmission speeds in busy areas serviced by common access points. This is due to the high number of users of the internet in that area and the popularity of the iPhone. It was a regular occurance for journalists and bloggers to lose their wireless broadband service at technology expositions or business fairs. In this case, AT&T lost a large number of customers to Verizon when the iPhone was introduced, all hoping to gain better service. In the long run, the payout for AT&T’s strategy seemed a lot less promising.
What exactly was their strategy? Well in this instance of the game, we are primarily concerned with their investment in procuring the exclusive rights to distribute the iPhone. We assume they chose this strategy based on their predicted market share capture and the tariffs that might be imposed in various markets, as well as their ability to extract value from the investment, affected by customer behavior. In this case they underestimated the demand and perhaps played the wrong strategy in another instance of the game, when choosing how much to invest in their broadband infrastructure.
We can easily follow this line of reasoning to look at service providers’ behavior today in their 4G mobile offerings. Verizon and AT&T, both major players in the US market for broadband wireless service, are shifted to tiered access plans. AT&T has added supplemental charges for the heaviest users of data, and Verizon is increasing the number of tiers in their broadband service plans and raising the prices. Why might they be doing this? It increases user predictability, and allows them to more directly predict payoffs. Now the variability in user behavior automatically predicts the payoffs, by setting up the system so that the revenue is directly proportional to usage. Unfortunately for the cash-strapped undergraduate student, this trend seems like it will only continue.