Is a Pots Dispensable? Substitution Effects between Mobile and Fixed Telephones in Korea

Abstract

As the stock of mobile telephones surpassed fixed telephones, thereafter reaching a density of more than 50 per 100 inhabitants in Korea, the potential for mobile phones to become a substitute for, and directly compete with fixed phones, has become evident. The aim of this paper is to examine the impact of rapid growth in mobile telephones on the access demand for traditional fixed telephones. The study shows that a 1% increase in the number of mobile telephones results in a reduction of 0.1-0.2% in new fixed connections and a 0.1-0.2% increase in fixed disconnections. The empirical analysis is carried out with Korean regional panel data for the period 1991-1998. The study is relevant to several important public policy issues.

JEL Classification: D12, L96