Network Effects and Choice of Mobile Operator in Slovenia

The purpose of this paper is to empirically identify factors that users took into account when choosing their mobile operator in Slovenia in the observed period (April 1999 - March 2004). Two sets of factors are tested with conditional logit model: characteristics of mobile operators and characteristics of users. Following theoretical and empirical literature suggesting that in addition to common factors of demand, network effects can also have an important role in consumers' choice we included them into the model assuming that they were present in Slovenia. Data on the characteristics of mobile users were gathered through a telephone survey, while data for attributes of mobile operators directly from the operators. We find that two characteristics of operators, the number of their subscribers and their market shares, have a positive impact on the probability of choosing a mobile operator. This implies that network effects, which are present when the value of network increases with the number of users, had an influence on user's choice. These results reflect market developments in the observed period, when the 'battle' for new customers resulted in a continuous fall in prices while the Slovenian mobile market, contrary to the foreseen trends, remained highly concentrated. Among characteristics of users monthly income has a significant impact on the choice of a mobile operator. Users with higher income were more likely to select the mobile operator Debitel, while those with lower income its rivals Mobitel and Si.mobil. Unlike Debitel the latter two provided pre-paid packages which are supposed to be more often chosen by low-income users.