| dc.description.abstract | The mobile telecommunication subsector has experienced exponential growth over the
last decade which has been attributed to lower calling rates, subsidized handsets,
increasing income among other factors. Lack of consensus in empirical literature on the
importance of these variables, especially income and calling rates, as well as scanty
Kenya specific studies on the same informed the need for this study.
The objective of the study was to estimate the price and income elasticities of demand
and cross elasticity of demand for mobile telecommunication services using monthly
panel data on the four mobile network operators for the period between June 2011 and
March 2013. A static model was estimated using the feasible generalized least squares
random effect model and robust estimates obtained. The coefficients estimated show
expected signs and are statistically insignificant apart from income coefficient. The
demand is price inelastic but income elastic. Marginal subscribers use less voice call
while fixed line network complements mobile telephony. The dynamic model is
estimated using the generalized method of moments used by Arellano and Bond (1991)
and the results show presence of path dependence of elasticity of demand. Long-run price
elasticity of demand is higher than the short-run elasticity.
The reduction of calling rates is therefore detrimental to the profitability of the firms as it
may not result to higher usage of mobile services. This reduction can only negatively
affect firm investment in network quality and stability. The firms should therefore focus
on quality improvement and value addition as well as internet and mobile money transfer
instead of seeking higher subscriber base by reducing prices. The reduction of
termination rates may also not result into higher usage of mobile services. | en_US |
