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Analysis of mobile broadband competition: 3G vs. WiFi

Article  in  International Journal of Mobile Communications · August 2010

DOI: 10.1504/IJMC.2010.034938 · Source: DBLP

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586 Int. J. Mobile Communications, Vol. 8, No. 5, 2010

Analysis of mobile broadband competition:

3G vs. WiFi

Seungjae Shin*
Division of Business,
Mississippi State University – Meridian,
1000 HWY 19N, Meridian, MS 39307, USA
E-mail: sshin@meridian.msstate.edu
*Corresponding author

Martin B.H. Weiss

School of Information Sciences,
University of Pittsburgh,
135 N. Bellefield Ave. Pittsburgh, PA 15260, USA
E-mail: mweiss@mail.sis.pitt.edu

Abstract: This paper analyses optimal pricing of two different platforms of

broadband mobile internet access where one provider uses third generation
(3G) and the other WiFi. The authors utilised a game theoretic competition
model considering population density, user’s preference for bandwidth and
coverage, user’s willingness-to-pay, the number of hot-spots, cost structure of
deployment, and market penetration rate. The authors used both simulation and
computation methods to find the market equilibrium point. Through the
equilibrium analysis, the authors found that the 3G network is more profitable
as WiFi coverage percentage increases, and 3G is more favourable in higher
density areas.

Keywords: mobile broadband; 3G; third generation; WiFi; game theory;

mobile communications; municipal wireless.

Reference to this paper should be made as follows: Shin, S. and Weiss, M.B.H.
(2010) ‘Analysis of mobile broadband competition: 3G vs. WiFi’, Int. J.
Mobile Communications, Vol. 8, No. 5, pp.586–601.

Biographical notes: Seungjae Shin is an Associate Professor of MIS at

Mississippi State University at Meridian Campus. He received his PhD from
the University of Pittsburgh, his MBA from the University of Hawaii, and his
ME from the Korea Advanced Institute of Sciences and Technology. He has
presented a number of research papers at national conferences. His research
interest is competition model and analysis in the wireless mobile and
telecommunications industry using a game theoretic approach and simulation
method.

Martin B.H. Weiss is an Associate Professor of Telecommunications at the

University of Pittsburgh. He is also serving as the Chairman of the Department
of Information Science and Telecommunications and Associate Dean for
Academic Affairs and Research for the School of Information Sciences.

Copyright © 2010 Inderscience Enterprises Ltd.

 Analysis of mobile broadband competition 587

He received his PhD from Carnegie Mellon University. His research interests
are broadly focused on the interaction between technology, public policy and
industry as well as cooperation among competing firms.

1 Introduction

According to the Cellular Telecommunications and Internet Association’s (CTIA)

wireless industry,1 the number of mobile phone subscribers in the USA is estimated to be
over 270 million as of January 2009. The market penetration rate of 90% has highlighted
the saturation of the wireless voice market, and in the not-too-distant future, mobile
broadband internet access will be an essential service to many wireless users.
For the past several years, the US wireless communications market has been moving
towards third generation (3G) technology. There are four major national carriers
in the US wireless market: Verizon Wireless,2 AT&T Mobile,3 Sprint PCS/Nextel,
and T-Mobile. While Verizon Wireless and Sprint PCS chose CDMA-20004 as their 3G
network technology, AT&T Mobile and T-Mobile chose W-CDMA.5 The 3G technology
focuses on major metro areas, but the remaining areas are still covered by the 2.5G6
technology. Instead of offering the 3G broadband mobile internet access service,
T-Mobile,7 one of the GSM-based GPRS8 operators in the USA, deployed a WiFi
(Wireless Fidelity) network, well-known for its public ‘Hot Spots’. Others focused on
upgrading their wireless networks to 3G. One of distinguishing phenomena in the WiFi
industry in the last several years is the emergence of WiFi based municipal wireless
networks. Many US cities are currently developing citywide broadband networks using
WiFi, which means WiFi service areas are expanding from indoor to outdoor areas and,
the size of WiFi coverage area is expanding to include entire cities (Daggett, 2007).
Even though WiFi was developed for wireless LAN technology, this municipal wireless
service could be developed into a wireless MAN technology and could be a direct
competitor of 3G because of similar characteristics and similar coverage.
In this paper, the authors developed a mobile broadband internet access competition
model to analyse two different wireless internet access platforms. In this model, the
authors assume a city area in which two different providers, 3G and WiFi, compete with
different technologies and different network deployment strategies. The competition
model is based on the following parameters and scenario:
• population density (dense urban/small town)
• user’s preference for bandwidth and coverage
• user’s willingness-to-pay
• the number of hot-spots
• cost structure of deployment
• market penetration rate.
Through an equilibrium analysis, the authors demonstrate which player has a better
market position and what level of pricing is optimal in the future competitive
environment.
588 S. Shin and M.B.H. Weiss

2 Comparison of two mobile broadband platforms

Despite many differences between WAN-based 3G and LAN-based WiFi, crowded

public places, such as airports, hotels, and convention centres, were common target
locations for both providers. Lehr and McKnight (2003) compared the characteristics of
the two platforms. While WiFi and 3G are both wireless, access technologies
and broadband data services, their business models and deployment strategies differ.
3G is a mass-market offering on a subscription basis; its deployment and service
provisioning is top-down and is based on central planning and operation. On the other
hand, WiFi can emerge in a decentralised, bottom-up fashion. In addition, 3G uses
a licensed spectrum, while WiFi uses an unlicensed shared spectrum. Table 1 shows the
comparison of two mobile broadband internet access technologies.

Table 1 Comparison of 3G and WiFi

3G WiFi
Technology CDMA 2000/W-CDMA IEEE802.11b/g
Throughput 400∼700 Kbps up to 2 Mbps 4.4∼6.6 Mbps up to 11 Mbps
20∼22 Mbps up to 54 Mbps
Pricing Unlimited pricing Unlimited, per-day, per-hour pricing
Spectrum Licensed band Unlicensed band (2.4 GHz)
Coverage Wide-area Local-Area
Providers Verizon wireless, sprint PCS, AT&T mobile T-Mobile, AT&T, Boingo

3 Status of US mobile broadband market

In the 3G mobile broadband market, there are two competing technologies: EV-DO
(Evolution-Data Only), as an evolution of CDMA 2000, and High Speed Downlink
Packet Access (HSDPA), as an evolution of W-CDMA. EV-DO was deployed ahead
of HSDPA. In 2004, Verizon Wireless and Sprint PCS positioned themselves as pioneers
in the 3G (EV-DO) mobile broadband market. Although the current maximum
throughput is 2 Mbps, its actual speed is known as 500 Kbps. In 2006, AT&T Mobile,
formerly Cingular, started its 3G service (HSDPA). As of 2006, in terms of number of
cities covered by 3G service, more cities were covered by Verizon Wireless and Sprint
than by AT&T Mobile (Mossberg, 2006). According to mobileroar.com, as of July 2008,
comparing the three major 3G operators, Verizon wireless is the number one 3G
US operator in terms of coverage area. T-Mobile built its 3G wireless network in 2008.
From the technology adoption point of view, CDMA2000-adopted carriers like Verizon
and Sprint are leaders and W-CDMA-adopted carriers like AT&T Mobile and T-Mobile
are followers. In this paper, the authors only focus on EV-DO technology as representing
3G service.
In the WiFi market, IEEE802.11b has been a dominant standard for the last several
years. The WiFi market is currently migrating from IEEE 802.11b to IEEE 80211g, to
provide a higher data bit rate standard (Wexler, 2008). In this paper the authors consider
mixed environments of 11b and 11g as representation of WiFi service. Because the two
 Analysis of mobile broadband competition 589

standards are compatible, this enables WiFi networks to continue supporting 11b when
migrating to 11g.
Because WiFi uses an unlicensed spectrum and its service area can be added
spot-by-spot, the market entry barrier is not as high as with 3G. Therefore, it is possible
for WiFi to have a community-based free service or revenue sharing between
infrastructure providers and location owners. However, this paper focuses on the
commercial type of WiFi provider, i.e., Wireless Internet Service Provider (WISP).
As we mentioned previously, T-Mobile, the fourth largest US wireless carrier, has
deployed WiFi networks since 2002. According to T-Mobile’s website,9 it has 10,000
hot-spots in the USA as of 2008. Wayport was one of the leading WiFi based Internet
Service Providers (ISP). After AT&T acquired Wayport in 2008, AT&T began operating
20,000 hot-spots10 in the USA, including McDonald’s restaurants and Starbucks coffee
shops. AT&T is the number one WiFi internet access provider in terms of number
of hot-spots.
As the number of hot-spots increase and 3G coverage area expands, competition
between the two technologies increases in the common target service area of 3G
and WiFi. The authors cannot say that one is better than the other. For those in need
of a faster internet connection, WiFi is a better solution; however, 3G is a better option
for those desiring broader availability and better mobility. Due to the lack of roaming
capability between 3G and WiFi networks, a mobile user is forced to choose one of the
services. Currently, the price for 3G services (Verizon Wireless) is $60 with two-year
subscription agreement and voice subscription. The WiFi services (T-Mobile) require a
one-year subscription agreement with a monthly subscription fee of $30.

4 Competition model

4.1 Duopoly Bertrand game model

A duopoly game model is a useful first approximation for the analysis of an industry with
limited competition. In Bertrand’s model, two firms make a homogeneous product, and
each firm believe the other firm’s price is fixed. Each firm sets its price lower than the
other, and the price is finally reduced to their marginal cost. Therefore, the product price
is a strategic variable in Bertand’s game model. The model used in this paper assumes
that there are two service providers in the mobile broadband market without the current
possibility of new entrants with an alternative to WiFi or 3G. One is a CDMA-based 3G
operator, and the other is a WiFi operator. Despite competition between 3G and WiFi
technologies, the providers’ cost structures and architectures are similar. The cost
structure of telecommunication industry is characterised by large, up-front initial
infrastructure investment and near zero, short run marginal cost (Shin et al., 2007).
Even if both technologies do not provide perfect homogeneous services, from the user’s
point of view, both technologies provide mobile internet access service. Therefore, the
authors assume that a rational user does not choose two mobile internet access services at
the same time because they can be substituted for one another. The authors assume that
both service providers compete on price and have enough capacity to accommodate
increasing demand. Based on the above assumption, the authors apply the Bertrand price
competition game model. Table 2 presents variables and parameters used in this model.
The p-ratio is a market penetration ratio, which is increased in 10% increments from
590 S. Shin and M.B.H. Weiss

10% to 100%. The αWF is a percentage of WiFi coverage, which is also increased in 10%
increments from 10% to 100%. The αWF value determines the number of WiFi hot-spot,
which determines the number of access point in the WiFi network. These two parameters
make 100 cases (10 p-ratio × 10 αWF), where equilibrium analysis will be made.

Table 2 Variables and parameters

Variables Definition Parameters Definition

P3G Price of 3G αWF Percentage of WiFi coverage
PWF Price of WiFi p-ratio Market penetration of mobile
broadband service
Q3G Number of 3G subscribers NBS Number of 3G base station
QWF Number of WiFi subscribers NHS Number of WiFi hot-spot

4.2 Cell size and potential population

The authors consider a 5 mile radius circle area (78.5 mile2) as a target market for both
service providers. There are two kinds of locations based on the number of potential users
working and living in that area:
• high density area
• low density area.
A good example of high-density area is Manhattan, New York. Even though its
population, as of 2000, is 1.5 million, the authors assume there are 2.5 million people,
including commuters. According to the white paper (Qualcomm, 2004), the radius of a
3G cell is 0.5 miles in the dense urban area, and 25,000 people would be serviced in each
cell. One large cell with a 5 mile radius is enough to cover the rural/small town area
with a population of 20,000. Therefore, the authors assume one 3G cell for the rural area
and 100 3G cells11 for the dense urban area.
In the dense urban area, many potential hot-spots are assumed; airports, coffee shops,
hotels, restaurants, etc. Approximately 700 WiFi hot-spots would be needed to cover the
same area as one cellular base station, and 7 million hot-spots are expected to cover the
USA (Dekleva et al., 2007). Assuming the coverage area of WiFi is a 0.05 mile radius,
the authors can calculate a maximum of 10,000 hot-spots12 in the high-density area.
Based on the population ratio between high and low-density areas, 100 hot-spots are
assumed in the low density area to cover the city area. Table 3 summarises the above
assumption.

Table 3 3G cell radius, estimated population covered per cell site and number of estimated
hot-spots

Number of
3G cell Number of Total potential users maximum
Density radius 3G cell Population/cell (100% penetration) hot-spots
Dense urban 0.5 mile 100 25,000 2.5 million 10,000
Rural/small 5 mile 1 20,000 20,000 100
town
 Analysis of mobile broadband competition 591

4.3 User’s preference and willingness-to-pay

Even though, 3G and WiFi have several different characteristics, from the end-user’s
point of view, it does not matter which technology is provided. Rather, it is a matter of
price and users’ preference. Users’ preference is characterised by their utility function:
U(BW/P, Coverage); ‘BW/P’ is defined as how many bps (bits per second) per dollar.
The ‘Coverage’ is access availability. The higher BW/P is and the larger the coverage
area is, the higher utility is to the users.
The authors assume that 3G service is available in the entire area with 100% coverage
while the WiFi service is only available in small areas around WiFi access point.
According to the percentage of WiFi coverage areas (αWF), the number of WiFi access
points is determined. If αWF = 10%, there are 1000 hot-spots (10% × 10,000) in this area.
The authors use ‘αWFlog(αWF)’ to measure the WiFi user’s utility, which comes from
Metcalf’s law. Metcalfe’s law states that “the value of communications network
is proportional to the square of the size of the network” (Odlyzko and Tilly, 2005).
Odlyzko and Tilly argued that there is a significant overestimation in the Metcalf’s law
and suggested nlog(n) instead of n2, where n is the number of subscribers. The following
are equations for user’s utility for 3G and WiFi.
• U3G = (0.5 Mbps/P3G) × α3Glog(α3G) (α3G = 100%)
• UWF = (7.2 Mbps/PWF) × αWFlog(αWF) (10% < αWF < 100%).
For the factor of BW in the above utility function, we use 500 Kbps as an expected
average throughput of 3G service and 7.2 Mbps as an expected average throughput
of mixed WiFi service of IEEE 11b/g. The following Table 4 shows expected maximum
throughput of IEEE 802.11b/g mixed environment. The authors assume the radius
of a hot-spot of 0.05 miles, which is 264 feet. An average of throughputs is calculated
average of throughputs of every 50 feet (50 feet∼300 feet). i.e., 7.2 Mbps = (14.7 +
12.7 + 9.1 + 4.2 + 1.6 + 0.9)/6.

Table 4 Expected maximum throughput for IEEE 802.11b/g mixed environment

Distance (feet) 50 100 150 200 250 300 Average

Throughput (Mbps) 14.7 12.7 9.1 4.2 1.6 0.9 7.2
Source: Broadcom (2003)

Henkel et al. (2002) conducted a survey for WiFi based WLAN user preference.
One of their questions was “How interested would you be in WiFi service at the price
indicated below if the monthly fee was (a) $20, (b) $40, (c) $60, and (d) $80?” A similar
survey for 3G service was accomplished by Strategic Policy Research (2001). Table 5
contain survey data of the willingness-to-pay for WiFi and 3G internet access services.
The authors borrowed these distributions from the above two market analysis papers to
estimate demand functions of WiFi and 3G. To make an estimate of demand function, the
authors use a random-number generating simulation because linear and curve estimation
does not provide a good R2 value. The random numbers are generated from the above
empirical distribution of the willingness-to-pay data. The authors generated two random
numbers: one for willingness-to-pay of 3G (W3G) and the other for willingness-to-pay for
WiFi (WWF).
592 S. Shin and M.B.H. Weiss

Table 5 Willingness-to-pay for WiFi and 3G

WiFi price $20 $40 $60 $80

Interested (%) 90 33 10 3
3G price $50 $60 $75 $100
Interested (%) 77 26 9 2

The rules for choosing a mobile broadband service are

• compare the two utility values (U3G and UWF), if U3G is greater than UWF, the priority
is given to the 3G services
• compare the willingness-to-pay for 3G (W3G) and the price of 3G (P3G).
If W3G is higher than P3G, the user’s willingness-to-pay will lean towards 3G mobile
broadband services. The same rules apply if the WiFi service gives a higher utility.

4.4 Pricing and revenue

The authors assume that both providers use unlimited access pricing and know the
user’s willingness-to-pay range in the surveys: the price range of $50–$100 is the user’s
willingness-to-pay for 3G services, and the price range of $20–$80 is the user’s
willingness-to-pay for WiFi services. Both price ranges come from Table 4. Each
provider’s revenue can be expressed by Q (number of subscriber) × P (service price) ×
12 months. The authors assume that each user has to sign up for a one-year subscription
agreement, a normal practice in the US wireless communications industry.

4.5 Cost
As the authors mentioned in Section 2, 3G network deployment and service provisioning
are centralised planning and operation. In contrast to 3G, WiFi service can emerge in a
decentralised fashion (Lehr and McKnight, 2003). The different deployment strategies
impact the cost structure of both services. The authors assume that 3G service providers
deploy their infrastructure at one time and the service starts at one date. However,
WiFi service is assumed to be gradually deployed in a one hot-spot-at-a-time approach.
In this model, even though the overall 3G cost structure is much more complicated, the
authors confine cost of 3G provider in the access layer only (i.e., base station upgrade and
T1 access line), which is equivalent to the cost of WiFi.
For the 3G provider, the authors assume that it already has an existing infrastructure
for the 2.5G wireless data service. The providers also have an advantage for using exiting
base stations, and it could share the allotted spectrum band for its 2G voice service.
A low-density area could be covered by one 3G base station, while in the high-density
area, 100 3G base stations are needed for coverage. In both cases, upgrading is assumed
to be done at one time. The upgrade cost of a base station to 3G from 2.5G is expected to
be about $250,000 (Bakhshi, 2001). The T1 internet access line is assumed from the base
station, with cost calculated for 12 months.
 Analysis of mobile broadband competition 593

For the WiFi provider, the equipment cost for the WiFi service is relatively low:
$1000 per access point. The authors assume the average number of access points
per hot-spot is 5 (in high-density areas) and 1 (in low-density areas). For authentication
and security, WiFi providers need a VPN gateway ($220013). They also incur a monthly
space rental fee for the access point (high-density, $40014/low-density, $100) and a
monthly T1 internet connection fee for every hot-spot (high-density, $30015/low-density,
$500). In summary, the annual cost of the WiFi provider is assumed to be approximately
$15,60016 (in high-density areas)/$10,40017 (in low-density areas). Unlike 3G providers,
WiFi providers do not have to deploy the WiFi networks all at once. Their deployment
strategy is assumed to be one hot-spot-at-a-time as dictated by demand. Table 6 shows
the cost comparison between the two providers.

Table 6 Cost comparison of 3G and WiFi

3G WiFi
Density High Low High Low
Fixed 100 × 250,000 1 × $250,000 5 × $1000/access point 1 × $1000/access point
equipment cost $2200/VPN gateway $2200/VPN gateway
Monthly $300/T1 $500/T1 $300/T1, $500/T1,
variable cost $400/space rental fee $100/space rental fee

4.6 Payoff function

The payoff functions of this model are defined as revenue minus cost (i.e., profit).
The authors calculate profits based on annual revenue and cost. Both carriers are trying
to maximise their payoff under the assumption that the competitor’s price is constant.
They are trying to find an optimal pricing which gives them higher profit than any other
level of pricing. The following equations demonstrate profit functions of 3G and WiFi
providers.
• Profit3G = P3G × Q3G × 12 months – {(Base Station Upgrade Cost) × (NBS) +
12 months × (T1 Cost) × (NBS)}
• ProfitWF = PWF × QWF × 12 months – {(Hot-Spot Building Cost) × (NHS) +
12 months × (T1 Cost) × (NHS)}
where P3G, PWF are prices of 3G and WF, Q3G, QWF are numbers of subscriber for 3G
and WiFi, NBS is a number of base stations, and NHS is a number of hot-spots.
Table 7 is a summary of profit functions of both 3G and WiFi providers
in the high and low-density areas.

Table 7 Profit functions of 3G and WiFi

High density area Low density area

3G P3G × Q3G × P3G × Q3G × 12 – ($250,000 ×
12 – ($250,000 × 100 + 12 × $300 × 100) 1 + 12 × $500 × 1)
WF PWF × QWF × 12 – ($15,600 × NHS) PWF × QWF × 12 – ($10,400 × NHS)
594 S. Shin and M.B.H. Weiss

5 Scenario based simulation

As we mentioned earlier, random-number generating simulation is used for developing

demand functions. In addition, a computation method is used for finding an equilibrium
point. Since the cost to the WiFi provider is determined by the number of access points,
which is determined by coverage area, significant heavy computation is need to find an
optimal pricing for each provider. The following is a scenario for users’ decision making
process for choosing a mobile internet service between 3G and WiFi.
User’s utility function shows preference for mobile broadband services. The authors
generate two random numbers: one (W3G) for willingness-to-pay for 3G (see Table 4)
and the other (WWF) for willingness-to-pay for WiFi (see Table 4). If a user prefers
3G (W3G > WWF), the user first compares W3G and P3G. If the willingness-to-pay for
3G service (W3G) is higher than the price of 3G service (P3G), the user will decide to buy
3G. Otherwise (W3G < P3G), the user try to check a substitute for 3G service,
WiFi service. The user compares WWF and PWF and will decide whether or not to buy
WiFi. The same rule is applied to when a user prefers WiFi to 3G. If net benefit
(= Price – Willingness-to-pay) is negative in the both cases, the user does not choose any
service. This random number generating process continues until the number of
subscribers (Q3G + QWF) reaches market penetration ratio (p-ratio), i.e., if the p-ratio is
10% in the low-density area which has a 20,000 potential population, the random number
generation continues until Q3G + QWF reaches 2000. The maximum random number is a
potential population.
The following is a scenario for provider’s decision making process for choosing the
optimal price level which gives it a maximum profit. According to the Bertrand duopoly
model, the 3G provider will choose the optimal price ( P3∗G ) for its optimal profit
assuming that the WiFi provider’s price is fixed. The WiFi provider will also choose its
∗
optimal price ( PWF ) for its optimal profit under the assumption that the 3G provider’s
price is fixed. The authors calculate all the possible pair profits of the 3G provider and
the WiFi provider and chose the best response profit for each provider (definition of the
Nash equilibrium).
In the competition model, there are two parameters: αWF, percentage of coverage and
p-ratio, broadband market penetration rate. The αWF has 10 values from 10% to 100%
and p-ratio has 10 values from 10% to 100%. Therefore, there are 100 scenario cases
according to the values of these two parameters. In each case, the authors
find equilibrium profits of two providers, their optimal prices and number of subscribers.
The following is a pseudo code for the computation process to find equilibrium.
This kind of calculation should be done 100 times with a different αWF and p-ratio.
(1)Find 3G provider’s response:
Repeat PWF = $20~$80 {
Repeat P3G = $50~$100 {
Calculate profit (response) of 3G provider
}
 Analysis of mobile broadband competition 595

Find the best response from the above 3G provider’s responses by comparing
calculated profits
}
(2)Find WiFi provider’s response:
Repeat P3G = $50 ~ $100 {
Repeat PWF = $20 ~ $80 {
Calculate profit (response) of WiFi provider
}
Find the best response from the above WiFi provider’s responses by comparing
calculated profits
}
(3)Compare the best responses of each provider and find an equilibrium price set. For
example, (P*3G, PWF) = ($50, $20) and (P*WF, P3G) = ($20, $50), then equilibrium
price set is (P*3G, P*WF) = ($50, $20).

6 Equilibrium analysis and relative market strength

Whether it is a low-density area or a high-density area, regardless of market penetration

rate (p-ratio) and coverage percentage (αWF), the equilibrium pricing level is always
( P3∗G , PWF
∗
) = ($50, $20), which is the lowest level price in each pricing range of the
survey (3G: $50∼$100, WiFi: $20∼$80). This output is consistent with the original
Bertrand price competition model, where the market price is determined by the minimum
of all the firms’ prices. In our model, $50 and $20 are the minimum prices that
3G and WiFi providers offer. The equilibrium market share between 3G and WiFi
is 7∼9% and 91∼93%, respectively. For example, in the case of p-ratio = 10% of low
density area and αWF = 10%, the number of potential subscribers is 2000. At equilibrium,
Q3∗G = 180 (9%) and QWF ∗
= 1820 (91%).
The following are graphs of equilibrium profits of 3G and WiFi when the market
penetration ratio changes from 10% to 100% and α changes from 10% to 100%.
The graphs in Figure 1 are for low-density areas, and the graphs in Figure 2 are
for high-density areas. In both density cases, the pattern of each provider is very similar.
In the 3G graphs, when the market penetration rate goes higher, from 10% to 100%,
the equilibrium profit of 3G goes higher too. Because the coverage percentage for 3G
is 100% in this model, there is little difference in the 3G profit as the coverage percentage
(αWF) changes. In the graphs of WiFi, high penetration ratio (100%) and low coverage
percentage (10%) give a maximum equilibrium profit. This demonstrates that WiFi has a
relative advantage to offer a service in selective popular places with a minimum
coverage.
596 S. Shin and M.B.H. Weiss

Figure 1 Equilibrium profits of low density area: (a) 3G and (b) WiFi (see online version
for colours)

(a)

(b)

Figure 2 Equilibrium profits of high density area: (a) 3G and (b) WiFi (see online version
for colours)

(a)

(b)

To find which provider has a higher equilibrium profit, the authors calculate
Profit ∗3G − ProfitWF
∗
. The following table and graph show

• which has a better market position

• their market strength based on the equilibrium profit.
 Analysis of mobile broadband competition 597

For example, in the table of Figure 3, when αWF = 10% and p-ratio = 10%, in the low
density area 3G is a market winner. In the graph, the height of the bar shows relative
market strength. If the bar in the graph is upward, the profit of 3G is higher than that
of WiFi, and if the bar is downward, it shows that the profit of WiFi is higher.
Among 100 cases based on the αWF and p-ratio, WiFi has a better market performance
in 25 cases (low density) and 19 cases (high density) respectively. In both density areas,
low αWF value (10%) and high p-ratio (100%) gives the WiFi provider maximum
relative market strength, while high αWF value (100%) and low p-ratio (100%) gives the
3G provider maximum relative market strength.

7 Discussion

As we mentioned in the introduction section, for the last several years some
US cities have deployed city-wide WiFi networks, and some have plans to develop
WiFi based municipal wireless networks. According to Daggett (2007), many US cities
are currently developing citywide broadband networks, especially large cities such as
Philadelphia, San Francisco, Minneapolis, Boston, Houston, and Seattle. Given this level
of interest there is a strong possibility for municipal wireless to prevail in the USA as a
preferred internet access platform. There are many success stories of relatively small size
cities such as St. Anthony Village, MN (8000 populations, 2.3 mile2), Granbury,
TX (6400 populations, 10 mile2), Chaska, MN (18,000 population, 13.7 mile2) effectively
employing WiFi networks within their communities.
According to the muniwireless.com, at the end of 2006, 79 US cities had their own
municipal wireless networks, and 140 US cities planned to deploy it (MuniWireless,
2007). The authors visited 79 city websites and reviewed their operation of municipal
wireless networks. We found 69 municipal wireless services and made three categories
based on their population size. Table 8 is a summary of the 69 municipal wireless
networks.

Table 8 Municipal wireless services in 69 US cities

Average Average size

Category Population Number of cities Average $/1Mbps population (mile2)
Towns 0∼9,999 21 $46.56 3,585 7.36
Small city 10,000∼99,999 35 $22.04 37,495 23.22
Big city 100,000+ 13 $18.30 357,557 146.72

Philadelphia, Pennsylvania is the first US major city to announce the development of a

municipal wireless network using WiFi.
In an effort to boost the city’s economy, the city of Philadelphia, in 2004, announced
its intention to provide wireless internet access service throughout the city. Using street
lights as WiFi access points, the city wanted to offer a low-cost, ubiquitous broadband
wireless connectivity to all points (every house and business) within the city of
Philadelphia (The Wireless Philadelphia Executive Committee, 2005). It was believed
that the ‘Wireless Philadelphia’ project would provide a competitive economic
development advantage to the city of Philadelphia, while at the same time, reducing
598 S. Shin and M.B.H. Weiss

the city’s telecommunication cost including 3G wireless service for field employees.
Scott (2005) also identified that it was expected to reduce the ‘digital divide’ (the gap
between those who can afford access to the internet and those who cannot) by providing
the pressure of price competition to other wireless broadband providers. Once the WiFi
municipal network service is provided, it is expected to compete with existing
3G network service. However, the project has been stopped. In 2008, many municipal
wireless projects, especially big cities, have been delayed or cancelled.
In our game model analysis, comparing outputs between low density area and high
density area, 3G has more winning cases in the high density area than in the low
density area. Table 9 shows the number of winning cases of 3G and WiFi in the
both density. In Figures 3 and 4, when the coverage percentage is 60% through 100%,
3G is always a winner regardless of p-ratio. Therefore, the municipal wireless network of
large city with a large population like Philadelphia (1.5 million populations, 135 mile2)
has a strong possibility of being beaten by the commercial 3G network.

Table 9 The number of winning cases out of 100 cases

3G WiFi
Low density 75/100 25/100
High density 81/100 19/100

Figure 3 (a) Higher equilibrium profit provider of low density area and (b) Relative market
strength (Pf(3G) – Pf(WF)) of low density area (see online version for colours)

(a)

(b)
P: Lower left
α: Upper right
 Analysis of mobile broadband competition 599

Figure 4 (a) Higher equilibrium profit provider of high density area and (b) Relative market
strength (Pf(3G) – Pf(WF)) of high density area (see online version for colours)

(a)

(b)
P: Lower left
α: Upper right

8 Conclusion

3G and WiFi are two main technologies in the mobile communications industry.
Since 3G is a WAN based technology and WiFi is a LAN based technology, they have
been complementary services. With the advent of the WiFi based municipal wireless
network, there is a strong possibility for WiFi to compete with 3G network in city areas
and potentially become a substitute. The purpose of municipal wireless network is to
reduce the 3G wireless expense of a city’s field workers as well as to provide a relatively
inexpensive broadband internet access to city’s resident and business in the city.
In this paper, the authors used a game theoretic competition model of 3G and WiFi
and demonstrated which technology would be a winner in cases of different market
penetration rates and WiFi coverage percentages. The optimal pricing of 3G and WiFi in
this model is ($50, $20), which is lower than the current actual price in the industry
($60, $30). In this analysis, we found that 3G network is more profitable as
WiFi coverage percentage increases, and 3G is more favourable in the high density areas.
WiFi has an advantage when the market has a high penetration rate and a low coverage
area. Currently, municipal wireless networks not being active in the USA’s big cities and
3G service being in the early stages, has resulted in little competition between the two.
600 S. Shin and M.B.H. Weiss

However, as the market matures and competition increases between two network service
providers, the results of this paper will help to serve as a guideline for future mobile
internet access service.

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Notes
1
http://www.ctia.org
2
Verizon wireless was merged with Alltel, the fifth wireless operator in USA in 2008.
3
AT&T Mobile was merged with Cingular in 2006.
4
CDMA2000 is the 3rd Generation solution, which is an evolution of a 2G CDMA standard.
5
W-CDMA is also called UMTS, which is an evolution of a 2G GSM standard.
6
GPRS (AT&T, T-Mobile) and 1x-RTT (Verizon Wireless, Sprint).
 Analysis of mobile broadband competition 601
7
T-Mobile was the last company in the four providers that upgraded its wireless network into 3G.
8
General packet radio services, known as a GSM based 2.5G technology.
9
http://selfcare.hotspot.t-mobile.com/locations/viewLocationMap.do
10
http://www.wayport.net/NewsReleases.aspx?id=1980
11
2.5 million/25,000/cell = 100 cells.
12
10,000 = 78.5 mile2/(0.052 × 3.14).
13
The cost of Cisco VPN concentrator 3000.
14
This number is based on the Manhattan, NYC market.
15
www.bandwidth.com, price of bandwidth is based on the distance to a collocation.
Usually, a rural area has a longer distance to the collocation than a metro area.
16
$15,600 = $2200 + 5 × $1000 + 12 × ($300+$400).
17
$10,400 = $2200 + 1 × $1000 + 12 × ($500 + $100).

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