Standards in Wireless Telephone Networks

Neil Gandal, David Salant, and Leonard Waverman

1/01/2005
(Original Publish Date: 2003)

Since 1994, Europe and North America have taken divergent approaches to managing spectrum for wireless for voice and data services, the so-called 2G and 3G bands.1 The European Community has mandated a harmonized standard, GSM, in the 2G bands, and has adopted Wideband CDMA (WCDMA) in the 3G bands. In contrast, the North American approach has been to allow the market to decide, that is, operators have been free to choose among the recognized four digital wireless standards for 2G: CDMA/IS- 95, GSM, TDMA and iDEN. The issue of market-based versus mandated standards has been addressed in many other industries. In most settings where network effects are present, compatibility across platforms (i.e., standardization) has been a key determinant of the success or failure of a particular technology. In the case of wireless telecommunications, however, interconnection and the availability of the relevant infrastructure can be a substitute for compatibility. An individual subscribing to any one of the wireless technologies in the U.S. can easily make calls to and receive calls from subscribers to any one of the other standards (or to and from the wire-line POTS network) as long as there is (i) interconnection between networks and (ii) the relevant infrastructure is in place. In the U.S. (and several other developed countries), interconnection has been achieved by standard interconnection protocols. In this paper, we discuss the tradeoff between mandated standards and market-driven standards in the wireless telecommunications industry. We discuss the theoretical advantages of each approach, and provide institutional background on the developments of 1G - 2G and discuss the implications of our results for the current debate about 3G standards.