A study on the influence of mobile operators' terminal subsidy and customization in the diffusion of 3G services based on system dynamics

Mobile terminals hold an important position in the mobile communication industry. Different strategies to control terminal provision are adopted by mobile network operators. Especially in the recent years, in the 3G services development, terminal subsidy and customization strategy is adopted by many operators. This paper aims to discuss how the operators' strategies of 3G terminal customization influence the diffusion rate of 3G services. The research begins with a literature review on the theories of innovation diffusion. The factors affecting the diffusion rate of mobile services are identified as the stand-alone value of the service, the switching cost of customers, the availability of capable terminals, the installed base and the marketing strategies for the service. Further analysis finds influencing sub-factors for those factors. For example, the availability of capable terminals is determined by the variety and quantity of terminals, and the compatibility with services, etc. Since there are complicated relationships among all the factors and sub-factors, a System Dynamics (SD) model is set up to simulate the network. The parameter related to terminal strategies is changed to find their effects in a certain market situation. Conclusions are given according to the simulation results.