Forecasting the success of telecommunication services in the presence of network effects
Historical examples (ISDN, Teletex, telefax, telex) show us that forecasting efforts in thetelecommunication sector can go awry not only by a few percentage points but by largemagnitudes. We maintain that with strong network effects it is not possible to forecast thesuccess of telecommunication services with a high degree of confidence. This paper reviewsthe role played by network effects for the adoption of telecommunication services, whichlead to diffusion phenomena including critical mass, lock-in, path dependency, andinefficiency. To improve forecasting practices, we propose the master equation approach asan appropriate modelling technique incorporating network effects. A case is made forthinking in probability distributions rather than deriving misleading linear extrapolationsof trend patterns. At base, the paper argues why these phenomena require a shift, away froma static, to a dynamic analysis; the paper also identifies a formal method suitable for thedynamic analysis.
