The effect of cellular service on the cost structure of a land-based telephone network

While economies of scale and scope have been extensively studied in traditional telephone networks, thus far little academic attention has been paid to the effect of cellular communications, which is one of the most rapidly growing segments of the telecommunications system. We use LECOM--our Local Exchange Cost Optimization Model--to generate data representing an optimal telephone network before and after the introduction of a cellular network. We derive geographic data from Statistics New Zealand's meshblock data. Our cost data for network components are 'typical' North American annual costs. Our initial results suggest, somewhat intriguingly, that there may be potential gains to more widespread introduction of cells in some rural areas, particularly those characterized by customer populations clustered along major roads.