The 4G Network's Path Dependence

By Josh Treacher

What drives growth in the mobile and wireless Internet markets is consumer demand for high network performance and good value for money, according to an info-graphic by Commscope. By exploring the evolution of wireless networks from 3G to 4G, we can apply increasing returns to exemplify how this quick growth was an endogenous process.

While the majority of mobile phone networks were still providing customers with 3G connection in 2009, some providers began to invest large amounts of capital in upgrading their services to 4G, a mobile internet service much faster and more efficient than before.  W. Brian Arthur's theory of increasing returns can be applied here upon four factors: 1) large set-up costs, 2) learning effects, 3) coordination effects and 4) adaptive expectations.

1) According to AT&T, arguably the mobile phone provider in the USA with the largest market share to date, may owe its success not only to being the exclusive vendors of the iphone, but also to being one of the first providers to have heavily invested in a 4G network.

2) For consumers, understanding the benefits of 4G over 3G increases the demand for the technology and thus increase the likelihood of further innovations in the development of 4G.

3) As more mobile phone providers adopt 4G, the higher the competition is and so the more likely customers are going to receive value for money. The risk of losing customers for a phone provider to another that already adopted 4G played a strong role in this snowball effect of all providers upgrading their infrastructure.

4) Although other infrastructure options different to LTE 4G may have provided better internet for consumers, all phone providers now adopt LTE carrier technology in anticipation (and realisation) that it will be the dominant technology for providing 4G service.