Measuring the most efficient point of cell phone adoption in China : application of a stochastic frontier model

Abstract

The Chinese mobile phone market has enjoyed impressive growth in recent years in terms of the number of subscribers. However, it is observed that there exists wide range of the gaps among regions. In some areas like Beijing, Shanghai, the penetration rate of mobile phone subscribers are 66.49% and 56.59%, respectively, while those of other areas like Guizhou and Henan are lower than 10%. The purpose of this paper is to examine (1) the importance factors which could explain the different mobile phone penetration rates among provinces and (2) the most efficient point of mobile phone penetration rate in different provinces of the mainland China. The gap between the real penetration rate and the estimated efficient penetration rate in each province can be considered as the potential market opportunity by mobile phone service providers. The mobile phone penetration rates of the thirty-one provinces of the mainland of china are collected and stochastic frontier model (SFM) is used to calculate the relative inefficiency in penetration rate. The results show that disposable income, job type and penetration of fixed phone are the important factors which could influence the mobile phone adoption rates. In addition, the average inefficient point is 20.84%, while they are different from province to province. These different inefficient points in provinces imply that there are still considerable market potentials for the mobile phone service providers. The interesting result is that these market potentials are still much bigger in Beijing and Shanghai, while their current penetration rates are much higher than other provinces.