  This paper examines the effects of licensing conditions, in particular of
spectrum fees, on the pricing and diffusion of mobile communications services.
Seemingly exorbitant sums paid for 3G licenses in the UK, Germany in 2000 and
similarly high fees paid by U.S. carriers in the re-auctioning of PCS licenses
early in 2001 raised concerns as to the impacts of the market entry regime on
the mobile communications market.
  The evidence from the GSM and PCS markets reviewed in this paper suggests
that market entry fees do indeed influence the subsequent development of the
market. We discuss three potential transmission channels by which license fees
can influence the price and quantity of service sold in a wireless market: an
increase in average cost, an increase in incremental costs, and impacts of sunk
costs on the emerging market structure.
  From this conceptual debate, an empirical model is developed and tested using
cross-sectional data for the residential mobile voice market. We utilize a
structural equation approach, modeling the supply and demand relationships
subject to the constraint that supply equals demand. The results confirm the
existence of a positive effect of license fees on the cost of supply. However,
we also find that higher market concentration has a positive effect on the
overall supply in the market, perhaps supporting a Schumpeterian view that a
certain degree of market concentration facilitates efficiency.
