The SMS Bandwagon in Norway: What Made the Market?

Abstract

Short Message Service (SMS) has been an overwhelming success in Europe, substantially larger than in the United States. Norway represents in relative terms one of the largest SMS markets in the world. The aim of this paper is to examine the relationship between economic theories of bandwagon effects, and the Norwegian mobile providers’ management of the SMS market. We narrow the focus on the problem of getting the SMS bandwagon rolling. We emphasise two features crucial to the SMS success. The first is low prices on text messaging relative to mobile phone call charges for low-end tariffs. This seams to have been particularly important in the price sensitive youth market. The second key feature is the high degree of interlinking with respect to functionality and pricing. Both these features differ between Europe and the United States, and we argue that this might explain the difference in market development. The development in the SMS market suggests that it is important that the regulator does not interfere in the early stage. In the SMS market the absence of regulations and ex ante superfluous functionality ended up ex post as major successful services. This suggests that the regulator should be very careful when designing regulation regimes in bandwagon markets to avoid reduced innovation.

We thank Telenor Mobil for generously providing data on mobile originated SMS. Kjetil Andersson thanks Telenor R&D for financial support, Øystein Foros and Frode Steen are grateful for financial support from the Norwegian Research Council through the research programs KIM 1303 and ISIP 154834, respectively.