Delegation with Technology Migration: An Empirical Analysis of Mobile Virtual Network Operators

This study examines the impact of mobile virtual network operators (MVNOs) on the performance of mobile network operators (MNOs) in the presence of overlapping generations of wireless mobile network technologies (2G and 3 G). MVNOs distribute MNOs’ mobile services to customers without owning any spectrum or network infrastructures, either as a subsidiary (branded MVNOs) or delegated under wholesale agreements with MNOs (third-party MVNOs). We investigate MVNO value chain governance, that is, delegation, in the context of overlapping generations of technologies. Leveraging a proprietary data set, we design a quasi-experiment to analyze the impact of branded and third-party MVNOs in 2G and 3 G market expansion. Using first a difference-in-differences analysis and then dynamic propensity score matching, we find that an MNO’s 2G market share increases if the MNO launches a third-party MVNO, whereas its 3 G market share increases if it launches a branded MVNO. More importantly, the positive effects of branded MVNOs diminish over time, but those of third-party MVNOs become stronger over time. For managers challenged by managing overlapping generations of technologies, it is important to customize value chain governance for market expansion: to create branded MVNOs to explore new mobile technologies, and to delegate to third-party MVNOs to exploit existing technology markets when the technology market is mature.