Effect of traffic shifts on the economics of telecommunication competition

We consider a telecommunication competition model involving an incumbent and one or more new entrants who only choose to serve the most profitable traffic. The contribution of this paper is a new analysis that studies the effect of traffic shifts, which are common in the Internet era, on the distribution of market share. Introducing and using a new concept of a shifting network process, we analyze an incumbent network provider adapting its network to this shifting network process with a Mixed Integer Linear Program (MILP). In addition, a second MILP is developed to determine the maximum market share obtainable by a single competitor, engaging in so-called "cream- skimming". Further, we investigate the situation wherein multiple competitors compete on specific parts of the network. Numerical results are provided to demonstrate the various market share effects that may occur. © 2007 IEEE.