Modeling High Tech – the Demand for Communications Services

A colleague was kind enough to provide me with a copy of –

Demand for Communications Services – Insights and Perspectives, Essays in Honor of Lester D. Taylor, Alleman, NíShúilleabháin, and Rappoport, editors, Springer 2014

Some essays in this Festschrift for Lester Taylor are particularly relevant, since they deal directly with forecasting the disarray caused by disruptive technologies in IT markets and companies.

Thus, Mohsen Hamoudia in “Forecasting the Demand for Business Communications Services” observes about the telecom space that

“..convergence of IT and telecommunications market has created more complex behavior of market participants. Customers expect new product offerings to coincide with these emerging needs fostered by their growth and globalization. Enterprises require more integrated solutions for security, mobility, hosting, new added-value services, outsourcing and voice over internet protocol (VoiP). This changing landscape has led to the decline of traditional product markets for telecommunications operators.

In this shifting landscape, it is nothing less than heroic to discriminate “demand variables” and “ independent variables” deploying and produce useful demand forecasts from three stage least squares (3SLS) models, as does Mohsen Hamoudia in his analysis of BCS.

Here is Hamoudia’s schematic of supply and demand in the BCS space, as of a 2012 update.

BCS

Other cutting-edge contributions, dealing with shifting priorities of consumers, faced with new communications technologies and services, include, “Forecasting Video Cord-Cutting: The Bypass of Traditional Pay Television” and “Residential Demand for Wireless Telephony.”

Festschrift and Elasticities

This Springer Festschrift is distinctive inasmuch as Professor Taylor himself contributes papers – one a reminiscence titled “Fifty Years of Studying Economics.”

Taylor, of course, is known for his work in the statistical analysis of empirical demand functions and broke ground with two books, Telecommunications Demand: A Survey and Critique (1980) and Telecommunications Demand in Theory and Practice (1994).

Accordingly, forecasting and analysis of communications and high tech are a major focus of several essays in the book.

Elasticities are an important focus of statistical demand analysis. They flow nicely from double logarithmic or log-log demand specifications – since, then, elasticities are constant. In a simple linear demand specification, of course, the price elasticity varies across the range of prices and demand, which complicates testimony before public commissions, to say the least.

So it is interesting, in this regard, that Professor Taylor is still active in modeling, contributing to his own Festschrift with a note on translating logs of negative numbers to polar coordinates and the complex plane.

“Pricing and Maximizing Profits Within Corporations” captures the flavor of a telecom regulatory era which is fast receding behind us. The authors, Levy and Tardiff, write that,

During the time in which he was finishing the update, Professor Taylor participated in one of the most hotly debated telecommunications demand elasticity issues of the early 1990’s: how price-sensitive were short-distance toll calls (then called intraLATA long-distance calls)? The answer to that question would determine the extent to which the California state regulator reduced long-distance prices (and increased other prices, such as basic local service prices) in a “revenue-neutral” fashion.

Followup Workshop

Research in this volume provides a good lead-up to a forthcoming International Institute of Forecasters (IIF) workshop – the 2nd ICT and Innovation Forecasting Workshop to be held this coming May in Paris.

The dynamic, ever changing nature of the Information & Communications Technology (ICT) Industry is a challenge for business planners and forecasters. The rise of Twitter and the sudden demise of Blackberry are dramatic examples of the uncertainties of the industry; these events clearly demonstrate how radically the environment can change. Similarly, predicting demand, market penetration, new markets, and the impact of new innovations in the ICT sector offer a challenge to businesses and policymakers. This Workshop will focus on forecasting new services and innovation in this sector as well as the theory and practice of forecasting in the sector (Telcos, IT providers, OTTs, manufacturers). For more information on venue, organizers and registration, Download brochure

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