Price Competition with LTE-U and WiFi

Abstract: LTE-U is an extension of the Long Term Evolution (LTE) standard for operation in unlicensed spectrum. LTE-U differs from WiFi, the predominant technology used in unlicensed spectrum in that it utilizes a duty cycle mode for accessing the spectrum and allows for a more seamless integration with LTE deployments in licensed spectrum. There have been a number of technical studies on the co-existence of LTE-U and WiFi in unlicensed spectrum In this paper, we instead investigate the impact of such a technology from an economic perspective. We consider a model in which an incumbent service provider (SP) deploys a duty cycle-based technology like LTE-U in an unlicensed band along with operating in a licensed band and competes with one or more entrants that only operate in the unlicensed band using a different technology like WiFi. We characterize the impact of a technology like LTE-U on the market outcome and show that the welfare impacts of this technology are subtle, depending in part on the amount of unlicensed spectrum and number of entrants. The difference in spectral efficiency between LTE and WiFi also plays a role in the competition among SPs. Finally, we investigate the impact of the duty cycle and the portion of unlicensed spectrum used by the technology.