Modelling MNO and MVNO’s dynamic interconnection relations: is cooperative content investment profitable for both providers?

Abstract

We consider a Mobile Network Operator (MNO) who shares dynamically his limited resource spectrum with a Virtual Network Operator (MVNO) lacking the infrastructure. We start by introducing at each time period a three-level game: in the first step the MNO defines the wholesale access charge that the MVNO pays per traffic unit sent on his network and allocates his scarce resource between his own consumers and the MVNO; in a second step, both operators compete on their retail prices, the MNO discriminating between the market segments while the MVNO invests in contents to target niche markets or add value to her company; finally the consumers choose one of the providers’ offers or none depending on their intrinsic preferences and on the opportunity cost values. The game admits a unique equilibrium. In a second part, a regulatory authority forces both providers to use cooperative content investment i.e., the MNO now shares the MVNO’s content investment cost; in exchange this latter agrees to share her revenue. The equilibrium is still uniquely defined at each time period. Besides, we check numerically that depending on the operators’ power relation, such a contract can increase both operators’ utilities and consumer welfare, and incite the MVNO to invest more in contents.