In the beginning of 2007 the penetration rate of third generation (henceforth 3G) mobile phone services in Taiwan is about 10%. According to this figure, it is still a new service in the market. 3G mobile phone services offer more functions than 2G can do. It is therefore quite interesting that whether these new functions are necessary for the future life so that the 2G customers are attracted to switch to 3G systems. In this paper, firstly Factor Analysis is employed to find out the functions demanded by mobile phone customers. The results show that traditional voice services, audio services, and the access to the Internet are the best three functions demanded by the customers. Then Binary Logit model is used to analyze the probability of 2G customers switching to 3G systems. This study suggests that among the 3G attributes, only install fee and usage fee affect the probability of switching significantly.
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