Empirical Evidence on the Relationship between Mobile Termination Rates and Firms' Profits

Abstract

The theoretical literature on mobile termination rates (MTRs) is inconclusive on how the level of MTRs affects overall consumer charges and firms' profits. We show that when firms offer bundles with fixed included usage – a tariff structure that has become more common in recent years – an identical change in all MTRs does not affect firms' retail prices or profits. We use a panel dataset from saturated European markets to estimate the effect of MTRs on mobile operators' profits. As predicted by the theoretical model, we cannot reject the fact that firms' profits are unaffected by an identical change in all MTRs.

Mobile termination rates and retail regimes in Europe and the US: A unified theory of CPP and RPP

“…A reduction of the termination mark-up from m π (the profit-maximizing one) to m = 0 reduces profits only slightly. This is consistent with empirical evidence from Genakos and Valletti (2015) and Andersson et al (2016) .…”