Mobile Termination: What is the “Right” Charge?*

Abstract

The regulation of fixed-to-mobile (F2M) termination charges has become increasingly important in Europe, Australia, and New Zealand under the Calling Party Pays principle. In the absence of any regulation, mobile operators have an incentive to set F2M termination charges “too high”. We show that the setting of the optimal F2M termination charges depends on the significance of network externalities, the intensity of competition in the mobile sector, and the distribution of customer preferences. We also discuss the merits of possible remedies which are not very intrusive. Copyright Springer Science+Business Media, Inc. 2005mobile telephony, network externality, termination charges, L41, L96,

Network-Based Price Discrimination and `Bill-and-Keep' vs. `Cost-Based' Regulation of Mobile Termination Rates

“…68 Now, an increase in a F above marginal cost increases the pro…ts of mobile network, some or all of which is passed on to mobile subscribers via the waterbed e¤ect, but simultaneously reduces the utility received by the mobile network's subscribers (10)), but also optimal for the mobile network's subscribers. Thus, we can no longer say that setting a …x e d -t o -m o b i l e termination rate above marginal cost, or even above zero, bene…ts mobile subscribers considered in isolation.…”

“…77 Armstrong (2002), Wright (2002a) and Valletti and Houpis (2005) also found that the welfare-maximizing …x e d -t o -m o b i l e termination charge is above cost when there is scope for market expansion. These models did not allow for mobile-to-mobile calls, however.…”

Welfare Analysis of Regulating Mobile Termination Rates in the UK (with an Application to the Orange/T-Mobile Merger)

“…Armstrong and Wright (2009a) conclude that socially optimal MTRs should exceed the marginal cost of termination, and that the …xed-to-mobile and mobile-to-mobile rates should be set at di¤erent levels, if feasible. 52 Armstrong (2002), Wright (2002) and Valletti and Houpis (2005) also found that the welfaremaximizing …xed-to-mobile termination charge is above cost when there is scope for market expansion.…”

“…60 We have used this information to estimate the equivalent level annuity which would match these e¢ ciency gains, i.e. a constant per annum net saving which delivers the same NPV as the variable pro…le of savings described above.…”

On-Net/Off-Net Price Discrimination and 'Bill-and-Keep' vs. 'Cost-Based' Regulation of Mobile Termination Rates

“…45 off-peak calls. 50 Pre-pay packages also tend to offer generous or unlimited minute allowances for both on-net and off-peak, off-net calls. 51 The situation in Hong Kong and Singapore is very different.…”