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Fixed-mobile substitution and termination rates

Author

Listed:
  • Steffen Hoernig
  • Marc Bourreau
  • Carlo Cambini

Abstract

This paper studies the effect of termination rates on substitution between fixed and mobile calls and access, in a model where heterogeneous consumers can subscribe to one or both types of offers. Simulations show that each (fixed or mobile) termination rate has a positive effect on the take-up of the corresponding service, via the waterbed effect, and lowers subscriptions to the other service, via a cost effect. The prevailing asymmetric regulation, with very low fixed and higher mobile termination rates, corresponds to the social optimum. However, the interests of the mobile operators and of the different customer groups do not coincide.

Suggested Citation

  • Steffen Hoernig & Marc Bourreau & Carlo Cambini, 2014. "Fixed-mobile substitution and termination rates," Nova SBE Working Paper Series wp588, Universidade Nova de Lisboa, Nova School of Business and Economics.
    • Handle: RePEc:unl:unlfep:wp588
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    References listed on IDEAS

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    1. Barth, Anne-Kathrin & Heimeshoff, Ulrich, 2011. "Does the growth of mobile markets cause the demise of fixed networks? Evidence from the European Union," 22nd European Regional ITS Conference, Budapest 2011: Innovative ICT Applications - Emerging Regulatory, Economic and Policy Issues 52144, International Telecommunications Society (ITS).
    2. Mark Armstrong & Julian Wright, 2009. "Mobile Call Termination," Economic Journal, Royal Economic Society, vol. 119(538), pages 270-307, June.
    3. Barth, Anne-Kathrin & Heimeshoff, Ulrich, 2012. "How large is the magnitude of fixed-mobile call substitution? Empirical evidence from 16 European countries," DICE Discussion Papers 49, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    4. Vogelsang, Ingo, 2010. "The relationship between mobile and fixed-line communications: A survey," Information Economics and Policy, Elsevier, vol. 22(1), pages 4-17, March.
    5. Grzybowski, Lukasz, 2014. "Fixed-to-mobile substitution in the European Union," Telecommunications Policy, Elsevier, vol. 38(7), pages 601-612.
    6. Paul Bijl & Martin Peitz, 2009. "Access regulation and the adoption of VoIP," Journal of Regulatory Economics, Springer, vol. 35(2), pages 111-134, April.
    7. Tommaso Valletti & George Houpis, 2005. "Mobile Termination: What is the “Right” Charge?," Journal of Regulatory Economics, Springer, vol. 28(3), pages 235-258, November.
    8. Steffen Hoernig & Marc Bourreau & Carlo Cambini, 2014. "Fixed-mobile integration," Journal of Regulatory Economics, Springer, vol. 45(1), pages 57-74, February.
    9. Julian Wright, 2002. "Access Pricing under Competition: An Application to Cellular Networks," Journal of Industrial Economics, Wiley Blackwell, vol. 50(3), pages 289-315, September.
    10. Wolfgang Briglauer & Anton Schwarz & Christine Zulehner, 2011. "Is fixed-mobile substitution strong enough to de-regulate fixed voice telephony? Evidence from the Austrian markets," Journal of Regulatory Economics, Springer, vol. 39(1), pages 50-67, February.
    11. Gerald R. Faulhaber & Gary Madden & Jeffrey Petchey (ed.), 2012. "Regulation and the Performance of Communication and Information Networks," Books, Edward Elgar Publishing, number 14325.
    12. Lukasz Grzybowski & Frank Verboven, 2013. "Substitution and Complementarity between Fixed-line and Mobile Access," Working Papers 13-09, NET Institute.
    13. Ward, Michael R. & Woroch, Glenn A., 2010. "The effect of prices on fixed and mobile telephone penetration: Using price subsidies as natural experiments," Information Economics and Policy, Elsevier, vol. 22(1), pages 18-32, March.
    14. Pio Baake & Kay Mitusch, 2009. "Mobile phone termination charges with asymmetric regulation," Journal of Economics, Springer, vol. 96(3), pages 241-261, April.
    15. Ward, Michael R. & Zheng, Shilin, 2012. "Mobile and fixed substitution for telephone service in China," Telecommunications Policy, Elsevier, vol. 36(4), pages 301-310.
    16. Jean-Jacques Laffont & Patrick Rey & Jean Tirole, 1998. "Network Competition: II. Price Discrimination," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 38-56, Spring.
    17. Jerry A. Hausman, 2012. "Two-sided Markets with Substitution: Mobile Termination Revisited," Chapters, in: Gerald R. Faulhaber & Gary Madden & Jeffrey Petchey (ed.), Regulation and the Performance of Communication and Information Networks, chapter 13, Edward Elgar Publishing.
    18. Tommaso Valletti, 2003. "Is Mobile Telephony a Natural Oligopoly?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 22(1), pages 47-65, February.
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    Cited by:

    1. Steffen Hoernig & Marc Bourreau & Carlo Cambini, 2014. "Fixed-mobile integration," Journal of Regulatory Economics, Springer, vol. 45(1), pages 57-74, February.
    2. Marc Bourreau & Carlo Cambini & Steffen Hoernig, 2015. "Price distortion under fixed-mobile substitution," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 42(4), pages 441-454, December.
    3. Lukasz Grzybowski & Frank Verboven, 2016. "Substitution between fixed-line and mobile access: the role of complementarities," Journal of Regulatory Economics, Springer, vol. 49(2), pages 113-151, April.
    4. Lee, Dongyeol, 2015. "Regulating termination charges in asymmetric oligopolies," Information Economics and Policy, Elsevier, vol. 32(C), pages 16-28.
    5. Mansi Kedia, 2019. "Testing the waterbed effect for India’s telecom industry," Indian Economic Review, Springer, vol. 54(1), pages 121-148, June.
    6. Rudra P. Pradhan & Mak B. Arvin & John H. Hall & Sara E. Bennett, 2018. "Mobile telephony, economic growth, financial development, foreign direct investment, and imports of ICT goods: the case of the G-20 countries," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 45(2), pages 279-310, June.

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    More about this item

    Keywords

    Network competition; fixed-mobile substitution; termination rates;
    All these keywords.

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L92 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Railroads and Other Surface Transportation

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