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Mobile termination: Market power, externalities and their policy implications

Author

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  • Albon, Rob
  • York, Richard

Abstract

Without regulation, market power in mobile termination is likely to result in mobile termination rates (MTRs) in excess of costs and cross-subsidised prices for mobile subscription/handsets. Mobile network operators (MNOs) argue that subsidisation is efficient, being justified by, inter alia, a network externality on new mobile subscriptions. However, especially in mature markets, the argument here is that MNOs will tend to set MTRs inefficiently high and subscription prices will be driven inefficiently low. Regulation is necessary to prevent these inefficiencies. Further, other externalities have different implications--e.g., the mobile call-receipt externality suggests a subsidy to mobile termination. The conclusion is that on balance and in the absence of detailed empirical estimation of the size of a multitude of possible types of externality, it is likely to be efficient to set MTRs to cost in markets with high penetration.

Suggested Citation

  • Albon, Rob & York, Richard, 2006. "Mobile termination: Market power, externalities and their policy implications," Telecommunications Policy, Elsevier, vol. 30(7), pages 368-384, August.
  • Handle: RePEc:eee:telpol:v:30:y:2006:i:7:p:368-384
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    References listed on IDEAS

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    1. Gans, Joshua S. & King, Stephen P., 2000. "Mobile network competition, customer ignorance and fixed-to-mobile call prices," Information Economics and Policy, Elsevier, vol. 12(4), pages 301-327, December.
    2. R. G. Lipsey & Kelvin Lancaster, 1956. "The General Theory of Second Best," Review of Economic Studies, Oxford University Press, vol. 24(1), pages 11-32.
    3. 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.
    4. Joshua S. Gans & Stephen P. King & Julian Wright, 2005. "Wireless Communications," Monash Economics Working Papers archive-45, Monash University, Department of Economics.
    5. Ingo Vogelsang, 2003. "Price Regulation of Access to Telecommunications Networks," Journal of Economic Literature, American Economic Association, vol. 41(3), pages 830-862, September.
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    Citations

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    Cited by:

    1. Rob Albon, 2006. "Fixed-to-Mobile Substitution, Complementarity and Convergence," Agenda - A Journal of Policy Analysis and Reform, Australian National University, College of Business and Economics, School of Economics, vol. 13(4), pages 309-322.
    2. Hahn, Robert & Evans, Lewis, 2010. "Regulating Dynamic Markets: Progress in Theory and Practice," Working Paper Series 4052, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    3. Baigorri, Carlos M. & Maldonado, Wilfredo F.L., 2014. "Optimal mobile termination rate: The Brazilian mobile market case," Telecommunications Policy, Elsevier, vol. 38(1), pages 86-95.
    4. Rob Albon, 2012. "Beyond Traditional Regulatory Models: Emerging Governance for New Networks," Chapters, in: Gerald R. Faulhaber & Gary Madden & Jeffrey Petchey (ed.),Regulation and the Performance of Communication and Information Networks, chapter 2, Edward Elgar Publishing.
    5. Casey, Thomas R. & Töyli, Juuso, 2012. "Mobile voice diffusion and service competition: A system dynamic analysis of regulatory policy," Telecommunications Policy, Elsevier, vol. 36(3), pages 162-174.
    6. Basaran, Alparslan A. & Cetinkaya, Murat & Bagdadioglu, Necmiddin, 2014. "Operator choice in the mobile telecommunications market: Evidence from Turkish urban population," Telecommunications Policy, Elsevier, vol. 38(1), pages 1-13.
    7. Cricelli, Livio & Grimaldi, Michele & Levialdi Ghiron, Nathan, 2012. "The impact of regulating mobile termination rates and MNO–MVNO relationships on retail prices," Telecommunications Policy, Elsevier, vol. 36(1), pages 1-12.

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