Are telecommunications regulators correct in their beliefs that network size affects origination/termination?

Some telecommunications regulators in calling-party pays (CPP) regimes have asserted that network operator size itself affects the ratio of (off-net originating minutes)/(off-net terminating minutes) (abbreviated in future references as “O/T”). This implies that being a large operator itself causes the operator to be a net terminator of traffic and to be a net receiver of call termination payments. For convenience, we will describe this notion as the “regulators' proposition.” This notion could have been a motivation for regulators: to establish asymmetric mobile call termination rates (MTRs) (higher termination rates for smaller operators); or to reduce symmetrical MTRs. We begin with a simple mathematical description of calling between networks that indicates that size does not affect O/T. We also use a unique panel data set from eight mobile operators in Colombia that includes a measure of operator size, a off-net price variable, and two proxies for the proportion of low-income subscribers (one for originating minutes and one for terminating minutes). We do not find empirical support for the regulators' proposition. Operator size is statistically insignificant (and has the incorrect sign – to support the regulator's proposition - in some specifications to). Off-net price and income (rather than network size) variables are significant in explaining O/T. The off-net price variable has the expected negative sign and is significant at the 5% level or better. The income variables have the expected signs and are generally significant at the 5% level. Belief in the regulators' proposition could also, unwittingly, accentuate the urban-rural divide and reduce service to low-income customers, particularly in less-developed countries.