Mobile wholesale and retail price interplay: The somewhat contrary case of South Africa in Africa
This paper analyses the link between termination rate reductions and retail prices. It draws on in-depth case studies of South Africa, Namibia and Kenya where regulators have reduced termination rates towards the cost of an efficient operator. To varying degrees these have all led to lower retail prices and a significant market expansion. While both Namibia and Kenya, experienced significant retail price reduction following substantial termination rate reductions, the case of South Africa demonstrates that termination rate reductions are not automatically passed through to consumers. In South Africa only the second reduction in March 2012 allowed smaller operators to reduce their off-net prices to a level could tempt subscribers from dominant operators to switch. The case studies confirm that retail prices do not go up in response to termination rates going down, in CPNP (calling-party's-network-pays) markets as contended by dominant mobile operators. This is also in contrast to a body of academic literature stating that termination rates and mobile retail prices constitute a two-sided market and that termination rate reductions will lead to a so called waterbed effect. This study draws on a database of all prepaid products available in 46 African countries which were collected monthly for the period January 2011 to June 2012. The OECD price basket methodology is used to compare prices between countries and between operators. In-depth face-to-face interviews on termination rate regulations were also held with regulators in Kenya, Namibia and South Africa. The analysis is further supplemented with an analysis of audited financial statements of dominant operators in each market, namely Vodacom South Africa, MTN South Africa, Telkom South Africa, MTC2 in Namibia, and Safaricom in Kenya.
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- Christos Genakos & Tommaso Valletti, 2008.
"Testing the “Waterbed” Effect in Mobile Telephony,"
CEIS Research Paper
110, Tor Vergata University, CEIS, revised 11 Jul 2008.
- Christos Genakos & Tommaso Valletti, 2007. "Testing the "waterbed" effect in mobile telephony," LSE Research Online Documents on Economics 19680, London School of Economics and Political Science, LSE Library.
- Genakos, Christos D. & Valletti, Tommaso, 2009. "Testing the "Waterbed" Effect in Mobile Telephony," CEPR Discussion Papers 7611, C.E.P.R. Discussion Papers.
- Christos Genakos & Tommaso Valletti, 2007. "Testing the 'Waterbed' Effect in Mobile Telephony," CEP Discussion Papers dp0827, Centre for Economic Performance, LSE.
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