Harbord, David and Hoernig, Steffen (2010): Welfare Analysis of Regulating Mobile Termination Rates in the UK (with an Application to the Orange/T-Mobile Merger).
Download (314kB) | Preview
This paper presents results from a calibrated welfare model of the UK mobile telephony market which includes many mobile networks; calls to and from the fixed network; networkbased price discrimination; and call externalities. The analysis focuses on the short-run effects of adopting lower mobile termination rates (MTRs) on total welfare, consumer surplus and profits. Our simulations show that reducing MTRs broadly in line with the recent European Commission Recommendation to either “long-run incremental cost”; reciprocal termination charges with fixed networks; or “bill-and-keep” (i.e. zero termination rates), increases social welfare, consumer surplus and networks’ profits. Depending on the strength of call externalities, social welfare may increase by as much as £360 million to £2.5 billion per year. The analysis thus lends support to a move away from fully-allocated cost pricing and towards much lower MTRs, with bill-and-keep frequently leading to the highest increase in welfare when call externalities matter. We also apply the model to estimate the welfare effects of the recently-approved merger between Orange and T-Mobile under two different scenarios concerning MTRs.
|Item Type:||MPRA Paper|
|Original Title:||Welfare Analysis of Regulating Mobile Termination Rates in the UK (with an Application to the Orange/T-Mobile Merger)|
|Keywords:||telecommunications; regulation; mobile termination rates; network effects; welfare; simulations welfare, simulations|
|Subjects:||L - Industrial Organization > L9 - Industry Studies: Transportation and Utilities > L96 - Telecommunications
L - Industrial Organization > L5 - Regulation and Industrial Policy > L51 - Economics of Regulation
L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets
D - Microeconomics > D4 - Market Structure, Pricing, and Design > D43 - Oligopoly and Other Forms of Market Imperfection
|Depositing User:||David Harbord|
|Date Deposited:||22. Mar 2010 00:33|
|Last Modified:||30. Dec 2015 15:01|
Analysys Mason (2008). Case Studies of Mobile Termination Regimes in Canada, Hong Kong, Singapore and the USA: Report for Ofcom, 26 November, London.
ARCEP (2008). Les Référentiels de Coûts des Opérateurs Mobiles en 2008, Paris.
Armstrong, M. (2002). `The theory of access pricing and interconnection', in (M. Cave, S. Majumdar and I. Vogelsang eds.), Handbook of Telecommunications Economics, Amsterdam: North-Holland.
Armstrong, M. and Wright, J. (2007). `Mobile call termination in the UK', MPRA Paper Number 2344, University Library of Munich, Germany.
Armstrong, M. and Wright, J. (2009a). `Mobile call termination', Economic Journal, vol. 119, pp. F270--F307.
Armstrong, M. and Wright, J. (2009b). `Mobile call termination in the UK: a competitive bottleneck?' in (B. Lyons ed.), Cases in European Competition Policy: The Economic Analysis, Cambridge: CUP.
Berger, U. (2004). `Access charges in the presence of call externalities', B.E. Journal of Economic Analysis & Policy, vol. 3(1).
Berger, U. (2005). `Bill-and-keep vs. cost-based access pricing revisited', Economics Letters, vol. 86(1), pp. 107-112.
Binmore, K. and Harbord, D. (2005). `Bargaining over fixed-to-mobile termination rates: countervailing buyer power as a constraint on monopoly power', Journal of Competition Law and Economics, vol 1, pp. 49-72.
British Telecom (BT) (2009). UK and International Call Prices and Discount Schemes for Residential Customers, September, London.
Cabral, L. (2009). `Dynamic price competition with network effects', mimeo, New York University, March.
Calzada, J. and Valletti, T. (2008). `Network competition and entry deterrence', Economic Journal, vol. 118, pp. 1223-1244.
Carter, M. and Wright, J. (1999). `Interconnection in network industries', Review of Industrial Organization, vol. 14, pp. 1-25.
Carter, M. and Wright, J. (2003). `Asymmetric network interconnection', Review of Industrial Organization, vol. 22, pp. 27-46.
Competition Commission (2003). Vodafone, O2, Orange and T-Mobile: Reports on References Under Section 13 of Telecommunications Act 1984 on Charges Made by Vodafone, Orange, O2 and T-Mobile for Terminating Calls Made by Fixed and Mobile Networks, HMSO, London.
Competition Commission (2009). Mobile phone wholesale voice termination charges: Determination, HMSO, London.
Cullen International (2008). Mobile Termination Rates: Regulatory Challenges, Belgrade.
DeGraba, P. (2003). `Efficient intercarrier compensation for competing networks when customers share the value of a call', Journal of Economics and Management Strategy, vol. 12, pp. 207-230.
Dewenter, R. and Haucap, J. (2005). `The effects of regulating mobile termination rates for asymmetric networks', European Journal of Law and Economics, vol. 20, pp. 185-197.
Dewenter, R. and Haucap, J. (2007). `Demand elasticities for mobile telecommunications in Austria', Ruhr Economic Papers, No. 17.
European Commission (EC) (2004). `Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between undertakings', Official Journal of the European Union, vol. 5.2.2004, pp. C31/5 - C31/18.
European Commission (EC) (2009a). Commission Recommendation on the Regulatory Treatment of Fixed and Mobile Termination Rates in the EU, 7 May, Brussels.
European Commission (EC) (2009b). Explanatory Note, Commission Staff Working Document accompanying the Commission Recommendation on the Regulatory Treatment of Fixed and Mobile Termination Rates in the EU, Brussels.
European Commission (EC) (2009c). Implications for Industry, Competition and Consumers, Commission Staff Working Document accompanying the Commission Recommendation on the Regulatory Treatment of Fixed and Mobile Termination Rates in the EU, Brussels.
European Commission (EC) (2010). Mergers: Commission Approves Proposed Merger Between UK Subsidiaries of France Telecom and Deutsche Telekom, Subject to Conditions, Brussels.
ERG (2009). ERG Draft Common Position on Next Generation Networks Future Charging Mechanisms / Long Term Termination Issues, European Regulators Group, Brussels.
Gans, J. and King, S. (2000). `Mobile network competition, consumer ignorance and fixed-to-mobile call prices', Information Economics & Policy, vol. 12, pp. 301-327.
Genakos and Valletti, T. (forthcoming). `Testing the `waterbed' effect in mobile telephony', Journal of the European Economic Association.
Harbord, D. and Pagnozzi, M. (2010). `Network-based price discrimination and `bill and - keep' vs. `cost-based' regulation of mobile termination rates', Review of Network Economics, vol. 9(1), Article 1.
Hermalin, B. and Katz, M. (2009). `Customer or complementor? intercarrier compensation with two-sided benefits', mimeo, Haas School of Business, University of California, Berkeley.
Hoernig, S. (2007). `On-net and off-net pricing on asymmetric telecommunications networks', Information Economics & Policy, vol. 19(2), pp. 171-188.
Hoernig, S. (2008). `Tariff-mediated network externalities: is regulatory intervention any good?' CEPR Discussion Paper No. 6866.
Hoernig, S. (2009a). `Market penetration and late entry in mobile telephony', mimeo, FEUNL, January.
Hoernig, S. (2009b). `Competition between multiple asymmetric networks: a toolkit and applications', mimeo, FEUNL, December.
Hutchison 3G UK Limited (2009). Response to Wholesale Mobile Voice Call Termination Preliminary Consultation on Future Regulation, 29 July 2009.
Jeon D., Laffont, J.-J. and Tirole, J. (2004). `On the receiver pays principle', RAND Journal of Economics, vol. 35, pp. 85 -110.
Laffont, J-J., Rey, P. and Tirole, J. (1998). `Network competition: II. price discrimination', RAND Journal of Economics, vol. 29(1), pp. 38-56.
Lopez, A. (2008). `Mobile termination rates and the receiver-pays regime', mimeo, IESE Business School.
Market Analysis Ltd (2008). H3G Welfare Model, Oxford.
Ofcom (2007). Mobile Call Termination Statement, 27 March, London.
Ofcom (2009a). Wholesale Mobile Voice Call Termination: Preliminary Consultation on Future Regulation, 20 May, London.
Ofcom (2009b). Telecommunications Market Data Tables Q1 2009, London.
Ofcom (2009c). Review of BT's Network Charge Controls, 15 September, London.
Ofcom (2009d). The Communications Market 2008, August, London.
Orange and T-Mobile (2009). Combination of Orange UK & T-Mobile UK: Creating a New Mobile Champion, 8 September.
Thompson, H., Renard, O., and Wright, J. (2007). `Mobile termination', in (J. Haucap and R. Dewenter eds.), Access Pricing: Theory and Practice, Amsterdam: Elsevier.
Valletti, T. and Houpis, G. (2005). `Mobile termination: what is the `right' charge?' Journal of Regulatory Economics, vol. 28, pp. 235-258.
Wright, J. (2002). `Access pricing under competition: an application to cellular networks', Journal of Industrial Economics, vol. 50, pp. 289-315.