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Bargaining Over Fixed-to-Mobile Termination Rates in the Shadow of the Regulator

Binmore, Ken and Harbord, David (2005): Bargaining Over Fixed-to-Mobile Termination Rates in the Shadow of the Regulator. Published in: Journal of Competition Law and Economics , Vol. 1, No. 3 (September 2005): pp. 449-472.

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The conventional wisdom that mobile operators are able to act as monopolists in pricing call termination on their networks has recently been challenged by Hutchison 3G’s entry into European mobile markets. The European Commission’s electronic communications regime allows national regulatory authorities to regulate mobile termination rates if an operator is found to possess “significant market power”. This requires that the mobile operator not be constrained by the "countervailing buyer power" of incumbents. The claim that incumbent operators possess countervailing buyer power has been repeatedly dismissed because of their obligation to interconnect with other networks. This conclusion is erroneous. We analyse bargaining over fixed-to-mobile termination rates and demonstrate that the existence of an interconnectivity obligation is entirely consistent with new entrants such as Hutchison 3G having no market power at all in pricing call termination on their own networks.

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