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Mobile Call Termination

Armstrong, Mark and Wright, Julian (2008): Mobile Call Termination.

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Motivated by recent UK experience, we study the problem of mobile call termination. This is an intriguing policy story, in which regulation has been imposed on what appears to be a competitive industry. We introduce a framework which integrates two existing literatures: one analyzing calls from the fixed network to mobile networks (where the predicted market failure involves the termination charge being set at the monopoly level), and one analyzing calls from one mobile network to another (where the predicted unregulated termination charge lies below the efficient level). Our unified framework allows us to consider the impact of wholesale arbitrage and demand-side substitution. In the absence of very significant market expansion possibilities, we find the unregulated termination charge lies between the efficient and the monopoly benchmarks. There remains a rationale for regulation, albeit reduced relative to the earlier literature.

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