Calling vs Receiving Party Pays: Market Penetration and the Importance of the Call Externality

In this paper we study how the access price affects the choice of the tariff regime taken by the network operators. We show that for high values of the access price, that is taken as a parameter by the firms, networks decide to charge only the callers. Otherwise, for low values of the access charge, networks charge also the receivers. Moreover, we compare market penetration and total welfare between the two price regimes. Our model suggests that, for high values of call externality, market penetration and total welfare are larger in Receiving Party Pays regime when the access charge is close to zero.Gender Segregation, Occupational Aspirations, Children, Socialization, Agency, Personality Traits, Mechanisms, British Household Panel Survey

On-Net/Off-Net Price Discrimination and 'Bill-and-Keep' vs. 'Cost-Based' Regulation of Mobile Termination Rates

This paper surveys the recent literature on competition between mobile network operators in the presence of call externalities and network effects. It shows that the regulation of mobile termination rates based on “long-run incremental costs” increases networks’ strategic incentives to inefficiently set high on-net/off-net price differentials, thus harming smaller networks and new entrants. The paper argues in favor of a “bill-and-keep” system for mobile-to-mobile termination, and presents international evidence in support of this conclusion.mobile termination, network effects, call externalities, bill-and-keep

Foreclosing competition through access charges and price discrimination

This article analyzes competition between two asymmetric networks, an incumbent and a new entrant. Networks compete in non-linear tariffs and may charge different prices for on-net and off-net calls. Departing from cost-based access pricing allows the incumbent to foreclose the market in a profitable way. If the incumbent benefits from customer inertia, then it has an incentive to insist on the highest possible access markup even if access charges are reciprocal and even in the absence of actual switching costs. If instead the entrant benefits from customer activism, then foreclosure is profitable only when switching costs are large enough.Networks; benefits; costs; customer;

Welfare Analysis of Regulating Mobile Termination Rates in the UK (with an Application to the Orange/T-Mobile Merger)

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.telecommunications; regulation; mobile termination rates; network effects; welfare; simulations welfare, simulations

Foreclosing Competition through Access Charges and Price Discrimination

This article analyzes competition between two asymmetric networks, an incumbent and a new entrant. Networks compete in non-linear tariffs and may charge different prices for on-net and off-net calls. Departing from cost-based access pricing allows the incumbent to foreclose the market in a profitable way. If the incumbent benefits from customer inertia, then it has an incentive to insist in the highest possible access markup even if access charges are reciprocal and even in the absence of actual switching costs. If instead the entrant benefits from customer activism, then foreclosure is profitable only when switching costs are large enough.Access Pricing, Entry Deterrence, Interconnection, Network Competition, Two-way Access

Calling vs receiving party pays : market penetration and the importance of the call externality

In this paper we study how the access price affects the choice of the tariff regime taken by the network operators. We show that for high values of the access price, that is taken as a parameter by the firms, networks decide to charge only the callers. Otherwise, for low values of the access charge, networks charge also the receivers. Moreover, we compare market penetration and total welfare between the two price regimes. Our model suggests that, for high values of call externality, market penetration and total welfare are larger in Receiving Party Pays regime when the access charge is close to zero

Mobile Termination and Consumer Expectations under the Receiver-Pays Regime

JEL classification: D43; K23; L51; L96.-- Trabajo presentado a: "2nd Workshop on the Economics of ICTs" celebrado en Portugal en 2011; "European Association for Research in Industrial Economics 38th Annual Conference" celebrada en Suecia en 2011; "European Economic Association and Econometric Society 2011 Parallel Meetings" celebrada en Noruega en 2011.We analyze how termination charges affect retail prices when taking into account that receivers derive some utility from a call and when retail may charge consumers for receiving calls. A novel feature of our paper is that we consider passive self-fulfilling expectations and do not allow for negative reception charges. Firms only charge for receiving calls when the termination charge is below cost. We reconfirm the finding of profit neutrality when firms cannot use termination-based price discrimination. When firms can use termination-based price discrimination profits do depend on the termination charge. When the call externality is strong, firms prefer a below cost termination charge and will use RPP. When the call externality is weak, firms prefer a termination charge above cost. The termination charge that maximizes total welfare is below cost and would induce an RPP regime.Financial support from the Net Institute, http://www.Netinst.org is gratefully acknowledged.Peer Reviewe

Mobile Termination and Consumer Expectations under the Receiver-Pays Regime

We analyze how termination charges affect retail prices when taking into account that receivers derive some utility from a call and when firms may charge consumers for receiving calls. A novel feature of our paper is that we consider passive self-ful filling expectations and do not allow for negative reception charges. We recon rm the finding of pro t neutrality when firms cannot use termination-based price discrimination and show that connectivity is prone to breakdown