Mobile call termination

Abstract

We analyse charges levied by mobile telephone networks to deliver calls. We integrate two literatures: one analysing calls from the fixed network, where predicted unregulated termination charges are too high, and one analysing calls from rival mobile networks, where predicted charges are too low. In practice, however, networks adopt uniform charges for terminating both kinds of traffic, as do regulators. We show how incorporating wholesale arbitrage and demand-side substitution helps to reconcile theory with practice. In our framework, the unregulated charge is uniform and typically lies between the efficient and monopoly benchmarks. There remains a rationale for regulation, albeit reduced. © Journal compilation © 2009 by the Royal Economic Society (Registered Charity No. 231508).