New paper on mobile termination, Ofcom approach

I just spotted an interesting new paper regarding mobile termination rates:

Harbord, David and Pagnozzi, Marco, Network-Based Price Discrimination and ‘Bill-and-Keep’ vs. ‘Cost-Based’ Regulation of Mobile Termination Rates (January 22, 2010).  Review of Network Economics, March 2010.

Available here:  Mobile Termination Rates

Here are two of the money quotes:

A number of arguments against reducing MTRs below marginal cost, or to zero, have received attention in the literature, and been much-aired in recent regulatory debates. These focus on the possibly negative consequences of reducing MTRs for mobile network subscribers considered in isolation, and for mobile subscription, or penetration, rates when network externalities matter. We have shown that these arguments lose much of their force once call externalities, or receiver benefits, are taken into account. Whether a reduction in MTRs will result in an increase or a decrease in welfare and consumer surplus on mobile networks is an empirical question which depends upon the strength of call externalities and the number of firms in the market, amongst other factors. While it is difficult to measure, or observe, the size of call externalities empirically, the evidence we have presented (in Section 3) suggests that they play a significant role in European mobile markets. Arguments that call externalities are likely to be internalized by individuals in stable calling relationships have also been shown to be both unconvincing and inconclusive.

and

Whatever the theoretical predictions, existing empirical evidence suggests that mobile net- works in bill-and-keep countries do not set very high reception charges. Ofcom (2009, Annex 9) presents evidence on sender versus reception charges in the United States, and finds that “all operators for all levels of output charge the same price for both types of calls.” And the recent study by Analysys Mason (2008) found that while all bill-and-keep countries have RPP retail charging regimes, there exist free incoming call plans in each of these jurisdictions, and the relative importance of these appears to increase over time (Analysys Mason, 2008, p. 4). Hence, as an empirical matter, it is unclear that adoption of bill-and-keep would necessarily lead to the imposition of significant reception charges for mobile calls.

I think this was the last Ofcom statement on the timing of its consultation.

Stay tuned…