Competition, Essential Facilities, Bottlenecks and the Pricing of Mobile Phone Service

Abstract

Two mobile service pricing frameworks have developed around the world, calling party pays (CPP) and mobile party pays (MPP). With CPP, a wireline customer is billed for placing a call to a mobile phone, and there is no charge to the mobile customer for receiving the call. The mobile customer is charged for placing a call, and there is no charge to the receiving party, wireline or mobile. In contrast, with MPP the mobile customer pays for both incoming and outgoing calls, and there is no charge to a mobile or wireline customer for placing calls to or receiving calls from a mobile customer other than those normally associated with placing a call from a mobile or wireline phone or receiving a call on a mobile phone.

This paper provides an analysis of the competition and monopoly issues behind the CPP and MPP regimes and offers the tools to understand if regulation is needed under each of the two pricing frameworks and, if so, over what specific prices and under what conditions. To do so, one begins with an analysis of what competition means for mobile service. This continues with the distinction between an essential facility and a bottleneck and the application of these concepts to mobile service in order to understand more completely the reasons for the different pricing outcomes that result under CPP and MPP. The general theoretical framework of essential facilities, bottlenecks, and market power offers particular insight into the specific case of mobile termination rates. The paper also identifies regulatory interventions in selected jurisdictions aimed at the control of mobile termination charges and assesses those measures using the concepts of an essential facility and a monopoly bottleneck.

Keywords: mobile termination, mobile pricing, price regulation, telecommunications

JEL Classification: L12, L51, L96