Regulating Termination Charges for Telecommunications Networks
Melbourne Business School Working Paper No.2000-13
16 Pages Posted: 22 Oct 2000
Date Written: October 2000
This paper considers the effects of regulating termination for interconnected telecommunications networks. We develop two models, the first that involves fixed market shares and the second, based on the work of Laffont, Rey and Tirole (1998a), which allows for subscriber competition. We show that if a dominant network (i.e., one with the greatest market share) has its termination charges regulated then this will tend to lower the average price of calls. It is also likely to lead to other networks raising their termination charges. If market shares are fixed, then extending termination regulation to non-dominant networks lowers call prices and is unambiguously welfare improving. However, if networks actively compete for subscribers then extending termination charge regulation to a non-dominant network may lead to higher call prices. This is most likely if the non-dominant network has a very low market share relative to the dominant network.
JEL Classification: L41, L96
Suggested Citation: Suggested Citation