Seesaw in the Air: Interconnection Regulation and the Structure of Mobile Tariffs

Information, Economics and Policy (Vol. 23, n. 2, pp. 159-170), 2011

30 Pages Posted: 19 Jan 2016

See all articles by Christos Genakos

Christos Genakos

Cambridge Judge Business School; Athens University of Economics and Business (AUEB); Center for Economic Policy Research (CEPR); Center for Economic Performance (CEP)

Tommaso M. Valletti

Imperial College Business School; Centre for Economic Policy Research (CEPR)

Date Written: August 19, 2010

Abstract

Interconnection rates are a key variable in telecommunications markets. Every call that is placed must be terminated by the network of the receiving party, thus the termination end has the characteristic of an economic bottleneck and is subject to regulation in many countries. This paper examines the impact of regulatory intervention to cut termination rates of calls to mobile phones. We argue that regulatory cuts should have a differential impact according to the type of tariff the mobile customer subscribes to. While all mobile customers may suffer because of a “waterbed” effect, termination rates also affect competition among mobile operators. We show that the waterbed effect is diluted, but not eliminated, for customers with pre-paid cards, where regulation also acts as impediment to “raise-each-other’s-cost” collusive strategies that mobile networks can adopt. The waterbed effect is instead strongest for consumers with post-paid subscription contracts.

Keywords: Mobile telephony, termination rates, two-way access charges, regulation

JEL Classification: L4, L9

Suggested Citation

Genakos, Christos and Valletti, Tommaso M., Seesaw in the Air: Interconnection Regulation and the Structure of Mobile Tariffs (August 19, 2010). Information, Economics and Policy (Vol. 23, n. 2, pp. 159-170), 2011. Available at SSRN: https://ssrn.com/abstract=2717945

Christos Genakos (Contact Author)

Cambridge Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

Athens University of Economics and Business (AUEB) ( email )

76 Patission Street
Athens, 104 34
Greece

HOME PAGE: http://www.aueb.gr/users/cgenakos

Center for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Center for Economic Performance (CEP) ( email )

Houghton Street
London WC2A 2AE
United Kingdom

Tommaso M. Valletti

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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