Did Asymmetric Mobile Termination Rates Help Entrants Gain Market Share?

2 The Criterion Journal on Innovation 701 (2017)

22 Pages Posted: 29 May 2018

See all articles by J. Gregory Sidak

J. Gregory Sidak

Criterion Economics, L.L.C.

Andrew Vassallo

Shippensburg University

Leonard Sabetti

Government of Canada - Bank of Canada

Date Written: 2017

Abstract

Regulators in many countries have asserted that setting asymmetric mobile termination rates (MTRs) between the incumbent mobile telephony operator and its smaller rivals is an efficacious means by which to help entrants attain efficient scale. We investigate empirically the efficacy of this policy experiment using data from a global sample of 34 countries from 1996 through 2014. We estimate a model that relates operators’ long-run market shares to initial entry conditions and the degree of asymmetry among MTRs using an instrumental variables (IV) strategy. The estimates imply that a high degree of asymmetry among MTRs lowers an entrant’s long-run market share by roughly 4 percentage points compared with a regime of symmetric MTRs, and the effect is roughly constant across market penetration levels. Furthermore, mobile operators tend to perform better when entering markets with higher levels of concentration and lower levels of market penetration. Our novel findings cast doubt on the efficacy of imposing asymmetric MTRs as a means to achieve greater equality of competitive outcomes. Our findings inform the larger body of theoretical literature on the pricing of interconnection and network access.

Keywords: Mobile Termination Rates, MTRs, Telecommunications, Telecoms

Suggested Citation

Sidak, J. Gregory and Vassallo, Andrew and Sabetti, Leonard, Did Asymmetric Mobile Termination Rates Help Entrants Gain Market Share? (2017). 2 The Criterion Journal on Innovation 701 (2017). Available at SSRN: https://ssrn.com/abstract=3179162 or http://dx.doi.org/10.2139/ssrn.3179162

J. Gregory Sidak (Contact Author)

Criterion Economics, L.L.C. ( email )

1717 K Street, N.W.
Washington, DC 20006
United States
(202) 518-5121 (Phone)

HOME PAGE: http://www.criterioneconomics.com

Andrew Vassallo

Shippensburg University ( email )

Shippensburg, PA 17257
United States

Leonard Sabetti

Government of Canada - Bank of Canada ( email )

234 Wellington Street
Ontario, Ottawa K1A 0G9
Canada

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