European Business Schools Librarian's Group

IESE Research Papers,
IESE Business School

No D/816: Mobile termination and mobile penetration

Sjaak Hurkens () and Doh-Shin Jeon
Additional contact information
Sjaak Hurkens: Institute for Economic Analysis, Postal: IESE Business School. Research Division, Av Pearson 21, 08034 Barcelona, SPAIN
Doh-Shin Jeon: Toulouse School of Economics, Postal: IESE Business School. Research Division, Av Pearson 21, 08034 Barcelona, SPAIN

Abstract: In this paper, we study how access pricing affects network competition when subscription demand is elastic and each network uses non-linear prices and can apply termination-based price discrimination. In the case of a fixed per minute termination charge, we find that a reduction of the termination charge below cost has two oppos- ing effects: it softens competition but helps to internalize network externalities. The former reduces mobile penetration while the latter boosts it. We find that firms al- ways prefer termination charge below cost for either motive while the regulator prefers termination below cost only when this boosts penetration. Next, we consider the retail benchmarking approach (Jeon and Hurkens, 2008)that determines termination charges as a function of retail prices and show that this approach allows the regulator to increase penetration without distorting call volumes.

Keywords: Mobile Penetration; Termination Charge; Access Pricing; Networks; Interconnection; Regulation; Telecommunications

JEL-codes: K23; L51; L96

39 pages, September 1, 2009

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