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Regulating Termination Charges for Telecommunications Networks

Author

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  • Joshua S. Gans

    (Melbourne Business School, University of Melbourne, 200 Leicester Street, Carlton, VIC 3053. Email: J.Gans@unimelb.edu.au)

  • Stephen P. King

    (Melbourne Business School, University of Melbourne, 200 Leicester Street, Carlton, VIC 3053)

Abstract

This paper considers the effects of regulating termination for interconnected, but otherwise unregulated, 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.

Suggested Citation

  • Joshua S. Gans & Stephen P. King, 2002. "Regulating Termination Charges for Telecommunications Networks," Australian Journal of Management, Australian School of Business, vol. 27(1), pages 75-86, June.
    • Handle: RePEc:sae:ausman:v:27:y:2002:i:1:p:75-86
    DOI: 10.1177/031289620202700104
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    References listed on IDEAS

    as
    1. Gans, Joshua S. & King, Stephen P., 2000. "Mobile network competition, customer ignorance and fixed-to-mobile call prices," Information Economics and Policy, Elsevier, vol. 12(4), pages 301-327, December.
    2. Gans, Joshua S. & King, Stephen P., 2001. "Using 'bill and keep' interconnect arrangements to soften network competition," Economics Letters, Elsevier, vol. 71(3), pages 413-420, June.
    3. Milgrom, Paul & Roberts, John, 1990. "Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities," Econometrica, Econometric Society, vol. 58(6), pages 1255-1277, November.
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