Welfare analysis of regulating mobile termination rates in the UK with an application to the Orange/T-Mobile merger

David Harbord and Steffen Hoernig

Nova SBE Working Paper Series from Universidade Nova de Lisboa, Nova School of Business and Economics

Abstract: We present a calibrated model of the UK mobile telephony market with four mobile networks; calls to and from the fixed network; network-based price discrimination; and call externalities. Our results show that reducing mobile termination rates broadly in line with the recent European Commission Recommendation to either "pure long-run incremental cost"; reciprocal termination charges with fixed networks; or "Bill & Keep" (i.e. zero termination rates), increases social welfare, consumer surplus and networks' profits. Depending on the strength of call externalities, social welfare may increase by as much as 990 million to 4.5 billion per year, with Bill & Keep leading to the highest increase in welfare. We also apply the model to estimate the welfare effects of the 2010 merger between Orange and T-Mobile under different scenarios concerning MTRs, and predict that consumer surplus decreases strongly.

Keywords: Telecommunications; regulation; mobile termination rates; network effects; welfare; calibration (search for similar items in EconPapers)
JEL-codes: D43 L13 L51 L96 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2012
New Economics Papers: this item is included in nep-com, nep-eur, nep-ind, nep-net and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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https://run.unl.pt/bitstream/10362/11165/1/wp571.pdf

Related works:
Working Paper: Welfare Analysis of Regulating Mobile Termination Rates in the UK (with an Application to the Orange/T-Mobile Merger) (2010)
Working Paper: Welfare Analysis of Regulating Mobile Termination Rates in the UK (with an Application to the Orange/T-Mobile Merger) (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:unl:unlfep:wp571

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