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Welfare Analysis of Regulating Mobile Termination Rates in the UK with an Application to the Orange/T-Mobile Merger

David Harbord () and Steffen Hoernig ()

FEUNL Working Paper Series from Universidade Nova de Lisboa, Faculdade de Economia

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; telecommunications; regulation; mobile termination rates; network effects; welfare; calibration 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
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http://fesrvsd.fe.unl.pt/WPFEUNL/WP2012/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) Downloads
Working Paper: Welfare Analysis of Regulating Mobile Termination Rates in the UK (with an Application to the Orange/T-Mobile Merger) (2010) Downloads
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