LAW & ECONOMICS: MOBILE TERMINATION CHARGES - ON-NET/OFF-NET PRICE - DISCRIMINATION - RETAIL MARKETS - ECONOMIC MECHANISMS - SQUEEZE TESTS

Termination charges and margin squeeze in the mobile telephony sector: Beware of misleading intuitions

In recent publications and decisions, regulators and competition authorities repeatedly expressed their fear that the combination of mobile termination charges and on-net/off-net price discrimination in retail markets might allow a dominant mobile operator to hinder the development of smaller competitors. However, many of the intuitions underlying this fear are misguided. A proper assessment should take into consideration a broad set of complex economic mechanisms and should not be based on any systematic presumption. In particular, squeeze tests should take into account the actual functioning of competition in mobile telephony and should not be too narrow, lest they be devoid of any economic significance.

1. Termination charges in mobile telephony have received a lot of attention lately, from academic economists, sectoral regulators and competition authorities. On May 7, 2009, the European Commission published the Commission Recommendation on the Regulatory Treatment of Fixed and Mobile Termination Rates in the EU, together with a detailed explanatory note, which followed a lengthy consultation process in which most telecommunication companies had participated. Similarly, the European Regulators' Group released in 2008 a very detailed document on the somewhat narrower (but important) issue of symmetry of termination rates. Also, several recent and ongoing Article 82 cases revolve around the interplay between termination charges and the retail prices set by large mobile operators. In

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David Spector, Termination charges and margin squeeze in the mobile telephony sector: Beware of misleading intuitions, September 2009, Concurrences Review N° 3-2009, Art. N° 26614, pp. 35-38

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