Competition and Termination in Cellular Networks

Abstract

A model of competition between two interconnected cellular networks is presented which shows the effects of cellular termination charges on competition and market penetration in the cellular sector. We show that the determination of cellular termination charges is quite different to standard access pricing problems. Higher termination charges lead to more aggresive cellular pricing to attract customers (and thus termination revenue). In a calibrated model, the socially optimal termination charges are nearly three times cost when there is a monopoly fixed-to-cellular provider and almost five times cost when the fixed-to-cellular prices are determined under perfect competition.

JEL Classification: D43, K21, L41, L43, L51, L96