Impacts of mobile termination rates (MTRs) on retail prices: The implication for regulators

Chatchai Kongaut and Erik Bohlin, both Chalmers University of Technology observe Impacts of mobile termination rates (MTRs) on retail prices: The implication for regulators.

ABSTRACT: Mobile termination rates (MTRs) have been an important issue for regulators and operators in the telecommunications industry. Most regulators, especially the European Commission (EC), have tried to cut MTRs using cost-based regulation in the belief of improving social welfare and encouraging an efficient market. The operators, however, have disagreed and argued that decreasing MTRs can substantially reduce consumer welfare. There is also only a limited number of empirical analyses on the impacts of MTRs. In the new set of up-to-date data from 2006-2011, many countries have continuously reduced their MTRs. This paper therefore aims to enrich the empirical analysis of the impacts of MTRs on retail prices.This paper applies the one-step generalised method of moments (GMM) approach to dynamic panel data. The results support the hypothesis that lower MTRs will reduce consumer retail prices, which is consistent with the EC framework. It is therefore recommended that regulators in the calling party network pays (CPNP) regime reduce MTRs to at least the same level as the operators’ cost to raise overall social welfare, especially consumer welfare. However, the approach by each country can differ depending on its situation.