The Role of Receiver’s Utility in the Mobile Access Market

This paper studies the interconnection between a regulated fixed-line network and competitive mobile networks. Previous literature says that, under the Calling Party Pays(CPP) regime, mobile networks have an incentive to charge monopoly access charges, the profits from which are used to attract their own subscribers. However, taking into consideration the receiver’s utility reduces the mobile networks’incentive for abovecost access charges. I consider this phenomenon a welfare transfer from fixed-line users to mobile users. This paper shows that the welfare transfer is mitigated as mobile networks take into account the receiving-utility of their own subscribers as far as it is positive utility. This welfare effect increases with the size of the receiver’s utility. However, the market outcome is still inefficient because the mobile access charges are not sufficiently low given the receiver’s utility. On the other hand, insofar as the size of the receiver’s utility is unknown to the regulator, the regulatory inefficiency for fixedline access charges is unavoidable under the CPP regime. These results suggest the introduction of a different payment regime into the telecommunications market, to incorporate call externalities and remove access market distortions