Mobile Termination Charges: Calling Party Pays versus Receiving Party Pays

Abstract

There has been widespread concern at the level of mobile termination charges, leading to increasingly severe price controls. Oftel and the Competition Commission identified the Caller Pays Principle (CPP) as the source of the market power that enabled termination charges to be set above cost. Both accepted that the alternative Receiver Pays Principle (RPP) would solve the monopoly problem, but rejected it primarily because RPP might lead to significant numbers of users switching off their mobile phones. Evidence from RPP countries is consistent with RPP solving market power problems. CPP is almost certainly less efficient than RPP. US and other evidence suggests that the argument about customers switching off phones is not tenable. If the aim is efficient resource allocation, undistorted by excessive termination charges and subsidised handsets, to be achieved by competition rather than price controls, then RPP is preferable to CPP.