Does size of network matter for off-net prices and customer attraction? the Swedish mobile phone market

Abstract

This article empirically examines the network effects caused by termination-based price discrimination in the Swedish mobile phone market. In addition, the paper examines whether the off-net price is determined by the size of the Swedish mobile phone network. Two econometric models have been developed to show (a) that incumbents can use size of network together with termination-based price discrimination as a successful strategy to compete with their rivals, (b) that the determinant factors for setting high off-net prices are size of network and method of calculating termination rate. The empirical models use secondary data from the Swedish telecom regulator between 2003 and 2009. The results reveal that incumbents can utilize size of network together with termination-based price discrimination for attracting new customers. Furthermore, off-net prices of mobile phone are significantly determined by size of network and method of calculating termination rate. The bill-and-keep interconnection model should be considered in order to reduce the dominant position of incumbents.