Pro-Competitive Regulatory Policies For Post-Paid And Pre-Paid Mobile Phone Markets

Abstract

There are two types of switching costs when users change their mobile operator. The first stems from price discrimination when the network charges a lower price for on-net than for off-net calls. If the majority of the switching user’s contacts are in their current network, this imposes an obstacle to changing the network, since in the new network they would have to pay a higher price for off-net calls. The other switching cost results from the switching user having to inform all their contacts about their new number in the other network. Mobile phone number portability (NP) reduces this switching cost. This paper’s aim is to determine pro-competitive regulatory policies for the post-paid and pre-paid market segments. This distinction is important since the post-paid market dominates in developed countries, while in less developed countries the prepaid market dominates. There are two operators in our model, the incumbent and a new entrant. In the postpaid market, NP reduces the level of market concentration. In the pre-paid market, NP has no impact on the convergence of market shares, and the reduction of access charges (the fee for terminating calls in the rival network) turns out to be a pro-competitive regulatory policy. There is no need for asymmetric access regulation where the incumbent pays higher access charges than the new entrant.