BARGAINING OVER FIXED-TO-MOBILE TERMINATION RATES: COUNTERVAILING BUYER POWER AS A CONSTRAINT ON MONOPOLY POWER
The conventional wisdom that mobile operators are able to act as monopolists in pricing call termination on their networks has recently been challenged by Hutchison 3G's entry into European mobile markets. The European Commission's electronic communications regime allows national regulatory authorities to regulate mobile termination rates if an operator is found to possess ‘significant market power’. This requires that the mobile operator not be constrained by the ‘countervailing buyer power’ of incumbents. The claim that incumbent operators possess countervailing buyer power has been dismissed repeatedly because of their obligation to interconnect with other networks. This conclusion is erroneous. We analyse bargaining over fixed-to-mobile termination rates and demonstrate that the existence of an interconnectivity obligation is entirely consistent with new entrants such as Hutchison 3G having no market power at all in pricing call termination on their own networks.
* Professor of Economics, University College London. Email k.binmore{at}ucl.ac.uk.
** Director, Market Analysis Ltd, Oxford. Email dharbord{at}market-analysis.co.uk. This article is based on research undertaken for Hutchison 3G UK Ltd. The views expressed are the authors' alone. We thank Matthew Cherry (H3G UK), Richard Feasey (Vodafone), Angel Hernando-Veciana (University of Alicante), Keith Jones (Baker and McKenzie), Julian Keeley (O2), Tim Lord (H3G UK), Simon Persoff (Wanadoo UK), and Georg von Graevenitz (University of Munich) for useful comments and discussions.