On Regulating Mobile Termination Rates in the UK and the Orange/T-Mobile Merger

“Welfare Analysis of Regulating Mobile Termination Rates in the UK by David Harbord and Steffen Hoernig. Published in The Journal of Industrial Economics, 63: 673–703, 31 December 2015.

Abstract: We develop a calibrated simulation model of the UK mobile telephony market and use it to analyze the e¤ects of reducing mobile termination rates (MTRs) as recommended by the European Commission. We fi…nd that reducing MTRs is likely to increase both consumer surplus and networks’’ profi…ts. Depending on the strength of call externalities (i.e. benefi…ts to the recipient of a call), social welfare may increase by as much as £ 1 billion to £ 4.6 billion per year. We also use the model to estimate the welfare effects of the 2010 merger between Orange and T-Mobile and …find that the merger led to a substantial reduction in consumer surplus.

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