Regulators considering if, when, or how to regulate mobile termination (MT) face a multitude of issues and a variety of reference points from other countries. At the same time, the mobile market continues to evolve, 3G networks are being launched and traditional market boundaries become increasingly blurred.
Since the year 2000, mobile network traffic and penetration have increased significantly, prices have fallen, and competition for consumer spending has intensified between fixed, mobile, voice, and data service providers. Simultaneously, guidance for mobile market regulation has introduced a degree of standardisation in the definition of MT monopolies on individual operator networks in ‘calling party pays’ (CPP) regimes. It has also brought about the repeated application of long-run incremental costing (LRIC) principles as the standard for cost-based calculations. Even the simple application of a benchmark is now influenced by the background to the MT rates in other countries – are they cost-based?
These standards of MT regulation have been refined over the last five years. Today’s dilemma is to establish whether these standards are still appropriate and, if so, how to be sure that they can be robustly applied over the next five years. In recent months, we have seen the emergence of three distinct approaches to MT regulation, illustrated in the exhibit, and discussed below.
Figure 1: Three approaches to MT regulation (Source: Analysys Consulting, 2006)
- Established 2G network costing – application of 2G costing methods and medium-term glide path regulation is frequent; however, a single technology model may neglect the reality of today’s complex mobile businesses. Are major differences between market players an issue? What commercial freedom does the glide path give to operators with both old and new networks, or just one mobile technology? Are future uncertainties sufficiently accommodated in demand or network costing assumptions? Is there a valid way of making 2G-based costs reflect impending migration to the next generation?
- The LRIC of future services – as 3G and advanced services become more prevalent, costing mobile services requires a consideration of parallel and independent 3G networks, costs and demand. What are the deployment rules of a 3G network today and in the long run? What extent of cost sharing exists between 2G and 3G networks, and do any costs arise only because of migration? How are LRIC principles, such as the identification of common costs, applied when there are two entwined networks? Is a stand-alone 3G costing more appropriate?
- A new regime – two factors upset conventional cost-based MT regulation and glide path reductions. Firstly, the structural MT monopolies created by a CPP regime do not apply under a ‘mobile party pays’ (MPP) regime. Is there merit in exploring a radical shift to MPP? Secondly, new licensing regimes and new convergent technologies are removing market partitions between fixed and mobile services. What type of regulation should apply?
Mobile markets around the world can be sure that the convergence of the last five years of MT regulation is unlikely to continue indefinitely – the emergence of diverging approaches for different countries is resulting in regulation tailored to the specific requirements of each market. Telecoms operators need to understand the strategic implications of these different approaches to MT, and ensure that regulators are fully aware of the ramifications for the market of each of them.