According to ZDnet, the ACCC is looking at mobile terminating access service fees (MTAS). These are the charges that one mobile carrier can charge another carrier for terminating a call. So for example, if I ring from Telstra’s network to a friend on Optus’ network, the MTAS fee is the amount that Telstra must pay Optus for transmitting the call on Optus’ network to my friend’s phone.
These fees can require regulatory intervention for a number of reasons. They are not transparent (when I ring my friend’s phone, I have no idea what network he or she is on, far less what the charge is for ringing them) and involve an externality (phone subscribers generally care more about what they pay than what those who call them pay. So it is profitable for a mobile company to raise the termination fees above a ‘competitive level’ and potentially use the revenues to lower subscription charges). Think of it this way. Once you subscribe to a mobile network, and assuming you do not have multiple mobile phones on different networks, your mobile network is a ‘little monopolist’ with regards to terminating calls for those people wanting to call you.
The report suggests that the ACCC may be considering bill-and-keep. This is where the MTAS is set at zero. So each network has an obligation to terminate calls to its customers. This is not a ‘distortion free’ solution but is simple and probably gets close to reflecting marginal cost. The simplicity is a big benefit – no need for complex and costly regulatory reviews every few years.
However, the ZDnet report reflects the old fallacy that bill-and-keep only works when networks are ‘largely symmetrical’. In other words, to have bill-and-keep, networks have to be about the same size so they all terminate about the same number of calls. This is incorrect. I think Philip Williams first pointed this out to me years ago.
To see this, suppose there are 1000 mobile subscribers and two networks. It is sometimes wrongly argued that if there are not ‘around’ 500 consumers on each network then the ‘bigger’ network will terminate more calls than the ‘smaller’ network so that bill-and-keep will be unfair to the bigger network.
To see the mistake here, start with a simple base case where 900 consumers are on network A and 100 on network B. Further, suppose each consumer randomly rings one other mobile subscriber. Then, on average a consumer on network A has a 90% chance of ringing another consumer on network A and a 10% chance of ringing a consumer on network B. So network B will terminate 90 calls on average (900 subscribers on network A times 10%).
A consumer on network B has a 90% chance of ringing a consumer on network A and a 10% chance of ringing a consumer on network B. So network A will terminate 90 calls on average (100 subscribers on network B times 90%).
So the number of terminations is ‘balanced’ regardless of the size of the networks.
Imbalance could arise if one network could target customers who receive more calls than they make. But the starting point for investigating MTAS is that network size does not matter by itself.
- Bill-and-keep is a good idea for dealing with MTAS; but
- Bill-and-keep has nothing to do with ‘symmetric networks’. It has everything to do with good, simple regulation.