There is no a unique treatment of mobile termination charges among countries. Some countries only regulate mobile termination charges for fixed-to-mobile calls. In other countries, mobile networks are required to apply a single regulated termination charge regardless of where the call originates.
This section discusses:
Calling Party Pays
Under Calling Party Pays (CPP) the calling party, or the calling party's network, pays for the call. The recipient of the call pays nothing.
CPP is used in many countries to structure interconnection payments for fixed-to-mobile calls. Under the "old" CPP model, the mobile operator sets a fixed-to-mobile tariff. The fixed operator deducts specified charges from this fee (such as an origination charge, and billing and collection charges), and passes the balance of the call revenue to the mobile operator.
In recent years, some regulators have decided to regulate fixed-to-mobile tariffs, rather than leaving this to the mobile operator to determine. This generally reflects concerns that fixed-to-mobile tariffs are too high. This concern has also led regulators to control mobile termination charges.
Receiving Party Pays (Mobile Party Pays)
A minority of countries, predominately developed countries such as the United States, use a system of receiving party pays or mobile party pays for interconnection with mobile operators. Under this system, the mobile user pays airtime on received calls as well as calls that user has initiated. This reduces the problem of setting interconnection charges to defining the costs of just the link between two networks, which generally is low and easily defined. Thus, countries using receiving party pays have largely avoided the problem of high mobile termination charges. This is a definite advantage of the receiving party pays system. Since a receiving party pays system requires the mobile user to pay directly for network usage on the mobile network, its main disadvantage is that it makes it difficult commercially to extend service to mobile users with very low income levels, precisely where the calling party pays system has been most successful.
Regulation of Mobile Termination Rates
Regulation of fixed-to-mobile rates and/or mobile termination charges is usually justified on the basis that those prices are "too high" compared to a cost-based estimate, or to prices for outgoing mobile calls.
The premise is that mobile operators are able to sustain high fixed-to-mobile prices because they have market power in setting prices for fixed-to-mobile calls. This market power derives from that fact that the fixed subscriber who places a call to a mobile subscriber has no influence over which mobile network is used. Mobile subscribers make this decision when they decide to join a network. Under Calling Party Pays mobile subscribers do not pay for fixed-to-mobile calls, so they may not take the price of these calls into account in selecting a network.
Many regulators now control mobile termination charges. There are several forms of such regulation:
- International benchmarking: In the absence of cost based data, regulators are increasingly relying on international benchmarking to set regulated mobile termination charges in their own countries,
- Rounding: Some regulators have introduced regulations requiring mobile operators to round each call to a lower unit of charging (for example rounding to the second when the charging unit is to the minute). The effect of this requirement is to reduce revenue from mobile termination,
- Cost-based termination charges: Regulators are increasingly pressuring operators to base mobile termination charges on long run incremental costs or fully allocated costs.
Other Pressures to Reduce Mobile Termination Rates
Market forces are also pushing down CPP rates and mobile termination charges. For example users are increasingly substituting mobile-to-mobile calls for fixed-to-mobile calls, creating additional pressure on mobile operators to reduce fixed-to-mobile rates and mobile termination charges.
United States international carriers, supported by the United States Government, are pressuring developing country operators to reduce international mobile termination rates. Because United States carriers are net exporters of telephone traffic to developing countries, a reduction in mobile termination charges would reduce their net interconnection payments to foreign operators.
RELATED INFORMATION
Pricing Principles
Retentions for Fixed-to-Mobile Calls