The basic economic principles of forward-looking cost models apply to both fixed and mobile networks.
However, the importance and types of cost drivers in a mobile network differ from traditional fixed networks. (See Figure 1 for an example of a typical GSM mobile network.)
The costs of both fixed and mobile networks increase with increases in:
- The number of subscribers, and
- The traffic produced by those subscribers.
The costs of a mobile network also increase with coverage — the geographic size of the network. Coverage costs are an example of common costs. They do not increase with the volume units usually considered in wholesale or retail price structures (such as access connections and usage). Accordingly, retail and interconnection prices for mobile usage need to contain mark-ups to recover coverage costs.
For more information see Europe Economics, Cost Structures in Mobile Networks and their Relationship to Prices, Final Report for the European Commission, Contract N. 48544, November 28, 2001 (“European Economics Report”).
Figure 1: Structure of a GSM Mobile System
Source: European Economics Report, page 17.
RELATED INFORMATION
Long-Run Incremental Cost Modelling