This paper considers the issues involved in the regulation of termination services to non-dominant networks. These issues arise in an environment where one or more dominant networks (i.e., those with the greatest market shares) have regulated termination charges.
Given this, the case for regulation of non-dominant networks depends on the strength of substitution between services offered in the industry. If networks\u2019 customer bases are distinct (say because of differing technologies or coverage areas), then regulating all networks termination charges is unambiguously welfare improving. Specifically, regulating non-dominant networks termination charges will lower call prices by increase competition between them.
On the other hand, for networks wh ose services are closer substitutes, the case for regulation depends upon the market share of the non-dominant carrier. When a non- dominant network has a sizeable market share, regulation of its termination charge to the dominant network may reduce call prices overall. However, if a non-dominant network has a very low market share relative to the dominant network, regulating its termination charge may increase call prices.
This suggests that termination services of non-dominant networks should be regulated on similar terms to those of dominant networks; particularly as the latter become more established. This will result in more competitive call pricing.
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