‘Mobile Termination Charges: Calling Party Pays versus Receiving Party Pays’(original and revised versions)

Concern over mobile termination charges under Calling Party Pays (CPP) has led to severe price controls on termination charges. These are of limited effectiveness in aligning termination charges with costs, net welfare gains from controls are small and costs of setting controls are high. Receiving Party Pays (RPP) avoids these problems. Average revenue (price) per call is significantly lower, average minutes of usage per subscriber are significantly higher, and mobile penetration rate is not significantly different. Handset subsidies seem to be lower in the US (with RPP) than in the UK (with CPP). Regulatory objections to RPP are not justified. However, there is concern about paying to receive calls. A ‘bill and keep’ regime offers the benefits of RPP without this disadvantage. Some mobile operators in RPP countries now offer free incoming calls. Bill and keep enables operators and customers themselves to choose between CPP and RPP.