Two-way interconnection and the collusive role of the access charge

I show that under network competition with termination-based price discrimination access charges below marginal cost may be used as a collusion device, if the utility of receiving calls is accounted for. This holds even for linear prices and sharply contrasts recent results in the literature suggesting that collusion over the access charge might result in a markup on cost. Moreover, "bill and keep" arrangements may be welfare improving compared with cost-based access pricing.