Indirect access to mobile networks: economic effects and policy implications

Abstract

This study investigates the economic effects that may be expected from the introduction of an indirect access (IA) scheme, a potentially effective tool for stimulating competition, into Korea's mobile market. We estimate the changes in consumer surplus and operator's net revenues attributable to the IA system, using actual or estimated market data such as the price elasticity, call traffics, prices and interconnection charges, combined with some competition scenarios. Our results suggest that the increase of consumer surplus by the introduction of an IA scheme would be sizeable, regardless of its type and that is largest under the scheme access charge is regulated on cost-plus basis and mandated for Significant Market Power (SMP) only to provide interconnection service if IA providers (IAP) request.

Notes

¹Weighting by time band, a ratio of 6:3:1 (Lee, 2002b) for nondiscount (normal time, weekdays), discount and midnight was reflected, and the weighting by service provider was calculated based on airtime used in 2005.

²Based on the service-based competition system introduced in Australia, Europe and Japan, the price fall was assumed to be 10% (for all type i).

³As of 2007, the gap in mobile call prices is assumed to be similar to that between early entrants and latecomers of MNOs in Korea.

⁴In the United Kingdom, One.Tel and BT entered the markets with a price discounted by 20% compared with MNOs.

⁵In addition, −0.74 and −1.185 as estimated by Kim (2003) and Lee (2002a) are utilized as supplementary data.

⁶The results of the estimation are annual averages over the 3-year period between 2008 and 2010.