Further thoughts on charging for mobile calls

In a recently published research paper, "Mobile Termination Charges: Calling Party Pays vs Receiving Party Pays" (April 2004, Cambridge Working Papers in Economics), Stephen Littlechild questions the views of Oftel and the Competition Commission that a move to the US system of charging for mobile calls would not be beneficial, overall, to consumers. In the US, users of mobile phones pay when they receive a call under a system called Receiving Party Pays. This contrasts with the Calling Party Pays system in the UK, where the person making the call pays. The Competition Commission's inquiry into mobile termination charges in 2002 concluded that the Calling Party Pays system used in the UK (and many other countries) gives mobile companies the incentive to increase termination charges (which are not paid by their customers) and to use the revenue to reduce handset prices and the prices of outbound calls (which their customers do pay). This leads to detriment as a result of "over-consumption" of handsets and a lower volume of calls made to mobiles. Paying to receive calls could arguably reduce this incentive and, as Stephen Littlechild argues, could lead to benefits to consumers. The debate is complicated, as can be seen from the paper, and the issues involved have engaged the attention of many economists, including Frontier (London). Frontier's report to Vodafone in 2002 modelled the impact that a move to Receiving Party Pays could have in the UK. It is one of the sources quoted in Professor Littlechild's paper.