Network interconnection with asymmetric networks and heterogeneous calling patterns

Abstract

The paper analyzes network interconnection when subscribers are heterogeneous in their demand for calls. In the two-way interconnection case, an increase in the difference between termination charges affects the average intensity of competition, while an increase in the average termination charge affects the relative intensity of competition for the high and low volume subscribers. If the incumbent is regulated so that it just breaks even, then a reciprocal termination charge is optimal. This reciprocal charge is above the incumbent's cost of access whenever its retail tariff involves subsidizing low volume users.