The mobile termination rate debate in Africa

Abstract

PurposeThis paper aims to demonstrate that call termination is not one side of a two‐sided market and that a “waterbed effect” does not exist for calling‐party's‐network‐pays (CPNP) markets where mobile termination rates are being reduced towards the cost of an efficient operator.Design/methodology/approachThe cases of Namibia, Kenya, South Africa, Nigeria and Botswana are investigated and the impact of cost‐based termination rates on subscriber numbers, investment and profits of dominant operators is analysed.FindingsIn Kenya, the reduction in mobile termination rates in August 2010 led to an immediate reduction in retail prices, allowing smaller operators to compete with dominant operators. In Namibia, lower retail prices led to an expansion of the market, which, in turn, led to higher investment and profits for the dominant operator. On the strength of the most recent empirical evidence from Africa, the paper shows that cost‐based mobile termination rates increase competition between operators and lead to lower prices, more subscribers and more investment in networks and services.Originality/valueThe paper provides empirical evidence for five African countries on impact on regulatory interventions.