BARGAINING OVER FIXED-TO-MOBILE TERMINATION RATES: COUNTERVAILING BUYER POWER AS A CONSTRAINT ON MONOPOLY POWER

The conventional wisdom that mobile operators are able to actas monopolists in pricing call termination on their networkshas recently been challenged by Hutchison 3G's entry into Europeanmobile markets. The European Commission's electronic communicationsregime allows national regulatory authorities to regulate mobiletermination rates if an operator is found to possess ‘significantmarket power’. This requires that the mobile operatornot be constrained by the ‘countervailing buyer power’of incumbents. The claim that incumbent operators possess countervailingbuyer power has been dismissed repeatedly because of their obligationto interconnect with other networks. This conclusion is erroneous.We analyse bargaining over fixed-to-mobile termination ratesand demonstrate that the existence of an interconnectivity obligationis entirely consistent with new entrants such as Hutchison 3Ghaving no market power at all in pricing call termination ontheir own networks.