Alternative Policies | Multiple Bottlenecks and Two-Way Access



Two-way-access policies have historically received little attention in the policy debate, except perhaps for international telecommunications. They are bound, as we have seen, to become more and more prominent over time. The policy debate and the theoretical analysis have by and large focused on particular approaches, namely, those of regulated or privately negotiated determination of reciprocal access charges. While these are reasonable paradigms, others are worth investigating as well. Without any pretense at exhaustive and careful analysis, we record two alternative possibilities.

Making the Receiver Accountable

A striking feature of interconnection frameworks in which the calling network pays the termination charge is that if termination charges are not set reciprocal, call receivers do not internalize an externalitythe termination charge paid by other networksgenerated by one of their decisionstheir choice of network.

Let us entertain the possibility that networks freely set their own termination charges and have call receivers pay the termination charge set by their elected networks (this termination charge being the same for all calls, whether they originate on or off net). Networks would then be unable to "tax" other networks through a high termination charge.

A possible objectionand a standard one for motivating the absence of retail charge on the receiving sideis that call receivers do not like to pay for being called; this is particularly the case for nuisance calls. But there are ways of accommodating this concern. Suppose for example that the call receiver is charged the difference between the termination charge set by his network and a benchmark termination charge (the calling network would then pay the benchmark termination charge). This benchmark termination charge could be derived from a cost model, or else (and perhaps more in line with the idea of using market-determined access charges) be an average of termination charges set by other comparable networks. In this case, the call receiver would pay nothing for receiving calls if this network adopts the benchmark termination charge. Yet, the call receiver would still be fully sensitized to changes in his network's termination charge.

What would be gained and lost relative to the institution of a jointly set reciprocal access charge? The potential benefit is that a network can more easily reflect its termination cost specificity and transmit the corresponding signal to customers. So, for instance, a mobile network with sparse (excess) capacity can translate its marginal cost of termination into a high (low) termination charge. Similarly, a wire-based network would not set the same termination charge as a wireless network. But does this policy bring any benefit? Let us entertain two possible hypotheses concerning the elasticity of demand for terminationthat is, the sensitivity of receiving minutes to a per-minute termination charge imputed to the subscriber.

Suppose first that the subscriber has no control over the volume of calls he receives: His demand for termination is inelastic. The termination charge then has no impact on call termination, and a unit increase in the termination charge is equivalent to an increase in the fixed fee (monthly subscriber charge) equal to the volume of calls received. Note, though, that this impact on the "generalized monthly subscriber charge" is not uniform across consumers. While the payment of a termination charge by the customer has no effect on the volume of calls received, it allows the phone company to have a better measurement of phone usage and thus of the customer's willingness to pay for receiving calls. This knowledge may enable the phone company to engage more effectively in price discrimination (although this discrimination may be complex when the fraction of calls that are nuisance callsand thus do not raise the willingness to pay for being connectedvaries across customers).  For example, customers who mainly receive calls would tend to migrate away from high-termination-cost networks, and this migration would create a socially beneficial reallocation of consumers.

Second, let us assume that the demand for termination is somewhat elastic. In practice, consumers may give their phone number to a restricted set of acquaintances and require that their number be unlisted, and they may abbreviate the calls they receive. Making customers accountable, then, may have costs and benefits. The benefit is that consumers are induced to receive fewer calls and to abbreviate calls when their network's termination cost is high. A potential cost of making customers accountable is that networks would not fully internalize the externality on callers. A network's high termination charge induces its subscribers to abbreviate calls. The externality on callers belonging to the same network is internalized by the network, but not that on callers subscribing to the rival network. We should be careful not to draw conclusions, however, since we have not conducted an analysis of industry behavior in this framework analogous to that developed for reciprocal access charges.


Multiple Terminating Lines

The possibility that not only local networks but the very connection to the customer's home may be duplicated raises new possibilities as well as questions about the likely industry behavior and performance. This point has been known for a while with regard to call origination: For example, a large user can be connected by, and actively subscribe to, two operators, and use real-time least-cost routing to decide which network to use at each instant. But it is evident that similar possibilities arise at the termination level. Suppose that a customer's home is connected both by a telephone company and by a cable company that has upgraded its line to carry telephony. Whether the customer subscribes to one or both networks for originating calls, there is now a potential choice of operators for terminating calls. Networks originating calls, or the receivers themselves if they are charged for call termination, can select the least-cost termination. Again, it would be worth investigating the implications of such competition for termination for industry behavior and performance.

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