Cost Modelling Report
 The setting of regulated Mobile Terminating Rates (MTRs) is a complex and involved task which is likely to require detailed costing analysis and careful consideration of the welfare and competition effects of regulatory intervention.
Given the complexity of the analysis required to answer that question, it is not surprising that National Regulatory Authorities (“NRAs”) and operators have considered and developed a wide variety of approaches and analytical frameworks without a real consensus emerging across the industry, although certain areas of common practice have emerged as highlighted in this report.
This report highlights the key issues that NRAs and operators should consider both with respect to how to estimate the cost of terminating a call on a network and how the calculated cost should feed into a pricing decision. In detailing the key issues, where relevant, we provide our opinion as to what we believe constitutes best practice, although in many cases, best practice will be determined by the particulars of the country in which termination rates are being assessed.
This report seeks to contribute to a constructive debate around the principles that should be followed when setting termination rates, and will provide NRAs and operators with guidelines as to how they should go about assessing MTRs. The setting of MTRs is best achieved in a transparent consultative process that includes the NRA, operators and other interested stakeholders.
Key findings
Our analysis of the key issues highlights the complexity of the issues that need to be considered, and in some cases, the lack of clear best-practice either in terms of theory or application. However, there are some areas where best practice has emerged including:
- The use of a hybrid model,
- The use of economic depreciation,
- The use of a forward looking model incorporating historic data as a sense check,
- Allocation of costs between services based on routing factors,
- Networks are assumed to be efficient in competitive markets,
- MTRs should be based on the technologies in use, e.g. 2G migrating to 3G, and
- Cuts in MTR need to be passed on to the end user if they are to have the desired effect.
There are some publicly available cost models, notably the World Bank model and the COSITU model that have been used, especially in the developing world, to provide NRAs and operators with cost estimates. We believe these models are not appropriately specified and should not be relied upon for the purposes of setting MTRs.
We believe the best way to set MTRs is to engage in a detailed consultative process, with sufficient time given to consider all the key issues that are discussed in this report.
Download the GSMA report on the principles that should be followed when setting Mobile Termination Rates
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