MTRs and Cost Modelling
The setting of regulated Mobile Termination 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.
A GSMA report, The setting of mobile termination rates: best practice in cost modelling (pdf), highlights the key issues that regulators 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.
While no real consensus has emerged across the industry, certain areas of best practice have been identified, 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
- Cuts in MTRs 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 to provide regulators and operators with cost estimates, especially in the developing world.
The GSMA believes 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.
To download a copy of the report, please complete the form below:
