Low (mobile) termination costs are good for the poor

I've been interested in mobile termination rates for quite a while and I've blogged about it previously. In recent days I've been looking at it again for a variety of reasons and I found some new data, which might are interesting in the debate and that show that low termination rates or no termination rates are beneficial to poor people and to competition in general. I also read this article by Emma Buckland or Analysys Mason, who claims that in developing countries, where almost all mobile users are prepaid, a move to MPP would be even less popular.
But first, what was it all about again.

In most countries in the world, if you call a telephone number, your network will pay some money to the receiving network for the termination of the call. This system is called, Calling Party Pays. The effect is that in those countries the receiving of calls is free. The amount that needs to be paid (termination rate) is often determined by the regulator. If the market would set it, it would result in termination monopolies and as Orange in the The Netherlands once showed, you can raise termination costs without affecting incoming call levels, so it's essentially free money. The height of the termination rate is very contentious. Even more so because many regulators have deemed it right that some networks should receive more than others (asymmetric). Incumbents less than new entrants and mobile more than VoIP and fixed lines. Termination rates can be anywhere between $0.004 cents per minute (India) to $0.20 cents per minute (calling a mobile in Bulgaria). For a nice overview of the EU, see these graphs of the ERG.

There are a few countries that have a system that is known either as Bill and Keep or Receiving Party Pays or Mobile Party Pays. The way this is generally implemented is that the networks of the calling parties do not pay each other at all for the traffic terminated on the other's network. (I don't know of any country that has implemented a system that works like a collect call, where the receiving parties network pays back to the originating parties network) Countries that have this model are the USA, Canada, Sri Lanka, Singapore. There isn't one effect of this model, as in the USA you buy a bucket of minutes and whether it's an incoming or an outgoing call, your bucket is emptied) but in Singapore and Sri Lanka incoming calls are free.

There are many countries who have moved away from this model to CPP (like France and China). Sri Lanka had decided to move to CPP, but reversed that decision after an uproar in the country. So you would expect CPP be better for competition, better for consumers etc. And this is argued by the GSMA. And well, that just isn't true. The exact opposite is the case. Scott Marcus wrote a good comparison of CPP vs Bill and Keep and pointed to the larger amount of minutes of use in BAK countries.


One of the problems with the comparisons between BAK and CPP however is that they are often written in a black and white fashion. The main argument against BAK is that you would have to pay for incoming calls, that no user would/should accept this. Often the argument is used that it is bad for low usage and pre-paid customers as in CPP the operator gets income from their incoming calls too. What isn't done however is to make a comparison between countries with a high termination rate and a low termination rate in CPP countries. It is here that you can see some very interesting developments.

India is the ultimate country when it comes to low termination rates. They are at 20 paise per minute or $0.004/minute. Idea Cellular there reports around 400 minutes of use and an ARPU of $5.70. Interestingly they see a decline in average minutes of use, because of more multi-SIM customers. So an average customer may use more minutes, but on various SIM's. Almost all of these customers are on pre-paid subscriptions. Now contrast this to some other countries in the world.

Telenor in it's quarterly reports gives a good insight into the minutes of use for all of it's countries.
Pakistan has termination rates set at $0.013 per minute.  For Pakistan they give 150 minutes of use on average.

Thailand's termination rates are at around $0.02 per minute. In Thailand there are on average 300 minutes of use.
In Bangladesh the termination rate is at $0.0026 per minute and the Grameen Phone customers call 300 minutes of use.
All three countries aren't rich, but have mobile penetration rates of 30% or more and compound average growth rates of over 50 %, which means that with 2 years they will be above 60% market penetration. 

Now compare this to Telenor's European operations, neither Norway, Denmark or Sweden reach more than 250 minutes of use. Serbia gets 100 minutes of use. What are the termination rates in these countries?
Norway - between $0.08 and $0.14 and 250 mins of use
Denmark - between $0.10 and $0.14 and 200 mins of use
Sweden - $0.06 and 220 mins of use

So the poorer countries in this example have more minutes of use and a lower termination rate. Given the CAGR in the poor countries it can't be said that they don't see an uptake of mobile phone usage. Despite even the fact that in these countries most people use pre-paid mobiles.  All in all to me this implies that there is much to say in favour of decreasing mobile termination rates and maybe to abolish them all together. Also I would expect that developing nations would be in favour of such a move as it becomes clear that the nations with the lowest termination charge are the one's with the highes minutes of use.