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Apparently, if you make it more expensive to call somewhere, people are less likely to call that place. Obvious, you’d think, but empirical evidence is always welcome, and on Friday the Organization for Economic Cooperation and Development (OECD) produced just that.
Termination rates are the fees that Carrier B charges Carrier A to connect an incoming call from A’s network. The higher they are, the more Carrier A needs to charge its customers to call someone on Carrier B’s network. In a report about international traffic termination rates, the OECD said the evidence showed that high, non-market-based rates suppress demand. This is usually the result of a government mandating minimum termination rates, thereby “entirely eliminating the role of competition.”
What’s more, the countries that restrict the market’s ability to establish low termination rates are often the ones whose citizens have moved around the world – African countries such as Benin and Senegal come in for particular criticism – meaning the ones getting hurt include both the operators at home and the diaspora citizens in countries such as the U.S., who must pay more to call home.
The OECD is an international economic cooperation group of 34 countries, mostly European but also including the U.S., Australia, Canada, Israel, Turkey, Japan, South Korea, Mexico and Chile.
According to a blog post accompanying the report:
The report finds empirical evidence that imposing mandatory higher charges for the completion (termination) of international inbound traffic suppresses demand. Moreover, governments that impose higher termination charges do not see their revenues increase proportionately. Traffic into Pakistan for example has plummeted over the past two years following the creation of a cartel for international telephone calls.”
This chart shows the difference between India, where termination rates have fallen and inbound traffic has exploded, and a sample of African countries, where termination rates have risen and inbound traffic has remained more or less static:
That’s covering the period from 2003–2011, when the number of mobile phones in use shot up in both India and the relevant African countries.
Interestingly, while carriers love to complain about how lower termination rates hurt their revenues, the report found this:
Between 2009-2011, African countries that did not raise termination rates received 36% more termination revenue per line than those that did. Where rates were raised, not only were there fewer calls, they were shorter.
Again, you’d think all of this would be obvious, but: “Unfortunately, the number of countries that have raised termination rates in recent years, by eliminating competition, is expanding.” Perhaps the regulators in those countries should have a look at the stats, then.