Roaming the Woods of Regulation: Public Intervention vs Firms Cooperation in the Wholesale International Roaming Market

Despite a general trend of lower charges for mobile calls, prices for international roaming calls have remained at levels surprisingly high. The apparent reluctance of European mobile network operators to lower roaming tariffs is generating many antitrust concerns. This paper discusses in a two country - two firm framework, the distortions associated with the functioning of the current system governing wholesale international roaming agreements based on Inter Operator Tariffs (IOTs) and the role played by cross border roaming alliances between foreign operators. We describe how competition between roaming operators at the wholesale level is influenced by the adoption of traffic redirection techniques. The paper shows that when mobile operators act un-cooperatively and traffic redirection techniques allow only partial control on traffic flows, competition between roaming operators may not guarantee a reduction in IOTs and, consequently, on retail tariffs. We propose a simple and effective regulatory price cap mechanism to restore efficiency in the wholesale market. When mobile operators cooperate within a cross border alliance, internal IOTs are set at cost and retail prices are lower.