Network Competition and Interconnection with Heterogeneous Subscribers

This paper analyses two-way access pricing in a telecommunications market where consumers are heterogeneous in their demand for calls and firms are allowed to use nonlinear tariffs. We first investigate how the presence of access charges affects the tariffs offered by firms in symmetric equilibrium. Next we show that under certain conditions each firm’s profit is independent of the level of (reciprocal) access charge and therefore collusion using access charges is not sustainable. This result suggests that efficient call allocations can be achieved under a minimal regulatory intervention, i.e. recommending firms set access charges equal to call-termination cost.