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Handset subsidies are prominent in many mobile markets, and are often justified on the basis of network externalities arising from new subscribers joining with a benefit to existing subscribers in addition to their private valuation. An associated argument is that a tax on termination to fund these subsidies is justifiable. However, the external benefits from new subscriptions are likely to be minimal...
Without regulation, market power in mobile termination is likely to result in mobile termination rates (MTRs) in excess of costs and cross-subsidised prices for mobile subscription/handsets. Mobile network operators (MNOs) argue that subsidisation is efficient, being justified by, inter alia, a network externality on new mobile subscriptions. However, especially in mature markets, the argument here...
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